diff --git a/raw/aaer/2008/AAER-2763.txt b/raw/aaer/2008/AAER-2763.txt new file mode 100644 index 0000000000000000000000000000000000000000..a9036403163bc0b01408535d951cb912d567a64b --- /dev/null +++ b/raw/aaer/2008/AAER-2763.txt @@ -0,0 +1,1397 @@ + + + + + + + + + + + + + + + + SEC.gov | James E. Koenig + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502661","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Koenig + + + + + + + + + + + + James E. Koenig + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20420 / January 3, 2008 + + Accounting And Auditing Enforcement Release No. 2763 / January 3, 2008 + + Securities and Exchange Commission v. James E. Koenig , Civil Action No. 02 C 2180 (N.D. Ill. Dec. 21, 2007) (Judge Andersen). + + Final Judgment Entered Against James E. Koenig, Former CFO of Waste Management, Inc. + + On December 21, 2007, the United States District Court for the Northern District of Illinois entered final judgment against defendant James E. Koenig, the former CFO of Waste Management, Inc. after a jury found that he committed 60 securities laws violations in a five-year period. The final judgment follows an 11-week jury trial in 2006 that resulted in a verdict in the SEC's favor against Koenig on all charges. The jury found Koenig liable for securities fraud, falsifying company books and records, lying to auditors, and aiding and abetting the company's violations. + + The final judgment, which followed a two-day bench trial on remedies before U.S. District Court Judge Wayne R. Andersen, permanently bars Koenig from acting as an officer or director of a public company, enjoins him from future violations of the antifraud and other provisions of the federal securities laws, and requires him to pay more than $4 million in disgorgement, prejudgment interest, and civil penalties. + + The Commission alleged in its complaint that, beginning in 1992 and continuing into 1997, Koenig and others engaged in a systematic scheme to falsify and misrepresent Waste Management's financial results with profits being overstated by $1.7 billion. According to the complaint, the scheme was accomplished through false and misleading disclosures and a variety of non-GAAP accounting practices designed to defer current period expenses whenever possible. For example, the company manipulated its calculation of depreciation expense by repeatedly extending the useful lives and overstating the salvage value of its trucks and containers, thus reducing periodic depreciation expenses. The company also failed to write off impaired assets carried on its balance sheet, improperly capitalized interest and other current period expenses, understated its income tax expenses, under-accrued reserves, misapplied acquisition accounting principles, and improperly reversed reserves into income. All of these practices boosted current period earnings by reducing current period expenses. The fraud resulted in a restatement in February 1998, which at the time was the largest restatement in history. + + On December 3, 2007, the Court issued a memorandum opinion and order that set forth the findings that formed the basis for the final judgment. See SEC v. Koenig, 2007 WL 4277439 (N.D. Ill. Dec. 3, 2007). The judgment permanently bars Koenig from acting as an officer or director of a public company and enjoins him from violating, or aiding and abetting violations of, Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, and 13a-13 promulgated thereunder, and Section 17(a) of the Securities Act of 1933. The judgment additionally enjoins Koenig from aiding and abetting violations of Section 13(b)(2)(A) of Exchange Act, and from violating Exchange Act Rules 13b2-1 and 13b2-2. The judgment also requires Koenig to pay $4,156,034 in total, comprised of $831,500 in disgorgement for Koenig's ill-gotten earnings-based performance bonuses, together with prejudgment interest thereon in the amount of $1,246,517, and a civil penalty in the amount of $2,078,017. + + Previously, the Commission reached settlements with the Company's outside public accountants Arthur Andersen, and four of its former partners. Settlements were also reached in litigation with the founder and four other top officers of Waste Management. Additional information concerning this action and Commission actions related to this matter can be found at: + + + SEC v. Buntrock , et al., Civil Action No. 02-C-2180 (N.D. Ill. March 26, 2002) (Andersen, J.) [Release No. LR-17435] (March 26, 2002) + + SEC v. Arthur Andersen LLP , et al., No. 1:01CV01348 (JR) (D.D.C.) [ Release No. LR-17039 ] (June 19, 2001); + + In the Matter of Arthur Andersen, LLP , [Release No. 34-44444] (June 19, 2001); + + In the Matter of Robert E. Allgyer, CPA , [Release Nos. 33-7986, 34-44445] (June 19, 2001); + + In the Matter of Edward G. Maier, CPA , [Release Nos. 33-7987, 34-44446] (June 19, 2001); + + In the Matter of Walter Cercavschi, CPA , [Release Nos. 33-7988, 34-44447] (June 19, 2001); + + In the Matter of Robert G. Kutsenda, CPA , [Release No. 34-44448] (June 19, 2001); + + SEC v. Buntrock, et al. , Civil Action No. 02-C-2180 (N.D. Ill.) (Andersen, J.) [ Release No. LR-18913 ] (September 30, 2004); and + + SEC v. Buntrock, et al. , Civil Action No. 02-C-2180 (Andersen, J.) [ Release No. LR-19351 ] (Aug. 29, 2005). + + + + + + + + SEC Complaint in this matter --> + +   + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2764.txt b/raw/aaer/2008/AAER-2764.txt new file mode 100644 index 0000000000000000000000000000000000000000..4bc258b4315377f020885dd07436915bd453dd44 --- /dev/null +++ b/raw/aaer/2008/AAER-2764.txt @@ -0,0 +1,123 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57091 / January 3, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2764 / January 3, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12919 +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +DANIEL J. SKRYPEK, 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 Daniel +J. Skrypek (“Respondent” or “Skrypek”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules +of Practice.1 +II. +In anticipation of the institution of these proceedings, Skrypek 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, Skrypek consents to the entry 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. +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. Skrypek, age 34, is and has been a certified public accountant licensed to +practice in the State of Minnesota. From 1999 until his termination on March 14, 2005, he served +as Controller of Buca, Inc. (“Buca”). From 2001 until 2005, Skrypek also acted as a vice president +of Buca. In addition, Skrypek was Buca’s interim CFO from February 15, 2005 until March 14, +2005. +2. Buca was, at all relevant times, a Minnesota corporation with its principal +place of business in Minneapolis, Minnesota. Buca is the holding company for the Buca di Beppo +restaurant chain. Buca conducted an initial public offering of its stock in 1999. Since Buca’s +initial public offering, its common stock has been registered pursuant to Section 12(g) of the +Securities Exchange Act of 1934 (“Exchange Act”) and traded on NASDAQ. +3. On June 7, 2006, the Commission filed a complaint against Skrypek in the +civil action entitled Securities and Exchange Commission v. Greg A. Gadel and Daniel J. Skrypek, +Civil Action Number 06-cv-2320, in the United States District Court for the District of Minnesota. +On December 21, 2007, the court entered a final judgment against Skrypek, permanently enjoining +him from future violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”), +Sections 10(b), 13(b)(5), and 14(a) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, 14a-3, +and 14a-9 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and +13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The final +judgment also prohibited Skrypek from acting as an officer or director of any issuer that has a class +of securities registered pursuant to Section 12 of the Exchange Act, or that is required to file +reports pursuant to Section 15(d) of the Exchange Act, for a period of five years after entry of the +final judgment. +4. The Commission’s complaint alleged, among other things, that Skrypek +participated in a course of conduct which resulted in Buca filing materially false and misleading +financial statements in the company’s annual reports on Form 10-K for the fiscal years ended +2000, 2001, 2002, and 2003, and in the company’s quarterly reports for all four quarters in fiscal +years 2000 through 2003 and the first three quarters of fiscal year 2004. The complaint alleged +that Skrypek facilitated Buca’s engaging in improper accounting practices that materially increased +its pre-tax income, which was a departure from Generally Accepted Accounting Principles +(“GAAP”), including improperly capitalizing expenses. The complaint also alleged that Skrypek +failed to ensure the disclosure of two related party transactions involving Buca’s Chief Executive +Officer and a series of related party transactions in which Buca’s Chief Financial Officer was +involved. The complaint further alleged that Skrypek signed management representation letters on +behalf of Buca that provided false and misleading information to Buca’s auditors concerning the +2 + +company’s financial statements. In addition, the complaint alleged that Skrypek was involved in +drafting proxy statements that materially understated the compensation of Buca’s Chief Executive +Officer and Chief Financial Officer. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Skrypek’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Skrypek is suspended from appearing or practicing before the Commission as an +accountant. +B. After five (5) years from the date of this Order, Skrypek 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 Skrypek’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) Skrypek, 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) Skrypek, 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) Skrypek 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) Skrypek 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. +3 + +C. The Commission will consider an application by Skrypek 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 Skrypek’s character, +integrity, professional conduct, or qualifications to appear or practice before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +4 diff --git a/raw/aaer/2008/AAER-2765.pdf b/raw/aaer/2008/AAER-2765.pdf new file mode 100644 index 0000000000000000000000000000000000000000..dfd088f4dc6c8b1159f996e3a8d66bee9cc61f40 Binary files /dev/null and b/raw/aaer/2008/AAER-2765.pdf differ diff --git a/raw/aaer/2008/AAER-2766.txt b/raw/aaer/2008/AAER-2766.txt new file mode 100644 index 0000000000000000000000000000000000000000..97ae695ccf55b30b662262080800b5f80c763136 --- /dev/null +++ b/raw/aaer/2008/AAER-2766.txt @@ -0,0 +1,86 @@ +UNITED STATES OF AMERICA + Befo re the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57102 / January 4, 2008 +INVESTMENT ADVISERS ACT OF 1940 +Release No. 2691 / January 4, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2766 / January 4, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12924 +In the Matter of +SANTO C. MAGGIO, +Respondent. +ORDER INSTITUTING +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO SECTION 15(b) OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND 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 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Section 203(f) of the +Investment Advisers Act of 1940 (“Advisers Act”) against Santo C. Maggio (“Maggio” 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, and the findings contained in Section III.2. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 15(b) +of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, +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. Maggio, age 56, a resident of Naples, Florida, was a registered representative +associated with Refco Securities, LLC, a registered broker-dealer, from May 1985 to October 2005. +From 1991 to October 2005, Maggio was the President and Chief Executive Officer of Refco +Securities. From May 1999 to August 2005, Maggio was a director of Forstmann-Leff Associates +LLC and FLA Asset Management LLC, both of which were registered as investment advisers with +the Commission. At all relevant times, Maggio held a Series 7 general securities license as well as +Series 3, 4, 24, and 63 licenses. He is not currently associated with any regulated entity. +2. On December 28, 2007, a final judgment was entered by consent against +Maggio, permanently enjoining him from future violations of Section 17(a) of the Securities Act of +1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act +Rules 10b-5, 13b2-1, and 13b2-2(a) and from aiding and abetting violations of Sections +13(b)(2)(A) and 15(d) of the Exchange Act and Exchange Act Rules 15d-2 and 15d-13, in the civil +action entitled United States Securities and Exchange Commission v. Santo C. Maggio, Civil +Action Number 07-cv-11388, in the United States District Court for the Southern District of New +York. +3. The Commission’s complaint in that action alleged, among other things, +that from at least 1998 to October 2005, Maggio engaged in fraudulent conduct that repeatedly +concealed, at the end of Refco fiscal periods, hundreds of millions of dollars of related party +receivables owed to Refco Group Ltd. or its successor entity Refco Inc. (together “Refco”). The +receivables were owed to Refco by an entity controlled by Refco’s Chairman and Chief Executive +Officer. In addition, the complaint alleged that, in 2004 and 2005, Maggio engaged in conduct that +artificially inflated Refco’s results of operations. As a result of this conduct, Refco provided false +and materially misleading information in registration statements and other reports it filed with the +Commission and provided to investors. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanctions agreed to in Respondent Maggio’s Offer. +2 + +Accordingly, it is hereby ORDERED: +Pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, +that Respondent Maggio be, and hereby is barred from association with any broker, dealer, or +investment adviser; +Any reapplication for association by the Respondent will be subject to the applicable laws +and regulations governing the reentry process, and reentry may be conditioned upon a number of +factors, including, but not limited to, the satisfaction of any or all of the following: (a) any +disgorgement ordered against the Respondent, whether or not the Commission has fully or partially +waived payment of such disgorgement; (b) any arbitration award related to the conduct that served +as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a +customer, whether or not related to the conduct that served as the basis for the Commission order; +and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct +that served as the basis for the Commission order. + By the Commission. + N ancy M. Morris + S ecretary +3 diff --git a/raw/aaer/2008/AAER-2767.txt b/raw/aaer/2008/AAER-2767.txt new file mode 100644 index 0000000000000000000000000000000000000000..020a01fbce52fb3020141966fd2d609b4c9e2a4a --- /dev/null +++ b/raw/aaer/2008/AAER-2767.txt @@ -0,0 +1,1373 @@ + + + + + + + + + + + + + + + + SEC.gov | Chancellor Corporation, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502691","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Chancellor Corporation, et al. , (United States District Court for the District of Massachusetts, C.A. No. 03-10762-PBS) + + Final Judgment Entered Against Brian M. Adley, Former Chairman and CEO of Boston-Based Chancellor Corporation, Imposing Permanent Injunction, Officer and Director Bar, and Ordering $930,000 in Disgorgement + + + + The Securities and Exchange Commission announced that on January 3, 2008, the Honorable Patti B. Saris, United States District Court Judge for the District of Massachusetts, entered a Final Judgment against Brian M. Adley, the former Chairman, Chief Executive Officer and controlling shareholder of Chancellor Corporation, a now defunct Boston, MA transportation equipment-leasing company, for his role in a multi-faceted financial fraud. The Court ordered that Adley be enjoined from future violations of the federal securities laws, that he pay $930,000 in disgorgement and that Adley is barred from acting as an officer or director of a public company for twenty-years. + + On November 26, 2007, after a three week trial, a jury found Adley liable for violating the antifraud and record-keeping provisions of the federal securities laws, for making false statements to Chancellor's accountants, and for aiding and abetting Chancellor's reporting and recordkeeping provisions of the federal securities laws. The Commission's complaint alleged that Adley caused Chancellor to file false financial statements in 1999 and 2000 by directing the wholesale fabrication of corporate documents, by instructing that the fabricated documents be given to the company's auditors, and by coordinating the filing of false financial statements with the Commission. The Final Judgment followed a jury verdict in the SEC's favor on all securities fraud charges against Adley, and permanently enjoins Adley from violating Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 and 13b2-2. + + The Commission had previously settled with ten other defendants, including: Chancellor Corporation; the company's former President and Chief Operating Officer; the company's former acting Chief Financial Officer; the company's former treasurer; two former Chancellor directors and audit committee members; Chancellor's outside auditing firm and three members of its audit team. + + For further information, see Litigation Release Nos. 18104 (April 24, 2003), 19177 (April 11, 2005), 20177 (July 2, 2007) and 20370 (November 26, 2007). + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2768.txt b/raw/aaer/2008/AAER-2768.txt new file mode 100644 index 0000000000000000000000000000000000000000..355a5bb1e838794cb981a67d88b067d5b70039f0 --- /dev/null +++ b/raw/aaer/2008/AAER-2768.txt @@ -0,0 +1,153 @@ + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57165 / January 17, 2008 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2768 / January 17, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-12932 + + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + MARK E. SULLIVAN, : 102(e) OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND + Respondent. : IMPO SING REMEDIAL SANCTIONS + : + : +____________________________________ : + +I. + + The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Mark E. +Sullivan (“Respondent” or “Sullivan”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice. +1 + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the + +1 Rule 102(e)(3)(i) provides, in relevant part, that: + + The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + 2 +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III (3) below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. + +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + + 1. Sullivan, age 46, was a certified public accountant licensed to practice in the +Commonwealth of Massachusetts from 1986 to 1993. He served as Director of World-Wide +operations for Applix , Inc. (“Applix”) from 2001 to 2006. + + 2. Applix was, at all relevant time s, a Massachusetts corporation with its +principal place of business in Westborough, Massachusetts. Applix was engaged in the business of +developing and distributing enterprise management software. At all relevant times, Applix’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 SmallCap Market. + + 3. On January 9, 2008, a final ju dgment was entered against Sullivan, +permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, +Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and +aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act +and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, in the civil action entitled Securities and +Exchange Commission v. Alan C. Goldsworthy et. al, Civil Action Number 06 CV 10012 JGD, in +the United States District Court for the District of Massachusetts. Sullivan was also ordered to pay +a $25,000 civil money penalty. + + 4. The Commission’s complaint alle ged, among other things, that Sullivan, +with the former CEO and former CFO of Applix, engaged in a fraudulent scheme which resulted +in Applix filing materially false and misleading financial statements in the company’s annual +report on Form 10-K for the fiscal year ended December 31, 2001, in the company’s quarterly +reports on Form 10-Q for the first three quarters of fiscal year 2002, in an S-8 registration +statement filed on July 25, 2002 and a Form 8-K filed February 5, 2003. The Complaint alleged +that Sullivan engaged in improper accounting practices that materially increased Applix’s annual +and quarterly revenue and decreased its net loss in a departure from generally accepted +accounting principles (“GAAP”). These practices included, among other things, prematurely +recognizing revenue on the sale of a not-yet available products and prematurely recognizing +revenue on a sale as to which there was a right of return. + + + + 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 Sullivan’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Sullivan 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 di sciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and + + (d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. + +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 + 4 +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + + By the Commission. + + + + N a n c y M . M o r r i s + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2772.txt b/raw/aaer/2008/AAER-2772.txt new file mode 100644 index 0000000000000000000000000000000000000000..b6383c9b2e1abfddb603b5471ba2733e97dc84a6 --- /dev/null +++ b/raw/aaer/2008/AAER-2772.txt @@ -0,0 +1,161 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57180 / January 22, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2772 / January 22, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12796 +In the Matter of +STORY & COMPANY, P.C., +AND BRIAN L. STORY, CPA, +Respondents. +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +PURSUANT TO SECTION 4C OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +I. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) issued +an Order Instituting Administrative Proceedings Pursuant to Section 4C of the Securities Exchange +Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, and Notice of Hearing against +Story & Company, P.C. (“the Firm”) and Brian L. Story, CPA (“Story”). The Firm and Story will +be referred to hereafter collectively as “Respondents.” +II. +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, Respondents consent to the entry of +this Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 4C 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 Respondents’ Offer, the Commission finds1 that: +A. RESPONDENTS +1. The Firm is a Colorado professional corporation and public accounting firm +headquartered in Centennial, Colorado. The Firm prepared and issued an audit report dated +February 11, 2004, in connection with its audit of Regatta Capital Partners, Inc. (“Regatta +Capital”). +2. Story, 68, of Littleton, Colorado, is a certified public accountant licensed in +Colorado and Nebraska since 1974. As engagement partner on the Regatta Capital engagement, +Story participated in the preparation and issuance of the February 11, 2004 Regatta Capital audit +report. +B. FACTS +1. Regatta Capital is a Colorado corporation based in Denver, Colorado. During the +relevant period, Regatta Capital’s common stock traded on the OTC Bulletin Board. Its common +stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act +of 1934 (“Exchange Act”). Regatta Capital reported $2,128 in revenue and total assets of $9,115 +for its fiscal year ended 2003. During the relevant period, Regatta Capital was known as Monet +Entertainment, Ltd. +2. Regatta Capital has at all relevant times been an issuer as defined by the Sarbanes- +Oxley Act of 2002 (the “Act”). +3. The Firm audited Regatta Capital’s financial statements included in Regatta +Capital’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on March +29, 2004. +4. The Firm prepared and issued an audit report dated February 11, 2004, which was +included in Regatta Capital’s Form 10-KSB. +5. Story participated in auditing the financial statements included in Regatta Capital’s +annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on March 29, +2004. +6. Story participated in the preparation and issuance of an audit report dated February +11, 2004, which was included in Regatta Capital’s Form 10-KSB. +7. Although Respondents were aware of the registration requirement, at no point was +the Firm registered with the Public Company Accounting Oversight Board (“PCAOB”). +The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +1 +8. The Firm received $1,100 for conducting an audit of Regatta Capital’s financial +statements for its fiscal year 2003 and for issuing an audit report on those financial statements. +C. VIOLATIONS +1. Section 4C(a) of the Exchange Act 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 by the +Commission … (1) not to possess the requisite qualifications to represent others … or (3) to ha ve +willfully violated, or willfully aided and abetted the violation of, any provision of the securities +laws or the rules and regulations issued thereunder.” +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +not to possess the requisite qualifications to represent others … or ( iii) to have willfully violated … +any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”2 +4. The provisions of Section 102(a) of the Act became effective on October 22, 2003.3 +5. Based on the conduct described above, the Firm willfully4 violated Section 102(a) +of the Act. +D. FINDI NGS +1. Based on the foregoing, the Commission finds that the Firm and Story did not +possess the requisite qualifications to represent others. +2. Based on the foregoing, the Commission finds that the Firm willfully violated +Section 102(a) of the Sarbanes-Oxley Act of 2002. +2 A violation of the Act or any rule that the PCAOB issues under the Act is treated for all purposes in the +same manner as a violation of the Exchange Act, including with respect to penalties. Sarbanes-Oxley Act of 2002, +15 U.S.C.A. § 7202(b)(1) (West 2002). +3 Section 102(a) became effective “[b]eginning 180 days after the date of the determination of the +Commission under Section 101(d)” of the Act that the PCAOB was prepared to undertake its statutory +responsibilities. The Commission made the required determination on April 25, 2003. See Order Regarding Section +101(d) of the Sarbanes-Oxley Act of 2002, Securities Act of 1933 Release No. 8223, Exchange Act Release No. +47746, 2003 WL 1956164 (Apr. 25, 2003). +4 “Willfully” as used in this Order means intentionally committing the act that constitutes the violation. +There is no requirement that the actor also be aware that he is violating a rule or statute. See Wonsover v. SEC, 205 +F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). +3 + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +1. Story & Company, P.C. +A. The Firm is denied the privilege of appearing or practicing before the +Commission as an accountant. +B. After one year from the date of this Order, the 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 the Firm’s work in the Firm’s practice before +the Commission will be reviewed either by the independent audit committee of the public +company for which the Firm works or in some other acceptable manner, as long as the Firm +practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) the Firm is registered with the PCAOB in accordance with the +Sarbanes-Oxley Act of 2002, and such registration continues to be effective. However, if +registration with the PCAOB is dependent upon reinstatement by the Commission, the +Commission will consider an application on its other merits; +(b) the Firm 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 +(c) the Firm acknowledges responsibility, as long as the Firm +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, concurring partner reviews and quality control standards. +4 + +C. The Commission will consider an application by the Firm to resume +appearing or practicing before the Commission provided that the Firm’s state CPA license is +current and the Firm 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 Firm’s character, integrity, professional conduct, or qualifications to appear or practice +before the Commission. +2. Brian L. Story, CPA +A. Story is censured. +B. Story may practice before the Commission as an independent accountant +provided that: +1. The public accounting firm with which he is associated is +registered with the PCAOB in accordance with the Act, and such registration continues to be +effective; and +2. He has submitted to the Commission staff (Attention: Office of the +Chief Accountant) the PCAOB’s letter notifying the public accounting firm with which he is +associated that its registration application has been approved. + By the Commission. + N ancy M. Morris + S ecretary +5 diff --git a/raw/aaer/2008/AAER-2774.txt b/raw/aaer/2008/AAER-2774.txt new file mode 100644 index 0000000000000000000000000000000000000000..f15ef1d4be57eeb62378bdd15abefcdbc0c27ab6 --- /dev/null +++ b/raw/aaer/2008/AAER-2774.txt @@ -0,0 +1,275 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57209 / January 28, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2774 / January 28, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12937 +In the Matter of +MICHAEL ODOM, CPA, +Respondent. +I. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF +PRACTICE, MAKING FINDINGS, +AND IMPOSING REMEDIAL +SANCTIONS +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative proceedings be, and hereby are, instituted against Michael Odom, CPA (“Odom” or +“Respondent”), pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Odom has submitted an Offer of +Settlement (“Offer”) which the Commission has determined to accept. Solely for the purpose of +these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are +admitted, Odom consents to the entry of this Order Instituting Public Administrative Proceedings +Rule 102(e)(1)(ii) provides that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it in any way to any person who is found by the Commission . . . to have engaged in . . . improper professional +conduct. +1 +Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing +Remedial Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +A. SUMMARY +Enron Corp.’s (“Enron”) senior executives engaged a wide-ranging scheme to defraud the +investing public by materially overstating the company’s earnings and cash flows, and concealing +debt in periodic reports filed with the Commission.3 The fraudulent scheme was carried out +through a variety of complex structured transactions, related party transactions, misleading +disclosures, and a widespread abuse of generally accepted accounting principles (“GAAP”). +Arthur Andersen LLP (“Andersen”) served as Enron’s auditor, and for each year during the +relevant time period, issued an auditor’s report falsely stating that Enron’s financial statements +were presented fairly, in all material respects, in conformity with GAAP, and that Andersen had +conducted its audit of those financial statements in accordance with generally accepted auditing +standards (“GAAS”). Odom served as Practice Director in connection with the Enron engagement. +As specified in this Order, Odom engaged in improper professional conduct by concurring with the +audit engagement team’s faulty conclusions regarding Enron’s accounting for certain transactions +and authorizing the issuance by Andersen of unqualified audit reports that were materially false +and misleading. +B. RESPONDENT +Michael C. Odom, 65, served as Practice Director at Andersen for the Gulf Coast +Region during the relevant time period. According to Andersen’s Audit Objectives and +Procedures Manual, Practice Directors had authority to oversee the resolution of client issues and +the extent of their involvement was driven by the engagement team’s risk assessments. +Consultation was normally required whenever significant, unusual, or judgment issues were +encountered during any audit. Odom is currently and was a CPA licensed in the state of +Louisiana at all relevant times. +C. OTHER PARTIES +Enron Corp. was an Oregon corporation with its principal place of business in Houston, +Texas. During the relevant time period, Enron’s common stock was registered with the +2 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +3 In connection with this fraudulent scheme, several former Enron executives either pleaded guilty or were +convicted of felonies, including Enron’s former Chief Executive Officer, Chief Financial Officer, and Chief +Accounting Officer. +2 + +Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock +Exchange. Among other operations, Enron was the nation’s largest natural gas and electric +marketer, with reported annual revenue of more than $100 billion. In 2000, Enron rose to number +seven on the Fortune 500 list of public companies. By December 2, 2001, when it filed for +bankruptcy, Enron’s stock price had dropped over the course of a year from more than $80 per +share to less than $1. +Arthur Andersen LLP once was one of the so-called “Big Five” accounting firms in the +United States and had its headquarters in Chicago, Illinois. Andersen personnel performed work +for Enron during the relevant time period in several cities, including Chicago, Houston and +London.4 +D. FACTS +1. Andersen Identified Enron as a Maximum Risk Client +Odom was aware that the risk of fraudulent financial reporting at Enron was high. In +accordance with applicable professional standards, Andersen assessed the risk of fraud at Enron +(AU §316, Consideration of Fraud in a Financial Statement Audit), and Odom should have known +that Enron possessed many of the risk factors that should be considered in making that assessment. +For example, Fraud Risk Assessment questionnaires prepared by the audit engagement team +documented that Enron placed an “undue emphasis on meeting earnings targets;” used “highly +aggressive accounting;” utilized “unusual” year-end transactions that posed difficult “substance +over form” questions; possessed a “philosophy of significantly managing (maximizing or +minimizing) earnings;” and had a “high dependence on debt, difficulty in meeting debt payments +or vulnerability to interest rate changes.” In addition, an internal Andersen document prepared +each year by the engagement team consistently classified the Enron engagement as involving +“maximum risk” and noted that Enron’s use of complex “form over substance” and “related party” +transactions created an “extreme” or “very significant” financial reporting risk. This document, +called a “SMART,” was prepared each year to assist with the annual decision whether to retain +Enron as an audit client. Odom reviewed the SMART documents and also attended an annual +client retention meeting for the 2000 audit during which the risks identified above were discussed. +2. Enron’s Prepay Transactions +Enron improperly reported structured financing proceeds as operating cash flows by means +of “prepay” transactions with various financial institutions. Enron used prepay transactions to +improperly report the cash it received from prepay transactions as cash flow from operating +activities, rather than cash flow from financing activities. This allowed Enron to hide the true +David B. Duncan served as the global engagement partner for Andersen’s audits of Enron from 1997 until +December 2001. Contemporaneously with the filing of this Order, the Commission filed a settled civil injunctive +action in the U.S. District Court for the Southern District of Texas, Houston Division, against Duncan, in which +Duncan consented to be permanently enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 +and Rule 10b-5 thereunder. Upon entry of the injunction by the Court, Duncan has also offered to settle an +administrative proceeding by the Commission in which he agrees to be permanently barred from appearing or +practicing before the Commission as an accountant. +3 +4 +extent of its borrowing from investors and the national credit rating agencies because sums +borrowed in prepay transactions appeared as “price risk management liabilities” rather than +additional debt on Enron’s balance sheet. +Enron’s prepay transactions were in substance financings because Enron used a three party +structure involving a bank and a bank sponsored SPE that were not independent of each other to +remove all commodity price risk from the transaction. The circular nature of delivery and +payments with respect to the commodities and the lack of independence between the bank +counterparties had the effect of eliminating any material risk or any potential gain with respect to +changes in the price of the underlying commodity. In effect, Enron’s prepay transactions involved +an investment bank making a large payment to Enron in exchange for Enron’s promise to pay the +bank sponsored entity an amount in excess of what Enron received in the initial prepayment. +Amounts borrowed by Enron using the prepay structure were finely tuned each quarter for +maximum reporting benefit. Enron simply determined the amount of operating cash flows it +wanted to report, projected any “shortfall” as the end of a reporting period approached, and then +used prepay transactions to fill the gap. From 1997 through September 30, 2001, Enron, using +prepay transactions, received over $5 billion in funds in this manner. +Enron never separately disclosed in its public filings that it was entering into prepay +transactions. Such disclosure was necessary because of the large dollar amounts and volume of +prepay transactions entered into by Enron and the significant future obligated cash commitments +associated with the transactions. Rather, the prepay transactions were aggregated into Enron’s +“price risk management liabilities.” Enron provided a generic and inadequate description of its +price risk management activities in the notes to the financial statements and in the management’s +discussion and analysis section of its annual reports on Form 10-K and its quarterly reports on +Form 10-Q. +GAAS provides that “the presentation of financial statements in conformity with [GAAP] +includes adequate disclosure of material matters. These matters relate to the form, arrangement, +and content of the financial statements and their appended notes . . .” (AU §431, Adequacy of +Disclosure in Financial Statements). GAAS also states that “[GAAP] recognize[s] the importance +of reporting transactions and events in accordance with their substance” and that the “auditor +should consider whether the substance of the transactions or events differs materially from their +form.” (AU §411, The Meaning of Present Fairly in Conformity With Generally Accepted +Accounting Principles in the Independent Auditor’s Report). Enron’s financial statement +presentation and disclosure of the prepay transactions was not in conformity with GAAP because it +mischaracterized the nature of the cash flows associated with the transactions, obscured the true +economic substance of these financing transactions, and did not address the material impact they +had on Enron’s financial statements. +Enron’s disclosures regarding prepay transactions were materially inadequate. In +conjunction with both the 1999 and 2000 audits, the engagement team had advised Enron of the +need for more robust disclosure of the prepay transactions. David Duncan, the engagement partner +for the audits, even proposed to Enron’s senior management specific language used by another +4 + +Andersen audit client that would have disclosed the fact that Enron used “prepaid commodity +contracts” and also the dollar amount of liabilities associated with the prepay transactions. +Andersen’s recommendations to enhance the disclosure for prepay transactions were rejected by +Enron’s management. Odom consulted with Duncan and others regarding Enron’s prepay +transaction disclosures and they determined, improperly, that Enron’s disclosures complied with +GAAP without the proposed enhancements. +3. Enr on’s Raptor Transactions +Beginning in the spring of 2000, Enron and LJM2, a partnership formed and managed by +Enron’s then-Chief Financial Officer Andrew Fastow, engaged in a series of complex financial +transactions with four SPE structures called Raptor I, Raptor II, Raptor III and Raptor IV +(collectively “Raptors”). Enron’s senior management used the Raptors, in part, to manipulate +Enron’s financial statements. +By 1999, a large percentage of Enron’s quarterly earnings were attributed to unrealized +gains in its merchant energy portfolio and in various technology investments. Many of these assets +were extremely volatile. The Raptors were used by Enron to “hedge” the value of those +investments with a purported independent third party SPE, so that Enron could offset declines in +the value of these assets with the Raptor hedges. Enron capitalized Raptors I, II and IV with Enron +stock. Raptor III was capitalized with warrants of an Enron spin-off company. Enron received an +economic interest in the Raptors and $1.2 billion in notes receivable from the Raptors in return for +the Enron shares and warrants. Because of the related party nature and complexity of the +transaction, the engagement team reviewed the features of the Raptors structures with Odom and +the concurring review partner before Enron entered into the transactions and consulted with them +both on various Raptors related issues throughout 2000 and 2001. +LJM2 contributed $30 million of equity to each Raptor. However, through undisclosed +side agreements between Fastow and others, the structures were designed so that amounts equal to +LJM2’s equity was returned to LJM2 for each Raptor prior to any hedges being put in place. As a +result of the side agreements and related effective return of capital, LJM2 had no equity at risk and +Enron should have consolidated the Raptors into its financial statements. LJM2's equity was +effectively returned to it through three separate $41 million put options in Enron stock in Raptors I, +II and IV, and through a distribution in Raptor III. These put options provided a return equal to +LJM2's initial $30 million capital contribution in each Raptor, along with an agreed upon rate of +return on such capital, before the Raptor SPEs entered into the hedging transactions. Effectively, +Enron was entering into hedging contracts with entities backed solely with its own stock. +Since the Enron engagement was classified as maximum risk, and related party transactions +created an “extreme” or “very significant” financial reporting risk, the existence of the put options +in the Raptor structures should have triggered increased professional skepticism. The puts were +priced at a premium that matched exactly LJM2's targeted return, and were included as part of +aggressive and complex related party transactions that had a material effect on Enron’s reported +earnings. Additionally, LJM2 received its $41 million payout in each Raptor shortly after signing +the contracts - resulting in a short-term return on investment in excess of 130% in each case. +5 + + +Moreover, the payout occurred in each Raptor after Enron settled the put option early and before +any hedges were put in place. The timing of settlement by Enron of these out-of-the-money put +options should have been an additional red flag that prompted Odom and others to increase their +professional skepticism and question why Enron would repeatedly make such economically +irrational payments. These payments actually eliminated the supposed protection from a drop in its +stock price that the company purportedly had purchased at a premium. Despite the need for +greater scrutiny, Odom did not exercise due professional care or professional skepticism with +regard to this aspect of the Raptor transactions (AU §230, Due Professional Care in the +Performance of Work). In addition, Odom and members of the engagement team allowed Enron to +avoid recording significant Raptor-related impairment charges at year-end 2000 and for the first +quarter of 2001 by improperly allowing Enron to offset losses in Raptors I and III against the +excess credit capacity in Raptors II and IV. +4. Violations +Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that the +Commission may censure or deny, temporarily or permanently, the privilege of appearing or +practicing before the Commission in any way to any person who is found by the Commission to +have engaged in improper professional conduct. Rule 102(e)(1)(iv) defines improper professional +conduct with respect to persons licensed to practice as accountants. +As applicable here, improper professional conduct means a violation of applicable +standards that resulted from “repeated instances of unreasonable conduct, each resulting in a +violation of applicable professional standards, that indicate a lack of competence to practice before +the Commission.” (Rule 102(e)(1)(iv)(B)(2)). As a result of the conduct described above, Odom +repeatedly acted unreasonably by concurring with the Enron audit engagement team’s faulty +conclusions regarding Enron’s accounting for certain transactions and allowing the issuance by +Andersen of unqualified audit reports that were materially false and misleading. +5. Findings +Based on the foregoing, the Commission finds that Odom engaged in improper +professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Odom is denied the privilege of appearing or practicing before the Commission as +an accountant. +6 + +B. After two years from the date of this order, Odom may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +7 + +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +8 diff --git a/raw/aaer/2008/AAER-2776.txt b/raw/aaer/2008/AAER-2776.txt new file mode 100644 index 0000000000000000000000000000000000000000..ec339e3378050cd2981fe62f7f969d5d7bfc000d --- /dev/null +++ b/raw/aaer/2008/AAER-2776.txt @@ -0,0 +1,210 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57211 / January 28, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2776 / January 28, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12939 +In the Matter of +THOMAS H. BAUER, CPA, +Respondent. +I. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF +PRACTICE, MAKING FINDINGS, +AND IMPOSING REMEDIAL +SANCTIONS +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative proceedings be, and hereby are, instituted against Thomas H. Bauer, CPA (“Bauer” +or “Respondent”), pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Bauer has submitted an Offer of +Settlement (“Offer”) which the Commission has determined to accept. Solely for the purpose of +these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are +admitted, Bauer consents to the entry of this Order Instituting Public Administrative Proceedings +Rule 102(e)(1)(ii) provides that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it in any way to any person who is found by the Commission . . . to have engaged in . . . improper professional +conduct. +1 +Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing +Remedial Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +A. SUMMARY +Enron Corp.’s (“Enron”) senior executives engaged in a wide-ranging scheme to defraud +the investing public by materially overstating the company’s earnings and cash flows, and +concealing debt in periodic reports filed with the Commission.3 The fraudulent scheme was carried +out through a variety of complex structured transactions, related party transactions, misleading +disclosures, and a widespread abuse of generally accepted accounting principles (“GAAP”). +Arthur Andersen LLP (“Andersen”) served as Enron’s auditor, and for each year during the +relevant time period, issued an auditor’s report falsely stating that Enron’s financial statements +were presented fairly, in all material respects, in conformity with GAAP, and that Andersen had +conducted its audit of those financial statements in accordance with generally accepted auditing +standards (“GAAS”). Bauer served as one of the partners on the Enron engagement team and was +responsible for the auditing of Enron’s largest division. As specified in this Order, Bauer engaged +in improper professional conduct by failing to design and implement auditing procedures adequate +to address the known risk of fraud inherent in the Enron engagement in violation of GAAS. +B. RESPONDENT +Thomas H. Bauer, 54, served as one of the partners on the Enron engagement and was a +CPA licensed in the state of Texas at all relevant times. +C. OTHER PARTIES +Enron Corp. was an Oregon corporation with its principal place of business in Houston, +Texas. During the relevant time period, Enron’s common stock was registered with the +Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock +Exchange. Among other operations, Enron was the nation’s largest natural gas and electric +marketer, with reported annual revenue of more than $100 billion. In 2000, Enron rose to number +seven on the Fortune 500 list of public companies. By December 2, 2001, when it filed for +bankruptcy, Enron’s stock price had dropped over the course of a year from more than $80 per +share to less than $1. +2 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +3 In connection with this fraudulent scheme, several former Enron executives either pleaded guilty or were +convicted of felonies, including Enron’s former Chief Executive Officer, Chief Financial Officer, and Chief +Accounting Officer. +2 + +Arthur Andersen LLP once was one of the so-called “Big Five” accounting firms in the +United States and had its headquarters in Chicago, Illinois. Andersen personnel performed work +for Enron during the relevant time period in several cities, including Chicago, Houston and +London.4 +D. FACTS +1. Andersen Identified Enron as a Maximum Risk Client +Bauer was aware that the risk of fraudulent financial reporting at Enron was high. In +accordance with applicable professional standards, Andersen assessed the risk of fraud at Enron +(AU §316, Consideration of Fraud in a Financial Statement Audit), and Bauer should have known +that Enron possessed many of the risk factors that should be considered in making that assessment. +For example, Fraud Risk Assessment questionnaires prepared by the audit engagement team +documented that Enron placed an “undue emphasis on meeting earnings targets;” used “highly +aggressive accounting;” utilized “unusual” year-end transactions that posed difficult “substance +over form” questions; possessed a “philosophy of significantly managing (maximizing or +minimizing) earnings;” and had a “high dependence on debt, difficulty in meeting debt payments +or vulnerability to interest rate changes.” In addition, an internal Andersen document prepared +each year by the engagement team consistently classified the Enron engagement as involving +“maximum risk” and noted that Enron’s use of complex “form over substance” and +“related party” transactions created an “extreme” or “very significant” financial reporting risk. +This document, called a “SMART,” was prepared each year to assist with the annual decision +whether to retain Enron as an audit client. Bauer reviewed the SMART documents and also +attended annual client retention meetings during which the risks identified above were discussed. +2. JEDI/Chewco Transaction +In May 1993, Enron teamed with the California Public Employees’ Retirement System +(“CalPERS”) to form the Joint Energy Development Investments Limited Partnership (“JEDI”) to +invest in natural gas assets. CalPERS contributed $250 million and Enron funded its share of the +joint venture with $250 million of its own stock. Enron did not consolidate JEDI into its financial +statements. Rather, it accounted for JEDI using the equity method and recorded its share of gains +and losses from JEDI in its financial statements. +In 1997, Enron proposed to CalPERS that a new, larger partnership be formed – JEDI II. +CalPERS representatives were hesitant to enter into JEDI II because they felt that CalPERS’ board +of directors would not approve the increased exposure to Enron. Thus, Enron offered to buy out +David B. Duncan served as the global engagement partner for Andersen’s audits of Enron from 1997 until +December 2001. Contemporaneously with the filing of this Order, the Commission filed a settled civil injunctive +action in the U.S. District Court for the Southern District of Texas, Houston Division, against Duncan, in which +Duncan consented to be permanently enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 +and Rule 10b-5 thereunder. Upon entry of the injunction by the Court, Duncan has also offered to settle an +administrative proceeding by the Commission in which he agrees to be permanently barred from appearing or +practicing before the Commission as an accountant. +3 +4 +CalPERS’ interest in JEDI. CalPERS agreed and a $383 million purchase price was negotiated. +Because Enron did not want to bring JEDI’s debt onto its balance sheet, Enron formed a special +purpose entity (“SPE”) named Chewco Investments L.P. (“Chewco”) to step into the shoes of +CalPERS. An Enron employee, Michael Kopper (“Kopper”), managed Chewco’s business affairs +and also invested personally in Chewco. +To properly treat Chewco as an off-balance sheet SPE, GAAP required the partnership to +have independent outside investors who had at least a three percent equity investment in Chewco. +These investors also needed to control the SPE and have the substantive risks and rewards of +ownership associated with the SPE. The transaction, however, did not satisfy these requirements. +Because Barclays Bank (“Barclays”), which contributed $11.4 million of purported equity, was not +comfortable providing the funds backed solely by the assets held by JEDI, it wanted additional +credit support. To satisfy Barclays, reserve accounts controlled by Barclays were set up and funded +in the amount of $6.5 million upon the closing of the transaction. The funding of the reserve +accounts was accomplished by a special distribution from JEDI to Chewco that was agreed to in an +undisclosed side letter signed by Kopper on behalf of Chewco, and an Enron employee on behalf of +JEDI. The funding of the reserve accounts meant that the requisite three percent equity was not +actually at risk. Thus, the structure did not comply with applicable accounting rules. + Ander sen spent considerable time working with Enron on the Chewco transaction. Bauer +advised Enron about the three percent equity capital requirement and also on governance issues. +Bauer also performed audit procedures to determine whether Chewco and JEDI were required to be +consolidated into Enron’s financial statements. +However, despite numerous red flags associated with this transaction, Bauer failed to +exercise due professional care, did not exhibit professional skepticism, and failed to obtain sufficient +competent evidential matter to support his analysis of either the control issue or the three percent +independent equity requirement (AU §230, Due Professional Care in the Performance of Work and +AU §326, Evidential Matter). Instead, Bauer placed an undue reliance on oral representations from +Enron’s management (AU §333, Management Representations). Bauer asked for, but was denied +access to, documents related to the funding of Chewco. Bauer should have insisted on seeing the +relevant documents rather than relying solely on management representations. Bauer also violated +professional standards by failing to sufficiently document in the audit workpapers his planning and +supervision of audit procedures and the nature and extent of the audit evidence obtained in reaching +his conclusions (AU §339, Working Papers). +3. Violations +Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that the +Commission may censure or deny, temporarily or permanently, the privilege of appearing or +practicing before the Commission in any way to any person who is found by the Commission to +have engaged in improper professional conduct. Rule 102(e)(1)(iv) defines improper professional +conduct with respect to persons licensed to practice as accountants. +4 + +As applicable here, improper professional conduct means a violation of applicable +standards that resulted from “repeated instances of unreasonable conduct, each resulting in a +violation of applicable professional standards, that indicate a lack of competence to practice before +the Commission.” (Rule 102(e)(1)(iv)(B)(2)). As a result of the conduct described above, Bauer +repeatedly acted unreasonably in failing to conduct or supervise the audit of Enron’s JEDI/Chewco +transaction in accordance with GAAS. +4. Findings +Based on the foregoing, the Commission finds that Bauer engaged in improper professional +conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer.5 +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Bauer is denied the privilege of appearing or practicing before the Commission as +an accountant. +B. After three years from the date of this order, Bauer 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 +In determining to accept Bauer’s Offer, the Commission considered Bauer’s cooperation with the +Department of Justice and his testimony at the criminal trial of Enron’s former top two executives. +5 +5 +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. + N ancy M. Morris + S ecretary +6 diff --git a/raw/aaer/2008/AAER-2777.txt b/raw/aaer/2008/AAER-2777.txt new file mode 100644 index 0000000000000000000000000000000000000000..56d195bf53987047c0a9c02552826d8cada0468e --- /dev/null +++ b/raw/aaer/2008/AAER-2777.txt @@ -0,0 +1,1399 @@ + + + + + + + + + + + + + + + + SEC.gov | David B. Duncan + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502766","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Duncan + + + + + + + + + + + + David B. Duncan + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20441 / January 28, 2008 + + Accounting and Auditing Enforcement Release No. 2777 / January 28, 2008 + + Securities and Exchange Commission v. David B. Duncan , Civil Action No. 4:08-CV-00314(S.D. Tex.)(January 28, 2008) + + Commission Files Settled Action Against Former Arthur Andersen Partner in Connection With the Audits of Enron's Financial Statements + + David B. Duncan, Global Engagement Partner for Enron Audits, Consents to Antifraud Permanent Injunction and Permanent Suspension from Appearance or Practice before Commission + + + + The Securities and Exchange Commission ("Commission") today announced the filing and simultaneous settlement of a civil action against a former Arthur Andersen LLP ("Andersen") partner in connection with the audits of Enron Corp.'s financial statements. David B. Duncan, former global engagement partner for the Enron engagement, consented to a settled civil injunctive action charging him with violating the antifraud provisions of the federal securities laws, and to a related administrative proceeding permanently suspending him from appearing or practicing before the Commission. Duncan settled without admitting or denying the allegations or findings in the Commission's Complaint and Order. + + Duncan consented to the entry of a permanent injunction enjoining him from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In its Complaint against Duncan, the Commission alleged that, for the years 1998 through 2000, Duncan was reckless in not knowing that the unqualified audit reports he signed on behalf of Andersen were materially false and misleading. The Complaint also alleged that the Fraud Risk Assessment questionnaires prepared by the engagement team and reviewed by Duncan documented that Enron used "highly aggressive accounting … practices" and entered into "unusual" year-end transactions that posed difficult "substance over form" questions. In addition, an internal Andersen document prepared each year by Duncan and others on the engagement team noted that Enron's use of complex "form over substance" and related party transactions created an "extreme" or "very significant" financial reporting risk. + + Despite these risks, Duncan failed to exercise due professional care and the necessary skepticism required under Generally Accepted Auditing Standards ("GAAS") to ensure Enron's financial statements were presented in conformity with Generally Accepted Accounting Principles ("GAAP"). For example, Duncan failed to ensure that the engagement team audited certain transactions known as the "Prepays," "Nahanni" and the "Raptors" in accordance with GAAS and failed to ensure that Enron properly presented and disclosed the transactions in its financial statements. Duncan, as the global engagement partner for the Enron audits, was ultimately responsible for determining whether an unqualified opinion should be issued within the auditors' report. As such, when he issued unqualified audit opinions indicating Andersen's audits of Enron's financial statements for the years 1998 through 2000 were conducted in accordance with GAAS, and that Enron's financial statements were presented, in all material respects, in accordance with GAAP, he made material misstatements or omissions in Andersen's auditors' reports that were filed with Enron's 1998, 1999, and 2000 Forms 10-K. As a result of his conduct, Duncan violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Duncan's settled civil injunctive action is subject to court approval. + + Duncan also consented to an order under Rule 102(e) of the Commission's Rules of Practice ("Rule 102(e)") permanently suspending him from appearing or practicing before the Commission as an accountant, based on the anticipated entry of an injunction against him, pursuant to Rule 102(e)(3). + + In related administrative proceedings, three other Andersen partners, Thomas H. Bauer, Michael M. Lowther and Michael C. Odom, consented, without admitting or denying the Commission's findings, to settled administrative proceedings which found that they had each engaged in improper professional conduct in connection with their Enron work, and each was denied the privilege of appearing or practicing before the Commission. + + The Commission's investigation is continuing. + + + + + SEC Complaint in this matter + + SEC Orders in this matter: Thomas Bauer , Michael Lowther and Michael Odom + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2778.txt b/raw/aaer/2008/AAER-2778.txt new file mode 100644 index 0000000000000000000000000000000000000000..ef9541e5598c690b6519369bb0ba13ca00f4cd27 --- /dev/null +++ b/raw/aaer/2008/AAER-2778.txt @@ -0,0 +1,86 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57234 / January 30, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2778 / January 30, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12942 +: +: +In the Matter of : ORDER INSTITUTING +: ADMINISTRATIVE PROCEEDINGS +DAVID B. DUNCAN, CPA, : PURSUANT TO RULE 102(e) OF THE +: COMMISSION’S RULES OF +Respondent. : PRACTICE, MAKING FINDINGS, AND +: IMPOSING REMEDIAL SANCTIONS +: +: +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against David +B. Duncan (“Respondent” or “Duncan”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules +of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.4 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +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. +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. Duncan, age 48, resides in Houston, Texas. Duncan served as the global +engagement partner for Arthur Andersen LLP’s (“Andersen) audits of Enron Corp. (“Enron”) from +1997 until January 2002. During the relevant time period, Duncan was a certified public accountant +licensed in the State of Texas. As the global engagement partner, Duncan was ultimately +responsible for determining whether an unqualified opinion should be issued within the auditor’s +report. +2. Enron was an Oregon corporation with its principal place of business in +Houston, Texas. During the relevant time period, Enron’s common stock was registered with the +Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 (“Exchange Act”) +and traded on the New York Stock Exchange. Among other operations, Enron was the nation’s +largest natural gas and electric marketer, with reported annual revenue of more than $100 billion. In +2000, Enron rose to number seven on the Fortune 500 list of public companies. By December 2, +2001, when it filed for bankruptcy, Enron’s stock price had dropped in less than one year from more +than $80 per share to less than $1. +3. Andersen once was one of the so-called “Big Five” accounting firms in the +United States and had its headquarters in Chicago, Illinois. Andersen personnel performed work for +Enron during the relevant time period in several cities, including Chicago, Houston and London. +4. On January 28, 2008, the Commission filed a complaint against Duncan in +Securities and Exchange Commission v. David B. Duncan, Civil Action No. 4:08-CV-00314 (S.D. +Tex.). On January 29, 2008, the court entered its Final Judgment against Duncan, which, among +other things, permanently enjoined Duncan, by consent, from violating Section 10(b) of the +Exchange Act and Rule 10b-5 thereunder. +5. The Commission’s complaint alleged that Enron’s senior executives engaged +in and presided over a wide-ranging scheme to defraud the investing public by materially +overstating the company’s earnings and cash flows, and concealing debt in periodic reports filed +with the Commission. The fraudulent scheme was carried out through a variety of complex +structured transactions, off-balance sheet financings, related party transactions, misleading +disclosures, and a widespread abuse of GAAP. As the global engagement partner responsible for +the Enron audits, Duncan was ultimately responsible for determining whether an unqualified +opinion should be issued within the auditor’s report. The complaint also alleged that for years 1998 +through 2000, Duncan was reckless in not knowing, that the unqualified audit reports he signed on +behalf of Andersen were materially false and misleading. These auditor’s reports were part of +Enron’s annual reports on Forms 10-K filed with the Commission in 1998, 1999 and 2000. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Duncan’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Duncan is suspended +from appearing or practicing before the Commission as an accountant. + By the Commission. + N ancy M. Morris + S ecretary +3 diff --git a/raw/aaer/2008/AAER-2784.txt b/raw/aaer/2008/AAER-2784.txt new file mode 100644 index 0000000000000000000000000000000000000000..6713bfd2e282d821d6367a803758768c80a0005c --- /dev/null +++ b/raw/aaer/2008/AAER-2784.txt @@ -0,0 +1,189 @@ +_________________________________________ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57330 / February 14, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2784 / February 14, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12955 +In the Matter of : ORDER INSTITUTING CEASE-AND- +: DESIST PROCEEDINGS, MAKING +AXM PHARMA, INC. : FINDINGS, AND IMPOSING A +: CEASE-AND-DESIST ORDER +Respondent. : PURSUANT TO SECTION 21C OF +: THE SECURITIES EXCHANGE ACT +: OF 1934 +: +: +: +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that +cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the +Securities Exchange Act of 1934 (“Exchange Act”), against AXM Pharma, Inc. (“AXM” or +“Respondent”). +II. +In anticipation of the institution of these proceedings Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the +findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting +Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order +Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +SUMMARY +This case involves a financial reporting fraud at AXM Pharma, Inc. (“AXM”) during its +second quarter of 2005 (the quarter ended June 30, 2005). Specifically, AXM, through its +management, improperly recognized approximately $2.8 million in revenues on a series of sales +to a distributor in Asia. These sales, on their face, clearly failed to meet several of the +fundamental criteria for revenue recognition under Generally Accepted Accounting Principles +(“GAAP”). As a result of the inclusion of this improperly recognized revenue, AXM reported +revenues of over $3.2 million for the quarter, overstating its revenue by over 970 percent, and +reported net income for the quarter of approximately $179,000, instead of a net loss of +approximately $1.46 million. +RESPONDENT +1. AXM Pharma, Inc. is a Nevada corporation with principal executive offices in +City of Industry, California. Its main operations are in the People’s Republic of China. AXM, +through a wholly owned subsidiary in the People’s Republic of China, is a manufacturer of +pharmaceutical and nutraceutical products. At all relevant times, AXM’s common stock was +registered with the Commission pursuant to Sections 12(b) of the Exchange Act and was listed +on the American Stock Exchange (“AMEX”) under the symbol “AXJ.” The AMEX delisted +AXM in June 2006, and its common stock is currently quoted on the Pink Sheets. +BACKGROUND +2. Prior to the quarter ended June 30, 2005, AXM’s primary business operations +consisted of producing and selling pharmaceutical products in the People’s Republic of China. +In 2002, AXM shut down its existing factory and began construction on a new factory. +Consequently, without a production facility, from 2002 through the quarter ended March 31, +2005, AXM’s revenues had declined virtually to the point of nonexistence. +3. In January 2004, to generate revenue while its factory was out of operation, AXM +obtained a license to sell certain Sunkist-branded vitamin products. These products were to be +produced by third parties in the United States and sold in Asia via a distributor. +4. Between March and May 2005, AXM entered into distribution agreements with +three subsidiaries of a Hong Kong-based company (the “Asian Distributor”) to sell the Sunkist +products in Hong Kong, Taiwan, and Shanghai. Each of the agreements provided for payment to +AXM after the Asian Distributor sold the goods to its customers, and specified that the transfer +of title occurred upon delivery to the Asian Distributor’s warehouse. The agreements also gave +the Asian Distributor a right of return for expired and other goods. +5. Pursuant to these agreements, from March through June 2005, AXM received +purchase orders from the Asian Distributor for Sunkist products totaling $2.8 million. AXM +recognized revenue for the full amount of these purchase orders on its financial statements for +the quarter ended June 30, 2005. +2 + +IMPROPER REVENUE RECOGNITION IN THE SECOND QUARTER OF 2005 +6. None of the $2.8 million from these product “sales” should have been recognized +as revenue in the second quarter of 2005 because the Asian Distributor had the right to return the +goods and did not have to pay AXM Pharma until after reselling the goods. Moreover, $1.9 +million of the goods also did not meet the criteria for revenue recognition because AXM had not +even delivered the product by the close of the quarter. +Right of Return +7. Statement of Financial Accounting Standards No. 48 (“SFAS 48”) provides that +where a seller grants a right of return, revenue may be recognized, only if the two following +conditions, among others, are met: (1) the buyer has paid the seller and the obligation is not +contingent on resale of the product; and (2) the amount of future returns can be reasonably +estimated. +8. AXM did not meet either of the conditions under SFAS 48 because the Asian +Distributor’s obligation to pay AXM was contingent on the resale of the products. AXM never +obtained any evidence that the Asian Distributor sold any of the goods before the end of the +second quarter and, in fact, no such sales took place. +9. AXM also failed to meet the requirement under SFAS 48 that returns be +reasonably estimated. AXM and the Asian Distributor had no history selling the products or +similar products. Moreover, AXM had no history working with the Asian Distributor. Thus, +given AXM’s lack of historical experience with similar types of sales of similar products, it +could not reasonably estimate future product returns. SFAS 48, therefore, precluded AXM from +recognizing revenue during the second quarter of 2005. +10. GAAP provides “profit is deemed to be realized when a sale in the ordinary +course of business is effected.” Accounting Research Bulletin No. 43, ("ARB 43"), Chapter 1A +¶ 1. Moreover, revenue should not be recognized until such time as the revenue is realized or +realizable and earned. Statement of Financial Accounting Concepts No. 5 (“Concept No. 5”), ¶ +83. These conditions “are usually met by the time product or merchandise is delivered . . . to +customers.” Concept No. 5, ¶ 84(a). Thus, AXM should not have recognized revenue of $1.9 +million on product that it had not delivered as of the close of its second quarter. +MATERIAL MISSTATEMENT OF REVENUE AND NET INCOME +11. On July 21, 2005, AXM issued a press release stating that it expected to “post a +quarterly profit” and that it had “shipped and booked sales in excess of $3.1 million in the second +quarter.” AXM attached the press release as an exhibit to a Form 8-K filed with the Commission +on July 21, 2005. On that day, the trading volume on AXM’s common stock increased more +than ten-fold, and AXM’s stock price increased by 18% to $1.58 from the previous day’s close +of $1.34. +12. On August 15, 2005, AXM filed the Form 10-Q for its second quarter of 2005. +The financial statements contained in the Form 10-Q included revenues of $3.2 million and net +3 + +income of $179,000. In its Management Discussion and Analysis section (“MD&A”) of the +Form 10-Q, AXM described its second quarter results as “the best sales quarter in its history.” +13. The same day that AXM filed its Form 10-Q, AXM touted the record-setting +quarter through another press release, at a conference call discussing the results for the quarter, +and in a Form 8-K containing a transcript of the conference call. +14. On October 31, 2005, AXM announced that it would restate its 2005 second +quarter results. AXM’s restated second quarter results ultimately reported revenues of only +$329,000 and a loss of $1.5 million. +15. AXM’s chief executive officer, who also served as acting chief financial officer, +resigned in October 2005. +LEGAL ANALYSIS +Violations of Antifraud Provisions of the Exchange Act +16. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit the making +of misstatements or omissions of material fact in connection with the purchase or sale of a +security. A fact is material if there is a substantial likelihood that a reasonable investor would +consider the information important in making an investment decision. Basic Inc. v. Levinson, +485 U.S. 224, 231-32 (1988); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). +Information concerning a company’s financial condition and profitability is material information. +See, e.g., SEC v. Murphy, 626 F.2d 633, 653 (9th Cir. 1980). AXM’s material misstatements +included overstating revenue for the second quarter of 2005 by over 970 percent and falsely +reporting net income rather than a substantial loss for the quarter. +17. Scienter is required to establish a violation of Section 10(b) of the Exchange Act +and Rule 10b-5 thereunder. Aaron v. SEC, 446 U.S. 680, 701-02 (1980). Scienter is “a mental +state embracing intent to deceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 +U.S. 185, 193 n.12 (1976). Recklessness satisfies the scienter requirement. Hollinger v. Titan +Capital Corp., 914 F.2d 1564, 1569 (9th Cir. 1990) (en banc). In making the false statements +contained in the Form 10-Q, and in press releases and conference calls, AXM’s management +acted intentionally or recklessly. Specifically, AXM management knew or recklessly +disregarded information showing that a significant portion of the product had not been delivered +to the Asian Distributor’s subsidiaries by the end of the second quarter. Furthermore, +management knew that the Asian Distributor’s subsidiaries had no obligation to pay AXM until +they sold the products to their customers. Management’s scienter is imputed to AXM. See SEC +v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1089 n.3 (2d Cir. 1972). As a result, AXM violated +Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. +Reporting Violations +18. Section 13(a) of the Exchange Act and Rules 13a-11 and 13a-13 require issuers of +securities registered pursuant to Section 12 of the Exchange Act, such as AXM, to file with the +Commission accurate current and quarterly reports, respectively. An issuer violates these +provisions if it files a report that contains materially false or misleading information. See SEC v. +4 + +IMC International, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), aff’d mem., 505 F.2d 733 (5th Cir. +1974). Rule 12b-20 under the Exchange Act similarly requires that these reports contain any +additional material information necessary to make the required statements made in the reports +not misleading. As described above, AXM filed a 2005 second quarter Form 10-Q with +misstated financial statements and filed Forms 8-K that misstated AXM’s second quarter +revenues. Thus, AXM violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, +and 13a-13 thereunder. +Record-Keeping Violations +19. Section 13(b)(2)(A) of the Exchange Act requires reporting companies registered +pursuant to Section 12 of the Exchange Act to “make and keep books, records, and accounts, +which in reasonable detail, accurately and fairly reflect the transactions . . . of the issuer.” As +described above, AXM violated Section 13(b)(2)(A) of the Exchange Act by including entries in +its books and records improperly recording revenue from the Sunkist sales. +Internal Control Violations +20. Section 13(b)(2)(B) of the Exchange Act requires reporting companies to devise +and maintain a system of internal accounting controls sufficient to reasonably assure that +transactions are recorded and financial statements are prepared in conformity with GAAP. AXM +violated Section 13(b)(2)(B) of the Exchange Act by having no internal controls to assure that it +accounted for its revenue correctly. +AXM’S REMEDIAL EFFORTS +21. 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 AXM’s Offer. +Accordingly, it is hereby ORDERED that Respondent AXM cease and desist from +committing or causing any violations and any future violations of Sections 10(b),13(a), +13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-11, and 13a-13 +thereunder. +By the Commission. +Nancy M. Morris +Secretary +5 diff --git a/raw/aaer/2008/AAER-2786.txt b/raw/aaer/2008/AAER-2786.txt new file mode 100644 index 0000000000000000000000000000000000000000..cbc6d48914cd9240b630a71127cd63fcc77a6a70 --- /dev/null +++ b/raw/aaer/2008/AAER-2786.txt @@ -0,0 +1,47 @@ +______________________________ +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57337 / February 15, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2786 / February 15, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12958 +: +In the Matter of : + : ORDER OF SUSPENSION PURSUANT +RAQUEL KOHLER, CPA : TO RULE 102(e)(2) OF THE +: COMMISSION’S RULES OF PRACTICE +Respondent. : +______________________________: +I. +The Securities and Exchange Commission deems it appropriate to issue an order of +forthwith suspension of Raquel Kohler pursuant to Rule 102(e)(2) of the Commission’s Rules of +Practice [17 C.F.R. 200.102(e)(2)].1 +II. +The Commission finds that: +1. Kohler is a certified public accountant in New York. +2. On September 24, 2007, a judgment of conviction was entered against Kohler in +United States v. Kohler, No. 07-CR-20446-PCH, in the United States District Court for the +Southern District of Florida, finding her guilty of one count of conspiracy to commit securities +fraud in violation of 18 U.S.C. § 371. Kohler served as Chief Financial Officer of Mutual +Benefits Corporation, a viatical services provider sued by the Commission for securities fraud in +Securities and Exchange Commission v. Mutual Benefits Corp., et al., No. 04-60573-CIV- +MORENO (S.D. Fla.) (May 4, 2004). +Rule 102(e)(2) provides in pertinent part: Any ... person who has been convicted of a felony or a +misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the +Commission.” +1 + 3. As a result of this conviction, Kohler was sentenced to 60 months imprisonment +in a federal penitentiary and ordered to pay restitution in the amount of $471,000,000. +III. +In view of the foregoing, the Commission finds that Kohler has been convicted of a +felony within the meaning of Rule 102(e)(2) of the Commission�s Rules of Practice. +Accordingly, it is ORDERED, that Raquel Kohler is forthwith suspended from appearing +or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission’s Rules of +Practice. +By the Commission. +Nancy M. Morris +Secretary +2 diff --git a/raw/aaer/2008/AAER-2787.pdf b/raw/aaer/2008/AAER-2787.pdf new file mode 100644 index 0000000000000000000000000000000000000000..deb9b631a018cf221dc1f828d54f88e4cb3aa988 Binary files /dev/null and b/raw/aaer/2008/AAER-2787.pdf differ diff --git a/raw/aaer/2008/AAER-2788.txt b/raw/aaer/2008/AAER-2788.txt new file mode 100644 index 0000000000000000000000000000000000000000..40adbba7866b1134e1228b3f1d8a4c8368e7e2fa --- /dev/null +++ b/raw/aaer/2008/AAER-2788.txt @@ -0,0 +1,1401 @@ + + + + + + + + + + + + + + + + SEC.gov | Phillip R. Bennett + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502861","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Bennett + + + + + + + + + + + + Phillip R. Bennett + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20460 / February 19, 2008 + + Accounting and Auditing Enforcement Release No. 2788 / February 19, 2008 + + U.S. Securities and Exchange Commission v. Phillip R. Bennett , 08 CV 1631 (GEL) (S.D.N.Y. filed February 19, 2008) + + SEC Charges Former Refco CEO Phillip R. Bennett With Orchestrating Refco Fraud + + + + The U.S. Securities and Exchange Commission (the Commission) today filed a civil injunctive action in the United States District Court for the Southern District of New York against Phillip R. Bennett, the former chairman and chief executive officer of Refco Inc. and its corporate predecessor, Refco Group Ltd. (together, Refco). The Commission's complaint alleges that Bennett orchestrated a scheme that periodically concealed hundreds of millions of dollars owed to Refco by a private entity that Bennett controlled. The public revelation of Bennett's scheme in October 2005, two months after the company's initial public offering of common stock, caused hundreds of millions of dollars in losses to Refco shareholders. The complaint also alleges that Bennett directed practices that artificially inflated Refco's financial results. As a result, the complaint alleges, Bennett violated Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 15d 14, and aided and abetted Refco's violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Exchange Act Rules 15d-2 and 15d-13. + + According to the complaint, from at least 1998 to October 2005, Bennett's scheme periodically concealed debt owed to Refco by Refco Group Holdings, Inc. (RGHI), a non-Refco entity that Bennett controlled. The debt was primarily the result of trading losses and operating expenses that Refco transferred over time to RGHI. Refco utilized a series of short-term loans that temporarily transferred the debt to third parties immediately prior to the ends of Refco fiscal periods. A few days after the fiscal periods ended, the transactions were reversed, and the debt was transferred back to RGHI. The Commission's complaint alleges that Bennett directed the fiscal period-end transactions and took certain actions to implement them, including executing many of the documents used in those transactions. + + The Commission's complaint also alleges that Bennett instituted practices that artificially inflated Refco's reported financial results in 2005. The practices involved Refco recording fictitious interest income and income from sham foreign exchange transactions. The inflation of financial results was undertaken by Bennett to make Refco more attractive to potential investors. + + The Commission's complaint further alleges that, in 2005, Refco filed with the Commission and provided to investors registration statements and periodic reports that contained materially false and misleading misstatements and omissions. The filings failed to disclose the debt and the period end transactions, and some of the filings reported income that had been fraudulently inflated. Bennett signed the registrations statements and periodic filings while knowing, or reckless in not knowing, that the filings were materially false and misleading. Moreover, Bennett explicitly certified the accuracy of the disclosures and financial statements in the periodic filings. + + The complaint seeks a permanent injunction enjoining Bennett from violating Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5, 13b2-1, and 15d 14, and from aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Exchange Act Rules 15d-2 and 15d-13. The complaint also seeks payment by Bennett of unjust enrichment that he received as a result of his actions, with prejudgment interest thereon, and imposition of civil money penalties against him pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act. + + In a related action, the U.S. Attorney's Office for the Southern District of New York announced February 15, 2008, that Bennett has pleaded guilty to all twenty counts of a superseding indictment previously returned against him and charging him with conspiracy, securities fraud, making false filings with the Commission, wire fraud, making false statements to Refco's auditors, bank fraud, and money laundering, for his actions in connection with the Refco fraud. + + The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York, the United States Postal Inspection Service, and the Commodity Futures Trading Commission. + + The Commission's investigation is continuing. + + See also Litigation Release No. 19716 (June 5, 2006); Litigation Release No. 20402 (December 18, 2007); and Litigation Release No. 20405 (December 19, 2007). + + + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Howard + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502896","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Howard + + + + + + + + + + + + Chester E. Howard + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20467 / February 25, 2008 + + Accounting and Auditing Enforcement Release No. 2790 / February 25, 2008 + + Securities and Exchange Commission v. Chester E. Howard , Case No. 2:08-CV-00221 (D. Nev.) + + SEC Sues Former AXM Pharma, Inc. Officer for Massively Inflating the Company's Revenue + + + + The Securities and Exchange Commission (the Commission) filed civil charges on February 21 against Chester E. Howard, the former chief executive and acting chief financial officer of AXM Pharma, Inc., based in Las Vegas, Nevada. The Commission's complaint, filed in federal district court in Las Vegas, alleges that Howard, age 65 and a resident of Las Vegas, improperly directed AXM to overstate its revenues by over 700 percent for the quarter ended June 30, 2005. + + According to the complaint, Howard directed AXM to overstate its reported revenue of $3.2 million by approximately $2.8 million. The complaint alleges that the overstated revenue resulted from sales to distributors in Asia in which the distributors had a right to return the goods and were not obligated to pay for them until they re-sold the goods. Further, the complaint alleges that Howard knew that at least a portion of the goods had not been delivered to the distributors. The complaint further alleges that these sales failed to meet several of the fundamental criteria for revenue recognition under Generally Accepted Accounting Principles. In addition, the complaint alleges that Howard caused AXM to falsely report quarterly net income of approximately $179,000, when in fact AXM had a net loss of approximately $1.46 million for the quarter. + + The Commission's complaint further alleges that Howard misled investors about AXM's revenue and earnings in the company's quarterly and current reports filed with the Commission, in press releases, and in a conference call with investors and analysts. The complaint also alleges that Howard falsely certified the company's quarterly report, made false statements to AXM's independent accountant in connection with the quarter review, and caused AXM's violations of the internal controls and books and records provisions of the securities laws. + + The complaint seeks a permanent injunction against Howard from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-11, and 13a-13. The complaint also seeks an order baring Howard from serving as an officer and director of a public company and imposing civil penalties. + + In a separate but related action, on February 14, the Commission instituted administrative proceedings against AXM for various violations of the antifraud, issuer reporting, books-and-records, and internal controls provisions of the federal securities laws. Simultaneously with the institution of the proceedings, and without admitting or denying the Commission's findings other than as to the Commission's jurisdiction over it, AXM consented to the issuance of the order. See Exchange Act Release No. 57330, Accounting and Auditing Enforcement Release No. 2784 (Feb. 14, 2008). + + + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2791.txt b/raw/aaer/2008/AAER-2791.txt new file mode 100644 index 0000000000000000000000000000000000000000..b95d3b6a73ba70d2f1c5596d491202af55b666c7 --- /dev/null +++ b/raw/aaer/2008/AAER-2791.txt @@ -0,0 +1,258 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57380 / February 26, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2791 / February 26, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12970 +In the Matter of +DUANE HIGGINS, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative proceedings be, and hereby are, instituted against Duane Higgins, CPA +(“Respondent” or “Higgins”) pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of +Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +1 Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. + +Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, +Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +A. SUMMARY +This Order concerns the conduct of Duane Higgins, an audit partner at Deloitte & Touche +LLP (“D&T”), in connection with fiscal year 2000 and 2001 audits of the financial statements of +Delphi Corporation (“Delphi”). On October 30, 2006, the Commission brought actions against +Delphi and 13 individuals in connection with their role in widespread accounting violations at +Delphi. Higgins, then an audit partner on the Delphi audits, engaged in improper professional +conduct as detailed below. +B. RESPONDENT +Duane Higgins, 41, a resident of Clarkston, Michigan, has been an audit partner at D&T +since 1999 and served as the second engagement partner for the fiscal year 1999-2002 audits of +Delphi’s financial statements. Higgins has been licensed as a CPA in the State of Ohio since +1992 and in the State of Michigan since 2000. +C. FACTS +1. Higgins’ Review and Audit of the Sale and Repurchase of Precious Metals +In November of 2000, Delphi learned that Delphi’s former parent company would not be +acquiring Delphi’s inventory of precious metals before year-end 2000, despite Delphi’s +understanding that it had a commitment to do so. Thereafter, on December 28, 2000, Delphi +agreed to sell substantially all its precious metals inventory to a bank (“the Bank”). On the same +day, Delphi entered into a forward purchase agreement to acquire metals of the same specifications +in the same quantities from the Bank for delivery on January 29, 2001. The delivery in January +was intended to coincide with Delphi’s postponed transfer to its former parent company of +Delphi’s precious metals inventory. The price specified for Delphi’s purchase of the metals in the +forward agreement exceeded the sales price for the same quantities in the sales agreement by $3.26 +million. Under Generally Accepted Accounting Principles (“GAAP”), the transactions should +have been accounted for together as a financing, but Delphi accounted for the sale and purchase +separately. Delphi recognized the disposition of the metals inventory and a $6 million gain on the +sale in December 2000, as well as a “LIFO liquidation gain” of $54 million included in fiscal year +2000 earnings. On January 29, 2001, Delphi repurchased the metals from the Bank as agreed. +Delphi disclosed the last in, first out (“LIFO”) gain as part of Delphi’s yearly total LIFO gain of +$96 million. The transactions caused the financial statements to falsely portray more income, +2 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. +2 + +greater operating cash flows and reduced inventories and contributed to results that Delphi, in its +Form 10-K for 2000, attributed in part to “aggressive inventory management.” +In November 2000, Delphi consulted Higgins about transactions that would allow Delphi +to move the precious metals off Delphi’s balance sheet before year end and then repurchase the +same quantity of metals in early 2001 in time to sell them to Delphi’s former parent company +pursuant to a prior agreement. Higgins sought the advice of a D&T partner serving as a regional +professional practice director, regarding three alternative forms of a hypothetical precious metals +transaction, one of which contemplated executing an agreement to sell metals at current market +prices, and make delivery of them, contemporaneous with an agreement to repurchase the metals at +futures market prices. The other D&T partner concurred that this hypothetical structure could be +accounted for as a sale followed by a separate purchase. Because the consultation was +hypothetical, however, it did not include all of the facts of the transactions, as discussed below. +Delphi arranged the sale of the metals to the Bank shortly before year-end along with a +contemporaneous agreement according to which the Bank would sell the same quantities of the +metals back to Delphi a month later. In the week before the agreements were executed, one or +more drafts were shared with Higgins, and he furnished comments on the effects of one or more +provisions on Delphi’s accounting for the transactions. +The arrangement nominally transferred title to the metals to the Bank, but did not transfer +the risks of ownership. Because Delphi was committed to purchase like metals 32 days after the +sale to the Bank at a fixed, but slightly higher price, the Bank had no market risk and was assured a +profit. Delphi was bailee and custodian of the metals, and, as such, agreed to indemnify the Bank +for all risks of storing the metals. As a result, the Bank incurred risks no different than if it had +only loaned Delphi an amount equal to the proceeds from the purported sale. In addition, the sale +agreement included no fixed date for physical delivery of the metals. Although Higgins noted that +the sale agreement gave the Bank the right to direct transfer of metals delivered by Delphi, Delphi +had the right under the bailment agreement not to deliver the amount specified in the agreement, +and, instead, pay cash equal to a fixed rate per troy ounce for the undelivered metals. Conversely, +the Bank could satisfy its delivery obligation by furnishing a bill of sale for “quantities +constitut[ing] all of such metals remaining in the custody of [Delphi] pursuant to the bailment +provisions” in the sale agreement. The quantities of metals also well exceeded amounts that could +be quickly traded at quoted prices. Some of the metals purported to be sold pursuant to the +agreement were in the custody of Delphi’s suppliers for their use in coating catalytic converters on +Delphi’s behalf. These suspect facts were not addressed sufficiently in the audit memo written by +Higgins to document his concurrence with Delphi’s accounting for the transactions. +In assessing these transactions, Higgins considered SFAS No. 49, “Accounting for Product +Financing Arrangements,” which addresses agreements where an entity sells a product to another +entity and, in a related transaction, agrees to repurchase that product or a substantially identical +product. SFAS No. 49 indicates that a sale and repurchase should not be accounted for as a +financing unless, among other things, the amounts to be paid on the repurchase “will be adjusted, +as necessary to cover substantially all fluctuations in costs incurred by the other entity in +purchasing and holding the product (including interest).” Higgins believed separate treatment of +the sale and repurchase by Delphi could be appropriate because the agreed forward purchase price +3 + +was a fixed amount per troy ounce, and therefore would not fluctuate to cover the Bank’s costs. +He did not take due note of an example in SFAS No. 49 that applies financing treatment to a sale +and repurchase with fixed repurchase prices that were “adequate to cover all financing and holding +costs of the other entity.” Higgins did not recognize that no adjustment of the repurchase price +would be necessary over the 32-day period that the Bank had title to the metals. The Bank had no +holding costs, other than interest cost and the fixed bailment fee it paid Delphi to retain custody of +the metals. The Bank’s assured margin on the transaction of $3.26 million equated to interest +earned at an annualized rate of almost 20%, well in excess of any interest cost the Bank would +reasonably incur to purchase and hold the metals. +In addition, Higgins’ review of a pricing analysis prepared by Delphi, which falsely +justified the prices as being appropriately discounted from market, was deficient. Higgins believed +that he was sufficiently competent to evaluate the overall reasonableness of the pricing model +developed by Delphi without consulting with capital markets experts at D&T. Delphi’s formula +predicted that each metal would trade at a different discount, but the sale and repurchase +agreements indicated an identical discount for each metal. Higgins accepted Delphi’s contrived +calculations as evidence that the transactions occurred at fair value. Higgins also did not question +why the sale and repurchase prices for at least one of the metals fell outside the range that Delphi’s +investment bank advisers considered reasonably likely. +Moreover, Higgins failed to revise D&T’s assessment of risk of material misstatement due +to fraud in light of the above-described problematic aspects of the precious metals transaction. In +May 2000, he had assessed the risk as “normal,” but, by January 2001, Higgins should have +realized that the risk of material misstatement was higher and conducted his audit work thereafter +with more careful scrutiny in light of that risk. +For the above reasons, Higgins’ review and testing of the precious metals transaction did +not conform to Generally Accepted Auditing Standards (“GAAS”). +2. Higgins’ Response to New Information Concerning the +Repurchase of Generator Cores and Batteries from the Consulting Company +In a December 27, 2000, transaction, Delphi purported to sell $70 million of bulk +inventories consisting of substantially all of Delphi’s inventories of generator cores and finished +automotive batteries to a company that was primarily engaged in providing consulting assistance to +troubled automotive industry suppliers and automotive companies engaged in turnaround efforts +(the “Consulting Company”). The written agreement between Delphi and the Consulting +Company expressly stated that it constituted the entire agreement, and that any oral discussions in +connection with the agreement were not enforceable. The written agreement contained no +commitment to repurchase the cores or batteries. Nevertheless, pursuant to an oral side agreement +made at the time of the original sale and not revealed to D&T or Higgins, Delphi purchased the +identical inventory of cores and batteries back from the Consulting Company on January 5, 2001, +at its original price, plus a transaction fee. Because Delphi committed to repurchase the cores and +batteries at a price that covered the Consulting Company’s costs and paid it a fee, GAAP required +the arrangement to be accounted for as a product financing under SFAS No. 49, but Delphi +4 + +improperly accounted for the transactions as a separate sale and purchase. Delphi did not +recognize any revenue or direct profit on the sale, but nevertheless recognized $27 million in LIFO +inventory liquidation gains, which were included by Delphi as part of its year-end disclosure of +$96 million in LIFO gains. +In connection with D&T’s annual audit of Delphi’s financial statements, Higgins reviewed +the Consulting Company sales agreement and concluded that its terms were not abnormal and that +Delphi had no obligation to repurchase the inventory, either written or oral (per Delphi +representations). +Later, however, likely in the course of D&T’s review of Delphi’s first quarter 2001 +financial statements, in April or May 2001, Higgins became aware that at least a significant portion +of the generator cores sold in the final days of 2000 had been repurchased during the first quarter. +As part of his quarterly review, the lead D&T engagement partner asked senior members of +Delphi’s management why a repurchase had occurred, and was told that Delphi had changed its +view as to its need for possession of the cores in light of its plans regarding the sale of the +generator business. Delphi management also orally reaffirmed to the lead D&T engagement +partner that there had been no prior repurchase commitment to the Consulting Company. The lead +D&T engagement partner did not document his consideration of this issue, and performed no +additional procedures. Higgins relied on the lead D&T engagement partner’s inquiry of Delphi +management concerning the matter. +The response of Higgins to the discovery of inventory repurchased in the first quarter so +soon after the year-end bulk sale, particularly in the face of a prior management representation that +there was no obligation to repurchase the inventory, was inadequate. It indicated insufficient +concern about facts that could have contradicted important management representations or +otherwise indicated the possible presence of fraud. Higgins recalls knowing that “some” inventory +was repurchased at some time in the first quarter, but had no recollection that the sale or repurchase +also involved batteries. Higgins had a duty in those circumstances to learn more about the +unexpected repurchase so that the inquiries of management could be sufficiently probative, but he +did not seek out additional facts. D&T’s work papers showed that the repurchase comprised all, or +substantially all, of the original bulk sale of both generator cores and batteries. The invoice for the +repurchase, which D&T neither requested nor received, showed that it occurred nine days after the +sale. The invoice price, compared to the original sale price, showed that the purported value of the +inventory increased over those nine days (representing the fee to the Consulting Company). In +addition, Delphi’s records reveal that Delphi itself had provided the cash with which the +Consulting Company purchased the inventories. In light of facts which were known to him, +GAAS required Higgins to make additional inquiries or conduct additional procedures. +D. VIO LATIONS + Rule 102(e)(1)(ii) provides that the Commission may temporarily or permanently deny an +accountant the privilege of appearing or practicing before it, if it finds, after notice and opportunity +for hearing, that the accountant engaged in “improper professional conduct.” Such improper +professional conduct includes, as applicable here, negligent conduct, defined as “repeated instances +5 + +of unreasonable conduct, each resulting in a violation of applicable professional standards, that +indicate a lack of competence to practice before the Commission.” Rule 102(e)(1)(iv)(A)-(B). +Higgins failed (i) to obtain sufficient competent evidential matter to afford a reasonable basis for +the opinion rendered, Auditing Standards §AU 326, (ii) to exercise due professional care in the +planning and performance of the audit, Auditing Standards § AU 320, and (iii) in performing the +audit to identify material departures from GAAP in the financial statements, Auditing Standards § +AU 410. As a result of the actions detailed above, for Delphi’s fiscal year 2000 and 2001, Higgins +engaged in improper professional conduct on the precious metals and batteries and cores +transactions. +E. FINDINGS +Based on the foregoing, the Commission finds that Higgins engaged in improper +professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Higgins’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Higgins is denied the privilege of appearing or practicing before the Commission as +an accountant. +B. After two years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +6 + +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. + N ancy M. Morris + S ecretary +7 diff --git a/raw/aaer/2008/AAER-2793.txt b/raw/aaer/2008/AAER-2793.txt new file mode 100644 index 0000000000000000000000000000000000000000..b2d6fb721e7aa9ac553b10eb42090496096d82ca --- /dev/null +++ b/raw/aaer/2008/AAER-2793.txt @@ -0,0 +1,1382 @@ + + + + + + + + + + + + + + + + SEC.gov | Alan C. Goldsworthy, Walter T. Hilger, and Mark E. Sullivan + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502926","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Alan C. Goldsworthy, Walter T. Hilger, and Mark E. Sullivan + + + + + + + + + + + + Alan C. Goldsworthy, Walter T. Hilger, and Mark E. Sullivan + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20473 / March 3, 2008 + + Accounting and Auditing Enforcement Release No. 2793 / March 3, 2008 + + Securities and Exchange Commission v. Alan C. Goldsworthy, Walter T. Hilger, and Mark E. Sullivan , Civil Action No. 06-CV-10012-JGD (D. Mass.) + + Jury Finds Former Applix, Inc. CFO Violated Securities Laws and Finds Former CEO Not Liable; Consent Judgment Entered Against Third Former Executive + + + + The Securities and Exchange Commission announced today that on February 15, 2008 a jury found Walter T. Hilger, former Chief Financial Officer of Applix, Inc, a Westborough, Massachusetts Internet software company, liable for fraudulent conduct, including the falsification of books and records, in a civil injunctive action involving improper revenue recognition by Applix. The jury found former Applix CEO Alan C. Goldsworthy not liable for any securities law violations. The verdict followed a four week trial in Boston, Massachusetts before the Honorable Judith Dein, United States Magistrate for the United States District Court for the District of Massachusetts. + + The Commission's complaint, filed on January 4, 2006, alleged that Goldsworthy, Hilger and former Applix Director of World-Wide Operations Mark E. Sullivan participated in two fraudulent revenue recognition schemes, causing Applix to report inflated revenue and understated net loss figures for the year ended December 31, 2001 and for the quarter ended June 30, 2002. + + The jury found that Hilger violated section 17(a)(3) of the Securities Act of 1933 ("Securities Act"); that he falsified Applix's books and records in violation of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); and that he knowingly aided and abetted Applix's filing of a false form 8-K in violation of Section 13(a) of the Exchange Act. The jury found that defendant Hilger did not violate Sections 17(a)(1) and (2) of the Securities Act, and Sections 10(b), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-2. The Court will determine the appropriate remedies against Hilger at a later date. + + The jury found that Goldsworthy did not violate Section 17(a) of the Securities Act and and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 and 13b2-2. + + The Court had previously entered a final judgment by consent against Sullivan on January 9, 2008. The final judgment enjoins Sullivan from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, and orders Sullivan to pay a $25,000 civil money penalty. Sullivan, a resident of Bridgewater, Massachusetts, consented to the judgment without admitting or denying the allegations in the Commission's complaint. + + The Commission also issued an order instituting a settled administrative proceeding against Sullivan pursuant to Rule 102(e) of the Commission's Rules of Practice, based on the entry of the injunction against him. Simultaneously with the institution of the administrative proceeding and without admitting or denying the findings contained in the order, except as to jurisdiction and as to entry of the injunction, Sullivan consented to the issuance of the Commission Order, which suspends him from appearing or practicing before the Commission as an accountant for three years. Sullivan was an inactive CPA at the time of his conduct. + + Earlier, in a related administrative proceeding, the Commission issued a settled Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing Cease-and-Desist Order Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act against Applix, Inc. The Order found that Applix materially overstated net income in the two periodic reports and a registration statement filed with the Commission. Applix, while neither admitting nor denying the Order's findings, consented to the entry of the Order finding that Applix violated Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11,13a-13 and 13b2-1 thereunder. The company also agreed to undertakings including the hiring of an independent Financial Policies Consultant to review the company's internal controls, board oversight and business practices. + + For further information see Litigation Release No. 19521 (January 4, 2006); Securities Act Release No. 8651 and Exchange Act Release No. 53049 (January 4, 2006); and Exchange Act Release No. 57165 and Accounting and Auditing Enforcement Release No. 2768 (January 17, 2008). + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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David Radler and Hollinger Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503111","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Black, F. David Radler and Hollinger Inc. + + + + + + + + + + + + Conrad M. Black, F. David Radler and Hollinger Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20510 / March 25, 2008 + + Accounting and Auditing Enforcement Release No. 2803 / March 25, 2008 + + U.S. Securities and Exchange Commission v. Conrad M. Black, F. David Radler and Hollinger Inc. , Civil Action No. 04C7377 (N.D. Ill. 2004) + + The Securities and Exchange Commission ("Commission") announced on March 25, 2008, that it settled its federal district court action against Hollinger Inc., a Canadian corporation and the controlling shareholder of Sun-Times Media Group, Inc., formerly known as Hollinger International, Inc., pending in the United States District Court for the Northern District of Illinois. + + On November 15, 2004, the Commission filed its action against Hollinger Inc., Conrad M. Black, Hollinger International's former Chairman and CEO, and F. David Radler, Hollinger International's Deputy Chairman and COO, alleging that from approximately 1999 through 2003, the defendants engaged in a fraudulent and deceptive scheme to divert cash and assets from Hollinger International, Inc. ("Hollinger International"), through a series of related party transactions. The Commission's complaint alleges, among other things, that Black and Radler diverted to themselves, other corporate insiders and Hollinger Inc. approximately $85 million of the proceeds from Hollinger International's sale of newspaper publications through purported "non-competition" payments. The complaint further alleges that in order to perpetrate their fraudulent scheme, Black and Radler misled Hollinger International's Audit Committee and Board of Directors concerning the related party transactions and also misrepresented and omitted to state material facts regarding these transactions in Hollinger International's filings with the Commission and during shareholder meetings. The complaint also alleges that Hollinger Inc. made misstatements and omissions of material fact regarding the purported non-competition payments in its responses to Hollinger International's proxy questionnaires and in Hollinger Inc.'s filings with the Commission. Radler previously entered into a settlement with the Commission concerning the allegations against him in this case. + + Hollinger Inc., without admitting or denying the allegations in the complaint, has consented to the entry of a final judgment which permanently enjoins it from violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-16, 13b2-1, 14a-3 and 14a-9 thereunder. The Final Judgment also orders Hollinger Inc. to pay a total of $21,279,471.84 in disgorgement, representing $16,550,000 in alleged non-competition payments received by Hollinger Inc., plus prejudgment interest thereon in the amount of $4,729,471.84. The $21,279,471.84 paid to Hollinger International in satisfaction of the judgment against Hollinger, Inc. and Conrad Black in the action captioned Hollinger International, Inc. v. Black, et al., 844 A.2d 1022 (Del. Ch. C.A. No. 183-N), shall be credited dollar-for-dollar toward the disgorgement in this action. The settlement is subject to approval of U.S. District Judge William T. Hart. + + + + + + + + SEC Complaint in this matter --> + +   + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2804.pdf b/raw/aaer/2008/AAER-2804.pdf new file mode 100644 index 0000000000000000000000000000000000000000..435920ee7e9f77748067c8757e72c02970b87879 Binary files /dev/null and b/raw/aaer/2008/AAER-2804.pdf differ diff --git a/raw/aaer/2008/AAER-2804.txt b/raw/aaer/2008/AAER-2804.txt new file mode 100644 index 0000000000000000000000000000000000000000..9af7aa17163308c466d8c7aa375c7e279bc8b5a6 --- /dev/null +++ b/raw/aaer/2008/AAER-2804.txt @@ -0,0 +1,76 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57560 / March 26, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2804 / March 26, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-9516 +: ORDER GRANTING APPLICATION FOR +: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT +: RESPONSIBLE FOR THE PREPARATION OR Lynn R. Michl, CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED +: TO BE FILED WITH THE COMMISSION +On December 23, 1997, Lynn R. Michl, CPA (“Michl”) was denied the privilege of +appearing or practicing as an accountant before the Commission as a result of settled public +administrative proceedings instituted by the Commission against him pursuant to Rule 102(e) of +the Commission's Rules of Practice.1 Michl consented to the entry of the order without +admitting or denying the findings therein. This order is issued in response to Michl’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. +During 1992, 1993 and the first half of 1994, the Commission found that, while Michl +was serving as CFO, Terrano Corporation (“Terrano”) improperly recorded sales of certain +software enhancement modules that were not yet available for use. In the course of the audits of +Terrano’s financial statements for fiscal 1992 and 1993, Michl provided Terrano’s independent +auditor with management representation documents which falsely stated that the software +enhancement modules were available for delivery. In addition, during the same time period, +Terrano improperly recorded, as software revenue and accounts receivable, sales of software that +was available for delivery, but which had not been delivered at the time the revenue and accounts +receivable were recorded. Michl either knew or should have known that revenue and accounts +receivable on these sales had been improperly recorded. Based on the foregoing, Michl engaged +in improper professional conduct and willfully violated the provisions of the Federal securities +1 See Accounting and Auditing Enforcement Release No. 999 dated December 23, 1997. Michl was permitted, +pursuant to the order, to apply for reinstatement after five years upon making certain showings. +laws and the rules thereunder within the meaning of Rule 102(e) of the Commission’s Rules of +Practice. +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, Michl +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. Michl 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 order in this regard. Therefore, the denial of Michl’s +privilege of appearing and practicing 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 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 Michl, it appears that he has complied with the terms of the December 23, 1997 order denying +him the privilege of appearing or practicing before the Commission as an accountant, that no +information has come to the attention of the Commission relating to his character, integrity, +professional conduct or qualifications to practice before the Commission that would be a basis +for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, +and that Michl, by undertaking to have his work reviewed by the independent audit committee of +any company for which he works, or in some other manner acceptable to the Commission, in his +practice before the Commission as a preparer or reviewer of financial statements required to be +filed with the Commission, has shown good cause for reinstatement. Therefore, it is accordingly, +2 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +2 + +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Lynn R. Michl, CPA is hereby reinstated to appear and practice before the Commission as an +accountant responsible for the preparation or review of financial statements required to be filed +with the Commission. +By the Commission. +Nancy M. Morris +Secretary +3 diff --git a/raw/aaer/2008/AAER-2810.txt b/raw/aaer/2008/AAER-2810.txt new file mode 100644 index 0000000000000000000000000000000000000000..f25b3a499b8335b31c2f2574ca8ca25d8f958a8b --- /dev/null +++ b/raw/aaer/2008/AAER-2810.txt @@ -0,0 +1,1369 @@ + + + + + + + + + + + + + + + + SEC.gov | Savvides & Partners/PKF Cyprus, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503196","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Savvides & Partners/PKF Cyprus, et al. , Civil Action No. 06 CV 2223 (S.D.N.Y.) + + PKF Cyprus Agrees to Injunction in Fraud Settlement in Connection With Audits of AremisSoft; Agrees to Pay $261,565 in Civil Penalties, Disgorgement and Prejudgment Interest + + Savvides & Partners/PKF Cyprus (PKF Cyprus), a Cyprus-based accounting firm, has consented to the entry of a final judgment in the Commission's case charging it engaged in fraud in connection with its 1999 and 2000 audits of AremisSoft Corporation. The firm agreed to settle without admitting or denying the allegations in the Commission's complaint. The settlement, which is subject to Court approval, would permanently enjoin PKF Cyprus from violating or aiding and abetting violations of the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13b2-1. As part of this settlement, and following the entry of the proposed final judgment against it, PKF Cyprus, without admitting or denying the Commission's findings, has consented to the issuance of an administrative order pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending it from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years. PKF Cyprus will disgorge $106,513, which includes fees received as a result of its engagements to audit the financial statements of AremisSoft, with prejudgment interest of $48,539, and a $106,513 civil money penalty. + + In its complaint filed March 21, 2006, the Commission alleged that PKF Cyprus issued audit reports for AremisSoft subsidiaries in 1999 and 2000 signed by former firm partner Pavlos Meletiou (also named as a defendant in the complaint) that falsely stated that its audits were conducted in accordance with U.S. Generally Accepted Auditing Standards (U.S. GAAS) and that the subsidiaries' financial statements were fairly presented in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). The false financial statements of these companies were included as part of AremisSoft's consolidated financial statements filed with AremisSoft's year 1999 and 2000 Forms 10-K filed with the Commission, and in AremisSoft registration statements. The complaint also alleges that the PKF Cyprus audit workpapers prepared by Meletiou during the 2000 audits of two AremisSoft subsidiaries, found in a trash heap outside AremisSoft's Indian offices, included phony customer and bank confirmations. The complaint further alleges that Meletiou attended meetings with senior AremisSoft executives in which the AremisSoft financial fraud was openly discussed. + + For additional information, see Litigation Release No. 19622 / March 22, 2006. + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Broadcom Corp. , United States District Court for the Central District of California, Civil Action No. SACV 08-00430 JVS (RNBx) + + Broadcom to Pay $12 Million Penalty to Settle Charges for Fraudulent Stock Option Backdating + + The Securities and Exchange Commission today filed a civil fraud action against California-based semiconductor maker Broadcom Corporation for falsifying its reported income by backdating stock option grants from 1998 to 2003. As a result of the fraud, Broadcom restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses. Broadcom has agreed to settle the matter by consenting to pay a $12 million civil penalty and be permanently enjoined. + + In a complaint filed in the Central District of California, the SEC alleges that from June 1998 to May 2003, Broadcom, acting through its top officers, backdated the dates on which stock options were granted to executives and employees. Broadcom's Chairman and Chief Technology Officer and its former CEO sat on the two-member option committee that had authority to approve options to employees and all but the most senior executives, whose grants were to be decided by two independent directors comprising Broadcom's compensation committee. + + The SEC alleges that the option committee approved as many as 88 grants during the relevant period, but for many of these grants there was no meeting or decision made by the committee on the dates the grants were supposedly approved. Instead, Broadcom's former CFO allegedly selected many of the grant dates retroactively based on a comparison of Broadcom's historical stock prices, and the two option committee members allegedly concealed the backdating by signing false committee written consents stating that the grant had been approved "as of" the retroactive date. Through backdating, Broadcom made it appear that the options were granted at times corresponding to low points of the closing price of Broadcom's stock â€" despite the fact that the purported grant date bore no relation to when the grant was actually approved. This resulted in artificially and fraudulently low exercise prices for those options. In addition, the complaint alleges that the top officers â€" not the compensation committee â€" decided on option grants to Broadcom's executives and used hindsight to select the dates for them. According to the complaint, Broadcom's general counsel directed the preparation of false board and compensation committee consents to conceal some of these grants. + + The SEC further alleges that, as a result of the backdating scheme, Broadcom avoided reporting $2.22 billion in compensation expenses during the relevant period and thus overstated its income from between 15% to 422% and understated its loss from between 16% to 38%. The unrecorded compensation expenses and hidden backdating practices led Broadcom to provide false and misleading disclosures to its shareholders in filings with the SEC through 2005. + + Without admitting or denying the SEC's allegations, Broadcom has agreed to settle the charges by consenting to a permanent injunction against further violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. Broadcom also has agreed to pay a civil monetary penalty of $12 million. + + Broadcom's settlement is subject to approval by the court. + + + SEC Complaint in this matter +--> + + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2812.txt b/raw/aaer/2008/AAER-2812.txt new file mode 100644 index 0000000000000000000000000000000000000000..818d6794d50268f3f389ccc003912ca1f3c8444e --- /dev/null +++ b/raw/aaer/2008/AAER-2812.txt @@ -0,0 +1,118 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57705 / April 23, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2812 / April 23, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13018 +: +: +In the Matter of : ORDER INSTITUTING PUBLIC +: ADMINISTRATIVE PROCEEDINGS +Claude Fernandez (CPA), : PURSUANT TO RULE 102(e) OF THE +: COMMISSION’S RULES OF + Res pondent : 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 Claude +Fernandez (“Respondent” or “Fernandez”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (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. Fernandez, age 55, is a certified public accountant (“CPA”) with a lapsed +New York license. He has served as Managing Director of W.P. Carey & Co. LLC (“Carey”) from +1997 through the present. Fernandez also served as Chief Accounting Officer of Carey from 1997 +until June 14, 2007. +2. Carey was, at all relevant times, a Delaware corporation with its principal +place of business in New York, New York. Carey is a real estate investment and advisory company. +At all relevant times, Carey’s common stock was registered with the Commission pursuant to +Section 12(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and traded on the New +York Stock Exchange. Carey is the creator, manager, and advisor to a series of non-traded real +estate investment trusts (the “CPA REITs”). +3. On March 18, 2008, the Commission filed a complaint against Fernandez in +Securities and Exchange Commission v. W.P. Carey & Co. LLC et al. (Civil Action No. 08 Civ. +2846 (JSR) (S.D.N.Y.)). On March 21, 2008, the court entered an order permanently enjoining +Fernandez, by consent, (i) from future violations of Sections 17(a)(2) and 17(a)(3) of the Securities +Act of 1933 (“Securities Act”), Section 13(b)(5) of the Exchange Act, and Exchange Act Rule +13b2-1, and (ii) from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the +Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Fernandez was also ordered to pay +a $75,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that from +approximately April 2000 until December 2003, Fernandez, as Carey’s Chief Accounting +Officer, participated in having the CPA REITs make a series of undisclosed revenue sharing +payments totaling approximately $9.7 million to a broker-dealer. These payments were omitted +from the offering documents of the CPA REITs and misrepresented in quarterly and annual +reports filed with the Commission, including registration statements and periodic reports signed +by Fernandez. Fernandez also participated in improperly labeling and misclassifying these +payments, which allowed Carey to evade a National Association of Securities Dealers rule +limiting broker-dealer compensation payments. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Fernandez’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Fernandez is suspended from appearing or practicing before the Commission as an +accountant. +B. After two years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and + (d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +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 +3 + +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +4 diff --git a/raw/aaer/2008/AAER-2813.txt b/raw/aaer/2008/AAER-2813.txt new file mode 100644 index 0000000000000000000000000000000000000000..d27a14436575cd9a68ea5fb6d3df624f7f3a0a47 --- /dev/null +++ b/raw/aaer/2008/AAER-2813.txt @@ -0,0 +1,102 @@ + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57709 / April 24, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2813 / April 24, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-10714 + +In the Matter of +Kevin R. Andersen, 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 March 5, 2002, Kevin R. Andersen, CPA (“Andersen”) was denied the privilege of +appearing or practicing as an accountant before the Commission as a result of settled public +administrative proceedings instituted by the Commission against Andersen pursuant to Rule +102(e) of the Commission's Rules of Practice. +1 Andersen consented to the entry of the order +without admitting or denying the facts, findings and conclusions therein. This order is issued in +response to Andersen’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. + Andersen audited the financial statements of Itex Corporation (“Itex”) for the fiscal +years ended July 31, 1992 through 1997. Itex filed an amended Form 10-K for the period ended +July 31, 1997 which included restated financial statements for the fiscal years ended July 31, +1996 and 1997 and additional restated financial information stretching back to the fiscal year +ended July 31, 1993. These restatements were issued due to material misstatements in Itex’s +financial statements during the relevant time periods. In the course of his audits, the +Commission found that Andersen engaged in improper professional conduct. In particular, the +Commission found that Andersen violated Statement on Auditing Standards Nos. 1 and 7 +because he failed to communicate with Itex’s predecessor auditor and failed to exercise +professional skepticism in auditing certain of Itex’s barter transactions, which resulted in Itex’s +filing financial statements that failed to comply with Generally Accepted Accounting Principles. + +1 See Accounting and Auditing Enforcement Release No. 1510 dated March 5, 2002. Andersen was permitted, +pursuant to the order, to apply for reinstatement after three years upon making certain showings. + 2 + +In his capacity as a preparer or reviewer, or as a person responsible for the preparation or +review, of financial statements of a public company to be filed with the Commission, Andersen +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. Andersen 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, the denial of +Andersen’s privilege to 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 Andersen, it appears that he has complied with the terms of the March 5, 2002 order denying +his privilege of appearing or practicing before the Commission as an accountant, that no +information has come to the attention of the Commission relating to his character, integrity, +professional conduct or qualifications to practice before the Commission that would be a basis +for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, +and that Andersen, 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 +Kevin R. Andersen, CPA is hereby reinstated to appear and practice before the Commission as +an accountant responsible for the preparation or review of financial statements required to be +filed with the Commission. + +By the Commission. + +Nancy M. Morris +Secretary + + +2 Rule 102(e)(5)(i) provides: + +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). + \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2816.pdf b/raw/aaer/2008/AAER-2816.pdf new file mode 100644 index 0000000000000000000000000000000000000000..6426de22e5416357e1363a7f0d8d144abe2f308e Binary files /dev/null and b/raw/aaer/2008/AAER-2816.pdf differ diff --git a/raw/aaer/2008/AAER-2817.txt b/raw/aaer/2008/AAER-2817.txt new file mode 100644 index 0000000000000000000000000000000000000000..9b01954310c8d155ea316a46b805f183e35fa62a --- /dev/null +++ b/raw/aaer/2008/AAER-2817.txt @@ -0,0 +1,1392 @@ + + + + + + + + + + + + + + + + SEC.gov | James J. 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Treacy + + + + + + + + + + + + James J. Treacy + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20544 / April 30, 2008 + + Accounting and Auditing Release No. 2817 / April 30, 2008 + + SEC v. James J. Treacy , United States District Court for the Southern District of New York, Civil Action No. 08 CV 4052 (S.D.N.Y. April 30, 2008) + + SEC Charges Two Former Executives of Monster Worldwide, Inc. for Backdating Options + + The Securities and Exchange Commission (the "SEC") today charged two former senior executives at Monster Worldwide, Inc., for their alleged participation in a multi-year scheme to secretly backdate stock options granted to thousands of Monster officers, directors and employees. + + The SEC's complaint, filed in the District Court for Southern District of New York, alleges that Monster's former president and chief operating officer James J. Treacy and former controller Anthony Bonica participated in a scheme that began in 1997 to fraudulently backdate stock options to coincide with the dates of low closing prices for the New York-based company's common stock. + + The SEC is alleging that this scheme resulted in grants of in-the-money options to numerous individuals without Monster properly describing its options practices in its public filings or properly accounting for these options in its financial statements. As a result of their conduct, Monster misrepresented that all stock options were granted at the fair market value of the stock on the date of the award, when that was not the case. Monster also filed materially misstated financial statements with the SEC in its Forms 10-K and 10-Q that did not recognize compensation expense for the company's stock option grants, as required by generally accepted accounting principles. As a result, Monster overstated its aggregate pre-tax operating income by approximately $339.5 million for fiscal years 1997 through 2005. + + The SEC's complaint further alleges that Treacy and Bonica personally benefited from the fraudulent scheme by receiving and exercising backdated grants of in-the-money options. + + The SEC is charging Treacy with violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), 14(a) and 16(a) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, 14a-9 and 16a-3 thereunder, and for aiding and abetting Monster's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. The SEC is charging Bonica with violating Section 17(a) of the Securities Act, Sections 10(b), 13(b)(5), and 14(a) of the Exchange Act and Rules 10b-5, 13b2-1, and 14a-9 thereunder, and for aiding and abetting Monster's violations of Sections 10(b), 13(a), 13(b)(2)(A), and 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. The Commission is seeking permanent injunctive relief, disgorgement of ill-gotten gains and financial penalties from each defendant, as well as an officer and director bar against Treacy. + + The Commission's investigation in this matter is continuing. + + + + + SEC Complaint in this matter + +   + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Interpublic Group of Companies, Inc. and McCann-Erickson Worldwide, Inc.; Salvatore LaGreca and Brian Watson + + + + + + + + + + + + Interpublic Group of Companies, Inc. and McCann-Erickson Worldwide, Inc.; Salvatore LaGreca and Brian Watson + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20547 / May 1, 2008 + + Accounting and Auditing Enforcement Release No. 2819 / May 1, 2008 + + SEC v. Interpublic Group of Companies, Inc. and McCann-Erickson Worldwide, Inc., No. 08-CV-4075 (GBD)(S.D.N.Y.) (May 1, 2008) + + SEC v. Salvatore LaGreca and Brian Watson, No. 08-CV-4076 (GBD) (S.D.N.Y.) (May 1, 2008) + + SEC CHARGES McCANN- ERICKSON WORLDWIDE, INC., INTERPUBLIC GROUP OF COMPANIES AND TWO FORMER EXECUTIVES + + DEFENDANTS AGREE TO SETTLE; McCANN AGREES TO PAY $12 MILLION PENALTY + + The Securities and Exchange Commission today filed a civil injunctive action against McCann-Erickson Worldwide, Inc. ("McCann") and the Interpublic Group of Companies, Inc. ("IPG"). The Commission alleged that McCann committed securities fraud when it misstated its financial results by failing to expense properly intercompany charges. IPG negligently failed to address the intercompany problems at its largest subsidiary, McCann. IPG also violated the reporting, internal controls and books and records provisions of the securities laws in connection with a variety of issues that were reflected in various restatements IPG issued from August 2002 through September 2005 totaling more than $600 million. IPG and McCann agreed to settle the Commission's charges, and McCann agreed to pay a $12 million civil penalty. + + The Commission's complaint named the following defendants. + + IPG is a holding company that owns numerous advertising, marketing and associated companies, including the advertising agency, McCann.   + + McCann is a Delaware corporation that IPG wholly owns. McCann owns hundreds of regional and local operating agencies throughout the world. + + The Commission also brought settled charges against Salvatore LaGreca and Brian Watson (in a separate complaint) for their role in failing to reconcile intercompany accounts that resulted in the 2002 restatement. + + LaGreca, 55, a resident of Port Washington, New York. LaGreca served as McCann's Vice-Chairman, Finance and Operations and CFO from January 1996 to October 2002. LaGreca is a CPA licensed in the State of New York. LaGreca, among other things, oversaw McCann's accounting, financial reporting, strategic planning, mergers and acquisitions, and budgeting.   + + Watson, age 60, a resident of the United Kingdom. Watson joined McCann's European-Middle-East-Asia region ("EMEA") as Director of Operations in 1996, from 2000 served as Chief Operating Officer and in approximately May 2002 became Deputy Regional Director of EMEA. Although Watson was not an accountant, from approximately the middle of 1998 until January 2000, and from early 2001 to May 2002, when EMEA did not have a Finance Director, Watson handled many aspects of the Finance Director's responsibilities. + + The Commission's complaints alleged the following: + + From August 2002 through September 2005, IPG issued numerous restatements that together totaled more than $600 million. The restatements corrected misstatements in IPG's financial statements that emanated from numerous substantive areas in a variety of geographic regions, and reflected conduct ranging from inaccurate books and records and lack of internal controls to fraud. + + Initially, in the Fall of 2002, IPG restated its financial results in an amount of $181 million for the period 1997 to 2002. The largest component of this restatement (approximately $101 million) was attributable generally to the fact that McCann recorded as receivables intercompany charges that should have been expensed. McCann officers and employees, including LaGreca and Watson, failed to ensure McCann reconciled its intercompany accounts for at least six years. At times, LaGreca and Watson purposely delayed reconciling intercompany accounts because they knew a reconciliation would result in write-offs that would interfere with McCann's efforts to hit internal annual profit targets. Because McCann never fully reconciled its intercompany accounts and failed to expense properly intercompany charges, McCann's financial results were inaccurate. By 2002, McCann's intercompany accounts were misstated by approximately $101 million. As LaGreca and Watson knew, IPG then incorporated McCann's financial results in IPG's consolidated financial statements. + + IPG's financial management negligently ignored indications McCann was improperly accounting for intercompany transactions. Accordingly, IPG negligently ignored the risk that McCann's results were materially misstated, with the result that IPG's own financial results were materially misstated. + + IPG's financial reporting problems were not resolved in 2002. In September 2005, IPG again restated its pre-tax income for the years 2000 through 2003, and the nine months ended 2004, in the amount of $420 million. According to the complaint, a large portion of this restatement was related to $199 million of improperly recognized revenue related to Agency Volume Bonifications (AVBs) and other vendor discounts and credits that IPG took in violation of its contracts with certain of its clients. The 2005 restatement was necessary because there had been a substantial breakdown of internal controls at IPG, and its numerous subsidiaries, including McCann. + + IPG filed numerous Forms 10-K, Forms 10-Q, Forms 8-K, and registration statements that contained misrepresentations due to the intercompany issues, the AVB issues, and the various other issues that were reflected in the 2002 and 2005 restatements. For example, in its 2002 Form 10-K, IPG reported net income of $99.5 million. This figure, however, was improperly inflated by $82.8 million, and IPG's actual income, as reflected in the restatements, was only $16.7 million (a 496% overstatement). + + IPG, McCann, LaGreca and Watson settled the Commission's charges without admitting or denying the allegations in the Commission's complaints. IPG agreed to consent to a final judgment permanently enjoining it from future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 (Securities Act) and Sections 13(a) and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder + + McCann agreed to consent to a final judgment permanently enjoining it from future violations of Sections Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted IPG's violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13. McCann also agreed to pay a $12 million penalty and $1 in disgorgement for its role regarding intercompany accounts resulting in the 2002 restatement. + + LaGreca and Watson agreed to settle this matter by consenting to final judgments permanently enjoining them from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting violation of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. LaGreca and Watson also agreed to pay a civil penalty, in the amounts of $25,000 and $50,000, respectively, and to disgorge all gains derived from their violative conduct plus pre-judgment interest, in the amounts of $46,947 and $17,325, respectively. + + In related administrative proceedings, LaGreca consented to an order under Rule 102(e) of the Commission's Rules of Practice suspending him from appearing or practicing before the Commission as an accountant for five years based on the entry of an injunction against him. + + SEC Complaint re: LaGreca SEC Complaint re: IPG + + + + +  + + + + + + + + + + + Resources + + + + + LaGreca + + + + + and IPG + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Sophie + + + + + + + + + + + + Hong Liang Lu and Michael J. Sophie + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20548 / May 1, 2008 + + Accounting and Auditing Enforcement Release No. 2820 / May 1, 2008 + + Securities and Exchange Commission v. Hong Liang Lu and Michael J. Sophie , Case No. C-08-2262 PJH (N.D. Cal. filed May 1, 2008) + + SEC Fines Bay Area Telecom Company Executives For False Financial Filings + + The Securities and Exchange Commission today filed a settled district court action against Hong Liang Lu, CEO of Alameda, Calif.-based telecommunications company UTStarcom, Inc., and former UTStarcom CFO Michael J. Sophie in connection with the company's false financial reports and recurring internal control deficiencies. Without admitting or denying the Commission's allegations, Lu and Sophie agreed to pay civil penalties of $100,000 and $75,000, respectively. + + According to the complaint, UTStarcom publicly reported over $400 million in sales between 2000 and 2005 that were subject to undisclosed side agreements or contract modifications rendering revenue recognition improper under applicable accounting principles. The Commission further alleges that UTStarcom failed to disclose and properly account for transactions between the company and an entity controlled by an executive of UTStarcom's China subsidiary, and that the company failed to properly record compensation expenses for employee stock options. According to the Commission, Lu and Sophie violated Rule 13a-14 of the Securities Exchange Act of 1934 ("Exchange Act") by falsely certifying that the company's financial statements and books and records were accurate. + + In a related administrative order issued today, the Commission found that, by its conduct, UTStarcom violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. The Order further found that Lu and Sophie caused the company's violations and violated Exchange Act Rule 13a-14. Without admitting or denying the Commission's findings, UTStarcom agreed to cease and desist from violating the corporate reporting, books and records and internal controls provisions of the federal securities laws, and Lu and Sophie agreed to cease and desist from causing such violations and violating the certification provisions of the federal securities laws. + + + + + + + SEC Complaint in this matter + +   + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2821.txt b/raw/aaer/2008/AAER-2821.txt new file mode 100644 index 0000000000000000000000000000000000000000..339cec6d78c0d74584ca484291030d47c4a0b537 --- /dev/null +++ b/raw/aaer/2008/AAER-2821.txt @@ -0,0 +1,250 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57754 / May 1, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2821 / May 1, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13031 +In the Matter of +UTStarcom, Inc., +Hong Liang Lu and +Michael J. Sophie, +Respondents. +ORDER INSTITUTING CEASE-AND- +DESIST PROCEEDINGS, MAKING +FINDINGS, AND IMPOSING A +CEASE-AND-DESIST ORDER +PURSUANT TO SECTION 21C OF +THE SECURITIES EXCHANGE ACT +OF 1934 +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that +cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the +Securities Exchange Act of 1934 (“Exchange Act”), against UTStarcom, Inc. (“UTSI”), Hong +Liang Lu (“Lu”) and Michael J. Sophie (“Sophie”) (collectively “Respondents”). +II. +In anticipation of the institution of these proceedings, Respondents have submitted an +Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the +findings herein, except as to the Commission’s jurisdiction over them and the subject matter of +these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting +Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order +Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. +III. +On the basis of this Order and Respondents’ Offer, the Commission finds that: +Summary +1. This matter involves recurring internal control deficiencies and inaccurate +financial filings by UTSI, a publicly-traded telecommunications company that has restated its +financial statements three times since 2005 to correct multiple accounting irregularities. Since +2000, UTSI has improperly recognized revenue on transactions subject to undisclosed side +agreements, failed to properly disclose and account for related party transactions, and failed to +properly record compensation expenses related to employee stock options. Despite being put on +notice of potential accounting issues by, among other things, material weakness letters sent by +the company’s outside auditors, CEO Hong Liang Lu and former CFO Michael J. Sophie failed +to implement and maintain adequate internal controls and falsely certified that UTSI’s financial +statements and books and records were accurate. +Respondents +2. UTSI, a Delaware corporation with headquarters in Alameda, California, is a +telecommunications company that sells software and hardware products in emerging and +established telecommunications markets around the world. The majority of UTSI’s operations +are in Hangzhou, China and overseas. UTSI went public in 2000, and its common stock is +registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades on the +NASDAQ Global Select Market under the symbol UTSI. +3. Lu, 53, is a co-founder of UTSI and has served as a board member and Chief +Executive Officer since 1995. Lu resides in San Ramon, California and Hangzhou, China. +4. Sophie, 50, was UTSI’s Chief Financial Officer from 2000 through August 2005 +and UTSI’s Chief Operating Officer from June 2005 through May 2006. Sophie resides in +Pleasanton, California. +Facts +Background +5. Historically, China has been UTSI’s largest market. Between 1995 and 2002, +nearly all of UTSI’s revenue derived from sales by UTSI’s subsidiary in China (“UT-China”). +By late 2002, UTSI’s business plan was expanded to include growth on an international scale. +UTSI defines “international” sales as all sales outside of China, including sales in the U.S., +Japan, India, and other overseas markets. In 2003 and 2004, sales in China accounted for 86% +and 79% of UTSI’s revenue, respectively. By 2006, sales in China accounted for 32% of UTSI’s +revenue. The finance department at UT-China handled the accounting for all transactions in +China, and UTSI’s finance department in the U.S. handled the accounting for all international +transactions. +6. In March 2003, UTSI received a Management Recommendation letter from its +auditors detailing internal control weaknesses identified during the December 31, 2002 year-end +audit. The letter was addressed to the audit committee and copied to Lu and Sophie. Among +other things, the letter specifically noted that UTSI should “strengthen procedures to ensure side +letters and contract amendments are communicated and accounted for in a timely manner.” In its +-2- + +written response to the auditor’s letter, UTSI said it had implemented the necessary controls to +track and monitor side letters and non-routine transactions. UTSI sometimes used letter +agreements, or side letters, to supplement or amend contractual terms. Such letters were allowed +so long as the accounting for them was done properly. +7. UTSI received another Management Recommendation letter from its auditors in +April 2004 detailing multiple internal control weaknesses (many classified as material) identified +during the December 31, 2003 year-end audit. The letter was copied to Lu and Sophie, and again +noted concerns about the use of side letters that were not forwarded to the finance department. +The auditors also expressed concerns with many complex related-party transactions entered into +by UTSI. The auditors informed UTSI that the company did not adequately disclose significant +transactions involving joint venture arrangements between UTSI and its customers. In its written +response, UTSI said it had strengthened controls to identify side letters and implemented +monitoring procedures to identify significant joint venture transactions. +8. UTSI also received management recommendation letters from its auditors noting +multiple material weaknesses in connection with the 2004 and 2005 year-end audits. +UTSI Prematurely Recognized Revenue From International Sales Subject To Undisclosed Side +Agreements +9. Between 2003 and 2005, UTSI prematurely recognized nearly $50 million in net +revenue from international sales, all of which occurred outside the U.S., which were subject to +side agreements that had been concealed from the company’s finance personnel. Because these +agreements promised future performance by UTSI, revenue should not have been recognized +under Generally Accepted Accounting Principles (“GAAP”). +10. Among other contingent transactions, UTSI improperly recognized revenue from +the sale of a $22 million network system to a purchaser in India. At the time of the sale, +securities analysts had expressed concerns about UTSI’s ability to enter markets outside China, +and Lu specifically highlighted this deal as indicative of UTSI’s success in gaining traction in +India. +11. UTSI delivered the system and recognized revenue from the $22 million sale in +phases over several quarters, including the second quarter of 2004 and the second quarter of +2005. Before recognizing the revenue, UTSI’s finance department required the purchaser to sign +a final acceptance certificate certifying that all elements of the phase had been delivered and +successfully installed. +12. During the second quarter of 2004, the purchaser sent UTSI the final acceptance +certificate, but included a proposed side agreement requiring UTSI to upgrade the system after +the end of the quarter. Lu and Sophie were aware of the proposed side agreement. UTSI’s +revenue recognition manager, with the knowledge of Lu and Sophie, specifically admonished +that approving the side agreement would prevent revenue recognition. Lu personally +communicated with the customer to request that they accept the products without a side +agreement. +-3- + +13. Notwithstanding these directions, a UTSI sales executive signed a side agreement +with the purchaser, but failed to adequately disclose the agreement to finance personnel, +resulting in the improper recognition of revenue by the company. Lu and Sophie failed to take +adequate steps to determine how the customer’s request for a side agreement had been resolved +and whether revenue recognition was appropriate. +14. During the second quarter of 2005, UTSI recognized additional revenue from the +India sale. Once again, a UTSI sales executive had signed a side letter making the customer’s +acceptance contingent on future upgrades (and thus rendering revenue recognition improper +under GAAP). Lu and Sophie were aware the customer had made such a request, but received a +communication from finance personnel that the final acceptance certificates received from the +customer were acceptable. Neither Lu nor Sophie took steps to determine how the issue was +resolved and whether revenue was properly recognized. +15. In addition to the India transaction, UTSI entered into five other international +sales transactions totaling $27.5 million in net revenue where side agreements had been entered +into promising future products or services. These side agreements should have precluded +revenue recognition. On June 26, 2006, UTSI restated its financial statements for the period +between Q1 2003 through Q3 2005, reversing $49.5 million in net revenue that had been +improperly recognized by the company. +UTSI Prematurely Recognized Revenue On Sales In China With Undisclosed Contract +Modifications +16. Between 2000 and 2005, UTSI prematurely recognized over $350 million in +revenue from 78 sales transactions in China. On some occasions, UTSI sales personnel entered +into contracts that contained non-standard product upgrade provisions precluding revenue +recognition. In some instances, sales personnel documented the sales on two separate contracts, +and only the company’s standard contract (without the upgrade provisions) was made available +to UTSI’s finance personnel. As a result, UTSI repeatedly recognized revenue for contingent +sales in violation of GAAP. +17. Lu and Sophie had been on notice since at least 2003 of significant internal +control weaknesses in China, including the fact that in some instances side letters and contract +amendments introducing revenue contingencies were not forwarded by sales offices to the +contract and finance departments. Although Lu and Sophie took steps to improve internal +controls in response to this information, neither those steps nor the resulting controls were +sufficient to detect the improper dual contract practices and failed to prevent certain +improprieties. +18. On October 10, 2007, UTSI restated its financial statements from 2000 through +the second quarter of 2006 to reverse $271 million in net revenue improperly recognized by the +company. +UTSI Failed to Disclose and Properly Account for Related Party Transactions +19. In 2001, a China-based company called MDC was formed in order to provide +value-added services to UTSI products. The father of UT-China’s Executive Vice President +-4- + +founded MDC; the UT-China executive served as the “alternate” chairman of MDC’s board of +directors. Numerous officers and other employees of UT-China invested in MDC, and certain +UT-China employees worked for MDC while their salaries were paid by UT-China. +20. In 2003, UT-China entered into a complex transaction involving MDC and +another customer in China, whereby MDC took ownership of UTSI inventory that had decreased +in value. Because UTSI failed properly to treat MDC as a consolidated entity, no impairment of +the inventory value was recorded by UTSI at the time. +21. Lu and Sophie had been on notice of concerns raised by the company’s auditors +about UTSI’s failure to adequately disclose related party transactions entered into by UTSI. +Although Lu and Sophie took steps to improve internal controls in response to this information, +neither those steps nor the resulting controls were sufficient to detect the improper transaction +with MDC and failed to prevent inaccurate reporting of certain related party transactions. +22. On April 13, 2005, UTSI restated its 2003 financial statements in part to +consolidate MDC, as MDC was deemed a related party controlled by UTSI. The restatement +resulted in the write down of $7.5 million in UTSI inventory held by MDC. +UTSI Failed Properly to Account for Stock Compensation Expenses +23. UTSI failed properly to account for certain stock option grants because the +company used incorrect grant dates for determining compensation expenses. Under GAAP, +UTSI was required to record an expense on its financial statements for any stock options granted +“in-the-money” – i.e. where the exercise price of the option was less than the market price for the +security on the date the option was granted. +24. Certain grants to UTSI officers were backdated or accounted for with incorrect +grant dates prior to the proper authorization of the grant by the company’s Compensation +Committee. This resulted in an exercise price below market price on the date of the grant, yet no +expense was recorded by the company. +25. UTSI failed to establish and implement adequate internal controls for the granting +of employee stock options. Among other things, UTSI failed to maintain necessary +documentation showing when the grants were actually authorized by the Compensation +Committee. +26. On October 10, 2007, UTSI restated its financial statements from 1998 through +the second quarter of 2006 to recognize an additional $27 million in compensation expenses +related to employee stock options. +Respondents Lu And Sophie Signed False Certifications Under Section 302 Of The +Sarbanes-Oxley Act +27. Lu and Sophie, as UTSI’s CEO and CFO, were required to sign certifications each +fiscal quarter and fiscal year stating that, based on their knowledge, the company’s quarterly and +annual reports did not contain any misstatements or omit material information, that the reports +disclosed all significant deficiencies in the design or operation of UTSI’s internal controls, and +-5- + +that the reports fairly presented in all material respects UTSI’s financial condition and results of +operations. Lu executed such certifications for the quarters and years from the first quarter of +2004 through the second quarter of 2006, and Sophie executed such certifications for the quarters +and years from the first quarter of 2004 through the second quarter of 2005. For the reasons set +forth above, these certifications were false. +Violations +28. As a result of the conduct described above, UTSI violated Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by +filing inaccurate periodic reports with the Commission, by failing to make and keep accurate +books and records, and by failing to devise and maintain an adequate system of internal +accounting controls. The company filed inaccurate periodic reports and failed to keep accurate +books and records because the company improperly recorded revenue for transactions that +involved side agreements with revenue contingencies and failed properly to account for related- +party transactions and stock compensation expenses. In addition, UTSI failed to devise and +maintain an effective system of internal controls relating to side agreements, related parties and +stock option practices. +29. As a result of the conduct described above, Lu and Sophie caused UTSI’s +violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 +and 13a-13 thereunder insofar as they did not take steps adequate to ensure that UTSI filed +accurate financial statements, made and kept accurate books and records, and implemented and +maintained adequate internal controls. Also as a result of the conduct described above, Lu and +Sophie violated Exchange Act Rule 13a-14 by falsely certifying that UTSI’s periodic filings did +not contain any material misstatements or omissions, disclosed all significant deficiencies in +UTSI’s internal controls, and fairly presented UTSI’s financial condition and results of +operations. +UTSI’s Remedial Efforts +In determining to accept the Offer, the Commission considered remedial acts undertaken +by UTSI. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offer. +Accordingly, it is hereby ORDERED that: +A. Respondent UTSI cease and desist from committing or causing any violations and +any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and +Rules 13a-1 and 13a-13 thereunder; +B. Respondent Lu cease and desist from causing any violations and any future +violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 +-6- + +and 13a-13 thereunder, and from committing any violations and any future violations of Rule +13a-14 thereunder; and +C. Respondent Sophie cease and desist from causing any violations and any future +violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 +and 13a-13 thereunder, and from committing any violations and any future violations of Rule +13a-14 thereunder. +By the Commission. +Nancy M. Morris +Secretary +-7- diff --git a/raw/aaer/2008/AAER-2824.txt b/raw/aaer/2008/AAER-2824.txt new file mode 100644 index 0000000000000000000000000000000000000000..ced7d043e981243f4515013cbafc8b0fab982ada --- /dev/null +++ b/raw/aaer/2008/AAER-2824.txt @@ -0,0 +1,1369 @@ + + + + + + + + + + + + + + + + SEC.gov | David M. Hurley + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503391","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Hurley + + + + + + + + + + + + David M. Hurley + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20566 / May 12, 2008 + + Accounting and Auditing Enforcement Release No. 2824 / May 12, 2008 + + Securities and Exchange Commission v. David M. Hurley , Civil Action No. 1:05CV01306 (JR) (D.D.C.) + + Former aaiPharma Inc. Executive David Hurley Agrees to Pay $50,000 Civil Penalty in Settlement of SEC Litigation + + The Securities and Exchange Commission today announced a final resolution of the Commission's civil action against David M. Hurley (Hurley), former chief operating officer of aaiPharma, Inc. (aaiPharma). Pursuant to a final judgment entered by the Court on May 5, 2008, Hurley was ordered to pay a civil penalty of $50,000. In June 2005, without admitting or denying the allegations in the complaint, Hurley consented to a partial resolution of the case, agreeing to entry of a judgment enjoining him from violating or aiding and abetting violations of the antifraud, recordkeeping, internal controls, and other provisions of the federal securities laws (Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-11, 13a-13, and 13b2-1) and to be permanently barred from acting as an officer or director of any public company. + + In the Commission's complaint filed against Hurley in June 2005, the Commission alleged that prior to aaiPharma's 2003 fiscal third quarter end, Hurley arranged fraudulent sales transactions with customers to create the illusion that aaiPharma had met or exceeded its sales goals for the quarter. The complaint alleged that these fraudulent sales were reflected in aaiPharma's financial statements included in filings publicly disseminated in November 2003 and February 2004. The complaint further alleged that in the fourth quarter of 2003, Hurley arranged a fraudulent sales transaction with an aaiPharma customer. According to the complaint, although the transaction gave the customer the right to return the product, aaiPharma falsely recorded it as a final sale. The complaint alleged that as a result, aaiPharma reflected fraudulent sales of approximately $8 million in a Form 8-K filed with the Commission in February 2004 that announced the company's financial results for its fiscal fourth quarter and fiscal year ended 2003. + + The Commission acknowledges the assistance of the United States Attorney's Office for the Western District of North Carolina and the Federal Bureau of Investigation's Charlotte, North Carolina Field Office in this matter. + + For additional information, see Litigation Release No. 19290 / June 30, 2005 + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Brian Spears + + + + + + + + + + + + Brian Spears + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20568 / May 13, 2008 + + Accounting and Auditing Enforcement Release No. 2825 / May 13, 2008 + + Securities and Exchange Commission v. Brian Spears , Civil Action No.08-00820 (CCK) (D.D.C.) (filed May 13, 2008) + + SEC Settles Fraud Action Against Former U.S. Foodservice Vice President Brian Spears + + The Securities and Exchange Commission today filed a settled civil injunctive action against Brian Spears, a former Vice President of Purchasing at U.S. Foodservice (USF). The complaint alleges that Spears and others at USF, then a subsidiary of Royal Ahold (Koninklijke Ahold N.V.) (Ahold), engaged in a large-scale fraud that, for fiscal years 2001 and 2002, materially overstated operating income by an aggregate amount of approximately $700 million in Commission filings and other public announcements. + + The Commission's complaint further alleges that Spears and others at USF induced third parties to confirm false information to USF's outside auditors. Spears and others at USF did this to make it falsely appear that amounts recorded on USF's books and records as accounts receivable were earned. As alleged in the complaint, Spears called vendors at USF's 2001 fiscal year-end and 2002 fiscal year-end and worked with others at USF to convince the vendors to sign the confirmation letters and return them to USF's auditors. + + Spears has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a final judgment permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13b2-2 thereunder. The final judgment orders disgorgement of $45,000 and prejudgment interest thereon in the amount of $15,547, but waives payment of all disgorgement and prejudgment interest and does not impose a civil penalty, based on the sworn representations in Spears' Statement of Financial Condition and other documents and information submitted to the Commission. The final judgment also bars Spears from serving as an officer or director of a public company for five years. The settlement is subject to approval by the Court. + + The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York and the New York Office of the Federal Bureau of Investigation. + + + + + + + SEC Complaint in this matter + +   + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Brooks Automation, Inc. + + + + + + + + + + + + Brooks Automation, Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20584 / May 19, 2008 + + Accounting and Auditing Enforcement Release No. 2828 / May 19, 2008 + + Securities and Exchange Commission v. Brooks Automation, Inc. , Civil Action No. 08 CA 10834 WGY (D. Mass.) + + SEC Charges Brooks Automation, Inc. With Violations in Stock Options Backdating Scheme + + The Securities and Exchange Commission today filed a civil injunctive action against Brooks Automation, Inc., a Chelmsford, Massachusetts semiconductor capital equipment company, alleging that it overstated income and understated employee compensation expenses in its financial statements by $64.5 million during the period from 1996 through 2005 as a result of its failure to properly account for employee stock options. Without admitting or denying the allegations, Brooks agreed to settle to charges that it violated the reporting, books and records, and internal controls provisions of the federal securities laws. + + According to the complaint, a backdated exercise in 1999 by former President and CEO Robert J. Therrien and other grants for which the company improperly accounted resulted in misleading disclosures, with Brooks overstating its net income by as much as 30% in fiscal year 2000 alone. Brooks misstated in its public filings that all stock options were granted at or above the fair market value of the stock on the date of the award, when that was not the case. Brooks also filed misstated financial statements with the SEC in its Forms 10-K and 10-Q that did not recognize compensation expense for the company's stock option grants, as required by generally accepted accounting principles. + + The Complaint alleges that, in November 1999, Therrien, upon learning that an option to exercise 225,000 shares had expired worthless the preceding August, participated in creating, and signed, false documents resulting in the issuance of in-the-money options to him, which he immediately exercised, to purchase 225,000 shares of Brooks. As a result of his fraudulent exercise alone, Therrien received $5.7 million in undisclosed compensation from Brooks. Brooks failed to report this compensation, and its effects on Brooks' financial statements, in its filings with the SEC. Therrien was previously charged by the Commission in a separate, unsettled action filed in July 2007. + + The Complaint further alleges several instances of company-wide options grants with purported grant dates that were inaccurate. For example, according to the complaint, the option grant with a purported date of October 1, 2001 in fact was not finalized until November 30, 2001. During that period the price of Brooks' stock rose by more than $11 per share, producing immediate compensation to the recipients of the grant of approximately $22 million, which Brooks failed to disclose in its financial reports. + + Brooks, without admitting or denying the allegations in the Commission's complaint, agreed to settle the matter by consenting to a permanent injunction from further violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder. + + For further information, please see Litigation Release No. 20210 (July 25, 2007) [unsettled action filed against Therrien]. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Michael Resnick, et al. + + + + + + + + + + + + Michael Resnick, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20592 / May 21, 2008 + + Accounting and Auditing Enforcement Release No. 2830 / May 21, 2008 + + Securities and Exchange Commission v. Michael Resnick, et al. , Civil Action No. 1:05-CV-01254-CCB (D. Md.) + + SEC Settles Fraud Action against Former U.S. Foodservice Chief Financial Officer Michael Resnick + + The Securities and Exchange Commission announced today that the Honorable Catherine C. Blake, United States District Judge for the District of Maryland, has entered a final judgment against defendant Michael Resnick. Resnick, who consented to the judgment without admitting or denying the allegations in the Commission's complaint, was the former Chief Financial Officer of U.S. Foodservice (USF). The judgment permanently enjoins Resnick from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. Resnick was permanently barred from serving as an officer or director of a public company. The judgment also orders Resnick to pay approximately $353,750 in disgorgement and prejudgment interest thereon in the amount of $141,529, but waives payment of all disgorgement and prejudgment interest and does not impose a civil penalty, based on the sworn representations in Resnick's Statement of Financial Condition and other documents and information submitted to the Commission. + + The original Complaint was filed on July 27, 2004 in the U.S. District Court for the Southern District of New York. The Commission's Second Amended Complaint, filed on February 16, 2005, alleges that Resnick and others at USF, then a subsidiary of Royal Ahold (Koninklijke Ahold N.V.), participated in a scheme to overstate Royal Ahold's income by $700 million or more in Commission filings and other public announcements for at least fiscal years 2001 and 2002. + + The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York and the New York Office of the Federal Bureau of Investigation. + + For further information, see: Litigation Release Nos. 19031 (January 11, 2005) and 18797 (July 27, 2004). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2834.pdf b/raw/aaer/2008/AAER-2834.pdf new file mode 100644 index 0000000000000000000000000000000000000000..fd6014534724bb39ccdd5833f6a7abd76b779704 Binary files /dev/null and b/raw/aaer/2008/AAER-2834.pdf differ diff --git a/raw/aaer/2008/AAER-2834.txt b/raw/aaer/2008/AAER-2834.txt new file mode 100644 index 0000000000000000000000000000000000000000..8991a81527a4d85c85f461504ddb7ba6b3ace3ee --- /dev/null +++ b/raw/aaer/2008/AAER-2834.txt @@ -0,0 +1,311 @@ +UNITED STATES OF AMERICA +BEFORE THE +SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57891 / May 30, 2008 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2834 / May 30, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-13049 + + + +In the Matter of + +DENNIS L. HYNSON, 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 Dennis L. Hynson, CPA (“Hynson” +or “Respondent”). + +II. + +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (“Offer”) which the Commission has determined to accept. Solely for the purpose +of these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are +admitted, Respondent consents to the entry of this “Order Instituting Cease-and-Desist +Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, +and Imposing a Cease-and-Desist Order” (“Order”), as set forth below. + + + + + + +III. + +On the basis of this Order and Respondent’s Offer, the Commission finds that:1 + +A. RESPONDENT + +1. From April 2002 until September 2003, Hynson, age 45, served as the Vice +President of Finance of the U.S. Orthopedics Division of Centerpulse Ltd. (“Centerpulse” or the +“Company”), a Swiss medical devices manufacturer. Prior to becoming Vice President of +Finance, Hynson had served as the Director of Finance for the U.S. Orthopedics Division for two +years. As the Vice President of Finance for the U.S. Orthopedics Division (“Division”), Hynson +was responsible for, among other things, maintaining accurate books and records at the Division, +and for devising and maintaining an adequate system of internal accounting controls at the +Division. Hynson is also a Certified Public Accountant licensed in Texas and was so while he +was employed at Centerpulse. + +B. SUMMARY + + +2. This matter arises out of an accounting determination that Hynson made during +Centerpulse’s fiscal third quarter 2002.2 In particular, Hynson did not properly write off costs +for certain impaired assets associated with a software system called the “Global Supply Chain” +project. Instead, pursuant to instructions from Urs Kamber (Centerpulse’s then-Chief Financial +Officer) and Stephan Husi (Centerpulse’s then-Controller), Hynson allowed the costs to remain +on his Division’s books and records as an asset, which was then rolled up into the Company’s +consolidated financial statements. This accounting treatment was not in conformity with +Generally Accepted Accounting Principles in the United States (“U.S. GAAP”), +3 and it resulted +in an 18 percent overstatement of Centerpulse’s third quarter 2002 pretax income, as it was +reported in the financial statements that the Company included in the Form 6-K it furnished to +the Commission on November 12, 2002. + +3. By virtue of his conduct, Hynson violated Exchange Act Rule 13b2-1 by +falsifying certain books and records. He also caused Centerpulse’s violations of Exchange Act +Sections 13(b)(2)(A) and 13(b)(2)(B) by failing to keep accurate books and records, and by +failing to devise and maintain an adequate system of internal accounting controls at the U.S. +Orthopedics Division. + + + + + + +1 The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or +entity in this or any other proceeding. +2 Centerpulse’s fiscal year ended on December 31 of each calendar year, and acco rdingly its fiscal third +quarter 2002 ended on September 30, 2002. +3 While Centerpulse disclosed that its financial statements were reported in acco rdance with International +Financial Reporting Standards, Centerpulse’s accounting controls, and Hynson’s own practice, were to maintain the +Division’s accounts in accordance with U.S. GAAP. + -2- +C. BACKGROUND + +4. Originally named Sulzer Medica AG, Centerpulse was a publicly traded +corporation headquartered in Switzerland that manufactured a variety of medical devices, +including hip and knee implants. From at least January 2001 through October 2003, +Centerpulse’s American Depository Shares were registered with the Commission pursuant to +Exchange Act Section 12(b) and were traded on the New York Stock Exchange under the +symbol “CEP.” As a foreign private issuer, Centerpulse filed annual reports with the +Commission on Form 20-F and furnished other periodic reports to the Commission on Form 6-K. +In October 2003, the Company was acquired by and merged with Zimmer Holdings, Inc., a U.S. +medical devices company. + +5. In 2001, Centerpulse was named as a defendant in over 1,980 products liability +and personal injury lawsuits filed in federal and state courts in the United States, as well as +courts in other foreign jurisdictions, which alleged various defects in certain hip and knee +implants that the Company had recalled (the “recall litigation”). By May 2002, Centerpulse had +obtained court approval for a global settlement of the recall litigation. The final settlement +agreement established a trust of approximately $1.1 billion to fund payments to individual +plaintiffs and claimants. Centerpulse contributed $725 million in cash to the trust in 2002, $635 +million of which was funded through a credit facility arranged by a consortium of banks. + +6. During Centerpulse’s fiscal third quarter 2002, as Centerpulse was attempting to +secure the $635 million credit facility, Kamber and Husi instructed Centerpulse employees to +release certain reserves, to not record certain expenses, and to engage in other accounting +improprieties in order to improve the Company’s reported financial results. +4 Hynson’s +involvement related to an incorrect accounting determination not to record certain expenses. +Specifically, pursuant to instructions from Kamber and Husi, Hynson improperly accounted for +certain impaired assets described in this Order. + +D. DESCRIPTION OF THE IMPROPER ASSET OVERSTATEMENT + +7. Hynson became the Vice President of Finance of Centerpulse’s U.S. Orthopedics +Division in April 2002. That month, Hynson learned that Centerpulse’s European Orthopedics +Division had decided to discontinue its involvement in a project to develop and implement a +“Global Supply Chain” software system, which was to be used to track inventory at the +Company. He also learned that there were approximately $3.5 million in costs associated with +the European portion of the project that remained on the books of the U.S. Orthopedics Division +As a result of the European Division’s decision to abandon its involvement in the project, the +costs associated with that portion of the project became impaired and were required to be written +off under U.S. GAAP. + + + +4 The Commission filed a lawsuit against Urs Kamber , Stephan Husi and Richard Jon May (respectively, +Centerpulse’s former Chief Financial Officer, former Controller, and the former Group Vice President of Finance, +Tax Counsel and Treasurer of Centerpulse USA Holding Company), alleging that they engaged in various improper +accounting practices at Centerpulse during the third and fourth quarters of 2002. SEC v. Urs Kamber et al., Civil +Action No. 1:07-CV-01867 (JDB) (D.D.C.) (Oct. 17, 2007); see also Litigation Release No. 20336 (Oct. 17, 2007). + -3- +8. In June 2002, Kamber terminated the previous Vice President of Finance for the +U.S. Orthopedics Division who had managed the costs for the Global Supply Chain project. +Thereafter, Hynson became responsible for managing the costs and endeavored to obtain the +information necessary to account for the Global Supply Chain asset. Hynson examined the costs +for both the European and U.S. portions of the project, all of which were being maintained on the +U.S. Orthopedics Division’s books, and determined that the costs associated with the European +portion of the project needed to be written off because the European Division had abandoned the +project. Hynson shared his assessment with other Centerpulse financial managers. + +9. For example, on July 12, 2002, Hynson sent Husi and another Centerpulse +employee an e-mail describing the asset and explaining why an impairment was necessary: + +“SOUS5 has an asset on our books for the Supply Chain project. Originally, this +project involved SOAG as well. However, during Q1 2002, SOAG chose not to +participate in the project any longer. SOUS had incurred approximately $3.5 mil +related to the SOAG participation through this time. Now that SOAG will no +longer participate, the asset is over stated or impaired by this amount. The +centralized services fixed asset accountant has indicated that Urs [Kamber] did +not want to write this off. However, per U.S. GAAP we should write the asset +down if it is impaired….” + +10. On August 28, 2002, one of Hynson’s subordinates sent an e-mail asking whether +he could “accrue [the costs] as a write off.” As the subordinate explained, “I have kept 3.4 mil as +CIP [construction in progress] and have not written off in SOUS book. My concern is that either +SOUS or SOAG needs to show 3.4 mil as a write off.” + +11. Husi was copied on the same e-mail, and later that day he replied that “[w]e will +finalize this before end of Q3. SOUS should not consider any write offs in August.” Husi +explained in his reply that “I will have to agree with Urs [Kamber] on how to handle it.” + +12. In accordance with Husi’s instruction, Hynson kept the costs on his books as an +asset. However, Hynson also sent an e-mail to Husi stating that “[s]ince this issue impacts +SOUS books, of which I am responsible, I would like to be part of the decision making process.” + + + + + + + + + + +5 “SOUS” was the acronym that Centerpulse employees us ed to refer to the U.S. Orthopedics Division. The +initials stood for “Sulzer Orthopedics U.S.” and originated when Centerpulse was named Sulzer Medica AG. +“SOAG” was the acronym for the European Orthopedics Division, standing for “Sulzer Orthopedics A.G.” After +Sulzer Medica changed its name to Centerpulse, Company personnel also used the terms “COUS” and “COAG” to +refer to the Orthopedics Divisions in the United States and Europe, respectively. + -4- +13. Throughout September 2002, the $3.4 million in costs remained on the U.S. +Orthopedics Division’s books. On September 23, 2002, Hynson sent Husi an e-mail revisiting +Husi’s previous instruction not to write-off the costs, and noted that the costs should not be kept +on the U.S. Division’s books: + +“There seems to be reluctance to proceed with the transfer of the SOAG portion +of the Supply Chain asset from SOUS to SOAG. You had emailed me prior to +your holiday that we should not do it in August, however, I have not heard the +reason why. For the Estimate 2002 portion of the 2003 Budget process, SOUS is +showing the asset as being transferred to SOAG. This is the proper thing to do, as +the funds were spent in Switzerland on the SOAG portion of the project at the +time, the project plan called for the transfer, and the decision to abandon the +project was made at SOAG. The costs were simply managed from one location +(SOUS) for control purposes. It is clear that this item belongs on SOAG’s books +and not SOUS! It is impacting SOUS business metrics (operating assets, RONA) +which are part of our bonus calculation.” + +14. Later that day, Hynson and others participated in a conference call concerning the +Global Supply Chain project. Afterward, he sent an e-mail to the Chief Executive Officer of the +U.S. Orthopedics Division explaining that, according to Kamber, the costs were not being +written off to avoid upsetting the impending $635 million credit facility: + +“My group had a conference call today with members from COAG. We (both +COUS and COAG) have been requested (indirectly) by Urs [Kamber] to keep the +EU Supply Chain asset on COUS books for the 2002 Estimate only, due to the +bankers. I am not clear why it is an issue with the bankers. I didn’t realize they +would see the individual BU [business unit] 2002 Estimate. [Emphasis added]. + +Therefore, we need to change the numbers and the corresponding narrative….” + +15. That message was amplified the next day. On September 24, 2002, a senior +Centerpulse accounting employee in Europe sent an e-mail to Hynson, Husi and others, +communicating Husi’s instructions that the Global Supply Chain project costs should remain on +the U.S. Orthopedics Division’s books as an asset: + +“With regards to our conference call from this afternoon I have had an +additional discussion with Stephan Husi later. He told me to communicate to you +the following: + +- it is not the intention of Cooperate [sic] to show this potential write off in +the actual Estimate 2002 +- transactions in connection with this case should be kept at a minimum. +- therefore the asset stays in the SOUS books for the moment (September +Closing as well as Estimate 2002 – see also original message below). No +write off is being booked against this asset. + -5- +- this does not mean that SOAG is not taking over the position as well as the +corresponding write off by the end of the year. +- Stephan Husi and Mr Kamber will decide in October 2002 per when the +assets is [sic] going to be taken over and written off by SOAG. +- SOAG is mentioning and explaining the story behind this in its estimate- +narratives (SOUS can do so as well)” + +16. In compliance with instructions from Kamber, Husi and others, Hynson did not +write off any of the $3.4 million in costs related to the Global Supply Chain project throughout +2002. Hynson’s failure to write off these costs was improper because the asset was impaired. + +17. As a result of the improper accounting treatment described above, Centerpulse +falsely reported in an interim report for the third quarter of 2002 that it had earned approximately +$21.9 million in pretax income for the third quarter of 2002 instead of at most approximately +$18.5 million, an overstatement of at least 18 percent. That interim report was subsequently +furnished to the Commission on November 12, 2002 in a Form 6-K. + +E. LEGAL DISCUSSION + + +18. Exchange Act Section 13(b)(2)(A) requires issuers with securities registered +under Exchange Act Section 12 to make and keep books, records and accounts that accurately +and fairly reflect the transactions and dispositions of their assets. Exchange Act Section +13(b)(2)(B) requires such registrants to devise and maintain a system of internal accounting +controls sufficient to provide reasonable assurances that, among other things, transactions are +recorded as necessary to permit preparation of financial statements in conformity with GAAP or +any other criteria applicable to such statements, and to maintain the accountability of assets. +Exchange Act Rule 13b2-1 prohibits any person from directly or indirectly falsifying or causing +the falsification of any book, record, or account subject to Exchange Act Section 13(b)(2)(A). +No showing of scienter is necessary to establish violations of these provisions. See +, e.g., SEC v. +McNulty, 137 F.3d 732, 740-41 (2d Cir.), cert. denied sub nom., Shanklin v. SEC, 525 U.S. 931 +(1998). + +19. Hynson violated Exchange Act Rule 13b2-1 and caused Centerpulse to violate +Exchange Act Section 13(b)(2)(A) when he determined not to have the U.S. Orthopedics +Division write off $3.4 million in costs for the discontinued – and therefore impaired – European +portion of the Global Supply Chain project. As a result, Centerpulse’s third quarter 2002 books +and records were false because they continued to reflect the costs as an asset. Hynson’s +determination not to have the U.S. Division write off these costs also constituted a failure to +devise and maintain an adequate system of internal accounting controls at the U.S. Orthopedics +Division which in turn caused Centerpulse to violate Exchange Act Section 13(b)(2)(B). + -6- + -7- +IV. + +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. + +Accordingly, it is hereby ORDERED that: + +Pursuant to Section 21C of the Exchange Act, Respondent Hynson cease and desist from +committing or causing any violations and any future violations of Exchange Act Rule 13b2-1 and +from causing any violations and any future violations of Exchange Act Sections 13(b)(2)(A) and +13(b)(2)(B). + +By the Commission. + + + +Florence E. Harmon +Acting Secretary \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2838.txt b/raw/aaer/2008/AAER-2838.txt new file mode 100644 index 0000000000000000000000000000000000000000..1e6f3f2ae4172f970a2e3fa51400d690968cf6ca --- /dev/null +++ b/raw/aaer/2008/AAER-2838.txt @@ -0,0 +1,468 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57970 / June 16, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2838 / June 16, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13070 +ORDER INSTITUTING CEASE-AND- +In the Matter of +CITIGROUP INC., +DESIST PROCEEDINGS, MAKING +FINDINGS, AND IMPOSING A CEASE- +AND-DESIST ORDER PURSUANT TO +SECTION 21C OF THE SECURITIES +Respondent. EXCHANGE ACT OF 1934 +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that cease- +and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”), against Citigroup Inc. (“Citigroup,” “company,” or +“Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement of Citigroup Inc. (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 Citigroup and the subject matter of +these proceedings, which Respondent admits, Respondent consents to the entry of this Order +Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist +Order Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth +below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +A. SUMMARY +This action concerns Citigroup’s improper accounting relating to the impact of the +economic and political crisis in Argentina on the company’s operations during the fourth quarter of +2001. In the latter part of 2001 and continuing into 2002, Argentina experienced a severe +economic and political crisis during which, among other things, the Argentine government +defaulted on certain of its sovereign debt obligations, devalued its currency, and abandoned the +one-to-one ratio between the Argentine peso and the United States dollar. +The actions of the Argentine government during the crisis required Citigroup to make a +number of significant accounting decisions for the fourth quarter of 2001. Most relevant for +purposes of these proceedings, Citigroup was required to account for (1) the impact of the +company’s participation in a government-sponsored exchange of Argentine government bonds for +loans (the “Bond Swap”); (2) the value of Argentine government bonds held by Citigroup that +were not eligible for the Bond Swap (the “Non-Swapped Bonds”); (3) the sale of Banco Bansud +S.A. (“Bansud”), the Argentine subsidiary of Banco Nacional de Mexico, S.A. (“Banamex”), +which Citigroup had acquired in August 2001; and (4) the impact of government actions that +resulted in the conversion of over $1 billion of Citigroup loans from dollars to Argentine pesos. +Citigroup accounted for each of these items in a manner that did not conform with generally +accepted accounting principles (“GAAP”) and thereby overstated its income reported in the +company’s earnings press release included in a Form 8-K filed with the Commission on January +18, 2002, and in the company’s annual report on Form 10-K for 2001 filed with the Commission +on March 12, 2002. For the fourth quarter of 2001, Citigroup recorded $470 million of pre-tax +charges related to Argentina and earnings per share of $.74. If Citigroup had accounted for the +four Argentina-related items described above in conformity with GAAP, the company would have +recorded additional charges of at least $479 million pre-tax, or at least $311 million after-tax, and +would have reduced fourth quarter 2001 earnings by more than 8%. In accounting for the four +items improperly and thereby reporting incorrect results both in the Form 8-K and the Form 10-K, +Citigroup violated reporting, record-keeping, and internal accounting controls provisions of the +Exchange Act. +B. RESPONDENT +Respondent Citigroup Inc. is a Delaware corporation with its principal place of business in +New York, New York. Citigroup is a global financial services company whose businesses provide +a broad range of financial services to consumer and corporate clients. During the relevant time, +Citigroup was the largest foreign bank in Argentina, with a market share of approximately 9% and +assets totaling more than $8 billion. Citigroup’s securities are registered with the Commission +under Sections 12(b) and 12(g) of the Exchange Act, and its common stock is traded on the New +York Stock Exchange. +2 + +C. FACTS +The Crisis in Argentina +During the latter part of 2001 and continuing into 2002, Argentina suffered a severe +economic and political crisis. As the economy weakened, thousands of Argentineans withdrew +money from their bank accounts, with a significant spike in deposit withdrawals occurring in late +November 2001. To avoid a continuing “run on the banks,” the Argentine government issued a +policy known as the “corralito” on December 3, 2001, which severely limited the amount of +money that an individual could withdraw each month. In response to the corralito and general +economic woes, widespread rioting occurred throughout Argentina. The crisis worsened in +December and into January as the Argentine government began to default on its sovereign debt +obligations; issued various decrees that ended the one-to one ratio between the dollar and the +Argentine peso, allowing the peso to devalue; and pesified certain dollar-denominated loans. +International credit rating agencies significantly downgraded Argentine sovereign debt, and the +majority of Argentine government bonds began trading at substantial discounts. The Argentine +government itself was in flux during this period of turmoil. Between December 2001 and early +January 2002, when Citigroup was finalizing its results for 2001 and the fourth quarter of the year, +there were five changes in leadership of the Argentine government. +The developments in Argentina had a significant impact on Citigroup’s Argentine +operations and required Citigroup to make a number of complex accounting decisions as events +occurred. In making these accounting decisions, Citigroup improperly accounted for certain items +related to the crisis in a manner that significantly reduced the impact of these items on the +company’s earnings. +Argentine Bond Swap +In early November 2001, the Argentine government issued a decree offering holders of +certain market-traded Argentine government bonds the opportunity to exchange such bonds for +Argentine government loans called Guaranteed Promissory Notes (“GPNs”) that would not be +market-traded. The Argentine government offered the Bond Swap in an effort to reduce +Argentina’s debt service in the short-term and to avoid defaulting on its sovereign debt by +extending the maturities of its debt obligations and reducing the coupon rates of the instruments. +In addition to lower interest rates and longer terms, the GPNs offered in the Bond Swap had certain +features that the swapped bonds did not have, including tax-exempt interest, a tax credit option that +allowed the holder to offset any unpaid principal or interest against certain taxes, a collateral +protection feature that gave the GPNs first call on certain tax receipts, and a provision for a step-up +in tax basis. There was significant participation by local institutions in the Bond Swap. +Citigroup owned a total in book value of $681 million of Argentine government bonds +eligible for the Bond Swap. Citigroup’s Argentine insurance subsidiary, Siembra Administradora +de Fondos de Jubilacianes y Pensiones S.A. (“Siembra”), owned $595 million of these bonds. In +addition, Citigroup’s Argentine banking operations owned approximately $86 million in bonds +eligible for the Bond Swap. In mid-November 2001, Citigroup local management decided to swap +3 + +all $681 million of its eligible bonds and tendered these bonds to the Argentine government on +November 29 and 30, 2001. The Bond Swap was executed in mid-December 2001. +In accounting for the Bond Swap, GAAP required that the transaction be accounted for +based on the most readily determinable fair value.1 Under GAAP, quoted market prices are +considered to be the most reliable evidence of fair value.2 In certain circumstances, however, other +approaches to determining fair value may be appropriate. Citigroup consulted with its auditor as +well as informally with Commission accounting staff regarding the proper approach to account for +the Bond Swap. Both the Commission staff and Citigroup’s auditor came to express a preference +for using the market value of the bonds surrendered in the exchange to account for the Bond Swap +(the “Market Approach”). The company, however, took the position that the bonds that were +trading were not reflective of the fair value of the GPNs received and chose to use an alternate +approach of looking to the value of the GPNs received in the exchange. +Citigroup used a discounted cash flow analysis to determine the fair value of the GPNs.3 +To arrive at the fair value, Citigroup incorporated several unreasonable assumptions into its +analysis of the discount rate and thus overstated the value of the GPNs. In particular, Citigroup +used a pre-crisis risk rate that assumed that the collapsing Argentine economy would recover in the +short term. Notwithstanding the economic crisis and near daily changes in the Argentina +government, Citigroup further assumed that, in the event the Argentine government defaulted on +the GPNs, there was a high likelihood that the government would honor the collateral features of +the GPNs, enabling Citigroup to recover all principal and interest. Using the above assumptions +and others, Citigroup determined that the fair value of the GPNs received in the Bond Swap by its +Siembra subsidiary was $520 million and that the fair value of the GPN’s received by its Argentine +banking operations was $79 million. Based on this analysis, Citigroup recorded a pre-tax loss of +$75 million on the Bond Swap by its Siembra subsidiary and a pre-tax loss of $7 million on the +Bond Swap by its Argentine banking operations, for a total pre-tax loss on the Bond Swap of $82 +million. This loss was reflected in Citigroup’s January 18, 2002, Form 8-K and in the financial +statements included in the company’s 2001 Form 10-K. +1 See Practice Bulletin 4, Accounting for Foreign Debt/Equity Swaps; FAS 15, Accounting by +Debtors and Creditors for Troubled Debt Restructurings at footnote 16; and APB 29, Accounting for +Non-monetary Transactions. +2 See Statement of Financial Accounting Standards No. 115, Accounting for Investments in Debt +and Equity Securities. In 2006, the Financial Accounting Standards Board adopted Statement of +Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157, in part, +codifies and simplifies previous approaches and provides that “[a] quoted price in an active market +provides the most reliable evidence of fair value and shall be used to measure fair value whenever +available . . . .” +3 A discounted cash flow analysis is a calculation that multiplies an investment’s future cash flows +by discount factors to obtain the present value of the investment. The purpose of the calculation is to +estimate the amount of money that will be received from a security or other type of investment, adjusting +for the time value of money. +4 + +While Citigroup’s approach may have been appropriate under the then existing +circumstances, the assumptions that Citigroup applied were not reasonable and resulted in +Citigroup understating its losses on the Bond Swap. For example, in analyzing the discount rate, if +Citigroup had used a country risk rate that reflected the current status of the collapsing Argentine +economy rather than the pre-crisis risk rate reflecting more stable economic conditions, its losses +would have been much greater. Similarly, Citigroup’s losses would have been greater had it +sufficiently taken into account the likelihood that the defaulting Argentine government would not +be able to honor the collateral on the GPNs. By applying reasonable assumptions to its discounted +cash flow analysis, Citigroup would have recorded pre-tax Bond Swap losses of approximately +$236 million for the fourth quarter of 2001, significantly more than the $82 million Citigroup +actually recorded. These additional losses would have decreased the company’s earnings for the +fourth quarter by $100.1 million after-tax, or approximately $.02 per share.4 +Under the Market Approach, Citigroup would have recorded Bond Swap losses of $416 +million pre-tax, instead of the $82 million it actually recorded. The impact of employing such an +approach would have decreased the company’s earnings for the fourth quarter by $217.1 million +after-tax, or approximately $.04 per share. +Other-Than-Temporary Impairment of Non-Swapped Bonds +A number of the Argentine government securities owned by Citigroup’s Argentine banking +operations were not eligible for the Bond Swap. These bonds, the Non-Swapped Bonds, totaled +more than $380 million and were held in varying amounts by Citigroup throughout the fourth +quarter of 2001. More specifically, at December 31, 2001, Citigroup’s Argentine banking +operations held PAR Bonds (commonly known as Brady Bonds) with book value of $98.4 million, +Bonos del Gobierno Nacional with book value of $134.9 million, and Patriotic Bonds with book +value of $150.9 million. +Under GAAP, specifically Statement of Financial Accounting Standards No. 115, +Accounting for Investments in Debt and Equity Securities (“FAS 115”), Citigroup was required, +at least quarterly, to assess the Non-Swapped Bonds to determine whether there was any decline in +the fair value of these securities below their amortized cost and, if so, whether that decline was +other-than-temporary. If the decline in fair value was other-than-temporary, Citigroup was +required to record a charge to income for the quarter. The determination of whether a decline in +the value of a security is other-than-temporary is based on the review of a number of factors such +as the financial condition and near-term prospects of the issuer, including prospects for the +geographic region; whether the issuer has defaulted on scheduled interest payments; the issuer’s +ability to make future scheduled interest and principal payments on a timely basis; and whether +In the third quarter of 2003, the Argentine government required Citigroup to return the GPNs and +take back the bonds because Citigroup declined to follow a 2002 government decree requiring it to +change the dollar-denominated GPNs to pesos. +5 +4 +there has been any downgrade in ratings by rating agencies at the time of evaluation compared to +the time of acquisition of the security. 5 +Citigroup determined that the Non-Swapped Bonds were not impaired as of December 31, +2001. As a result, the company did not record any charge to income for these bonds. At the time +Citigroup reached this decision, the Argentine government was in the midst of an economic and +political collapse. The Argentine government recently had announced that it intended to default on +its sovereign debt. In addition, credit rating agencies had significantly downgraded Argentina’s +sovereign debt; and the majority of Argentine government bonds were trading well below $0.50 on +the dollar. Thus, Citigroup’s determination that these bonds were not impaired was not reasonable. +The Brady Bonds were market-traded bonds that were collateralized by U.S. Treasury +securities that guaranteed the principal of the bonds and one-year of interest. Like almost all other +Argentine bonds in the market, the Brady Bonds were trading well below their cost during the +fourth quarter. At December 31, 2001, the market value of the Brady Bonds held by Citigroup was +$63.4 million, approximately $35 million less than their cost of $98.4 million. Despite this +significant decline in market value, notwithstanding the collateral, Citigroup determined that the +bonds were not impaired. +The other two types of Non-Swapped Bonds, the Bonos del Gobierno Nacional and the +Patriotic Bonds were not market-traded. Citigroup concluded that there was no other-than- +temporary impairment of these bonds because they were collateralized by a tax credit option that +allowed Citigroup to withhold tax payments to offset any government default on the bonds. +Citigroup reached this conclusion, despite the fact that similar, market-traded securities were +trading at a steep discount, including securities like the Brady Bonds that had reliable collateral. In +finding no impairment of the Bonos del Gobierno Nacional and the Patriotic Bonds, Citigroup +necessarily assumed that the Argentine government would abide by its commitment to provide the +tax credit option. This was during a period when the Argentine government had announced that it +intended to default on its sovereign debt and when the political upheaval accompanying the +country’s economic collapse led to five changes in leadership during December 2001 and early +January 2002.6 In light of the circumstances in Argentina at this time, Citigroup’s assumptions +were not reasonable. +Citigroup recorded no charges to income for the fourth quarter of 2001 in connection with +the Non-Swapped Bonds. Had Citigroup determined that these bonds had an other-than-temporary +impairment as of December 31, 2001, it would have been required to record a charge to income to +reflect the decline in fair value of the bonds. The amount of impairment of the Brady Bonds can be +reasonably estimated at $35 million, based on the quoted market price of these bonds as of +5 See, e.g., FAS 115; AICPA Statement of Auditing Standards No. 92, Auditing Derivative +Instruments, Hedging Activities, and Investments in Securities. +6 During the third quarter of 2002, the Argentine government suspended use of the tax credit +option. At that time, Citigroup determined that the Patriotic Bonds and the Bonos del Gobierno Nacional +were other-than-temporarily impaired. Citigroup also sold its Brady Bonds in the third quarter. +6 + +December 31, 2001. For the non-traded bonds, the Bonos del Gobierno Nacional and the Patriotic +Bonds, the amount of impairment based on a reasonable determination of fair value, could be +estimated at $22.5 million for the Bonos del Gobierno Nacional and $59.4 million for the Patriotic +Bonds. With these estimates, had Citigroup determined that the Non-Swapped Bonds were other- +than-temporarily impaired as of December 31, 2001, the company should have recorded an +aggregate pre-tax charge of approximately $117 million or $76 million after-tax. This charge +would have decreased the company’s earnings per share for the fourth quarter by more than $.01. +Pesification of Consumer Loans +On January 6, 2002, the Argentine government issued a decree that, among other things, +authorized it to mandate the conversion of certain consumer loans from dollars to pesos at a rate of +one dollar to one peso (this mandatory conversion was referred to as “pesification”). Citigroup +owned over $1 billion in consumer loans that were subject to pesification. Citigroup determined +that it should account for the impact of the pesification decree in the fourth quarter of 2001. +In its January 6, 2002, decree and subsequent regulations, the Argentine government +established an exchange rate for official transactions, namely import-export transactions, of 1.4 +pesos to 1 dollar. The decree noted that all other transactions would be subject to a “free” +exchange rate based on the rate used for open-market trading. Because Argentina suspended +foreign exchange transactions and closed banks from the end of December 2001 through January +10, 2002, there was no “free” rate when Citigroup recorded its consumer loan pesification charge +on January 9, 2002. Using the only rate available on that day, 1.4 pesos to 1 dollar, Citigroup +recorded a $235 million charge for consumer loan pesification losses for the fourth quarter of 2001. +On Friday, January 11, 2002, two days after Citigroup recorded its pesification losses, the +Argentine banks were reopened, the trading suspension was lifted, and the market established a +“free” rate of between 1.6 and 1.7 pesos to 1 dollar. On Monday, January 14, 2002, Citigroup’s +auditor informed Citigroup senior management that this “free” rate was the proper rate under +GAAP. On that day or the next, Citigroup’s auditor further informed Citigroup senior +management that all Argentine transactions, other than import/export transactions, were subject to +the “free” rate and that members of the International Practices Task Force of the American Institute +of Certified Public Accountants and the staffs of the Financial Accounting Standards Board and the +Commission also had reached this conclusion. +Had Citigroup used a rate of 1.6, instead of 1.4, pesos to 1 dollar when accounting for these +pesification losses, it should have recorded an additional charge of $57 million pre-tax or $37 +million after-tax for the fourth quarter of 2001. This additional loss would have decreased the +company’s earnings per share for the fourth quarter by less than $.01. +7 + +Bansud Disposition +On August 6, 2001, Citigroup acquired Banamex, a Mexican holding company with +diverse financial institution operations. At the time of acquisition, Citigroup intended to dispose of +Bansud, a Banamex subsidiary conducting banking operations in Argentina. Citigroup agreed to +sell Bansud in December 2001, and closed on the sale in early January 2002, several months after +it had purchased Banamex. During the period when Citigroup held Bansud, Argentina experienced +the economic and political crisis described above, and Bansud suffered a substantial decline in +value. +Citigroup determined that the applicable accounting for the Bansud disposition was EITF +Issue No. 87-11, Allocation of Purchase Price to Assets to be Sold (“EITF 87-11”). Under that +provision, the decline in value of Bansud during the period when Citigroup held Bansud would +impact Citigroup’s income only if the decline was attributable to specific identifiable economic +events that occurred during the holding period.7 +Citigroup reached a tentative agreement to sell Bansud in September 2001 for a loss of +$401 million. That agreement fell through in October 2001, and Citigroup continued holding +Bansud until it reached a subsequent agreement to sell Bansud in early December 2001. The +transaction closed in early January 2002, and Citigroup had a loss of $552 million on its sale of +Bansud. Citigroup treated the entire loss as a reallocation of the purchase price of Banamex and +recorded the loss in goodwill, which was a balance sheet item that did not affect the company’s +earnings. To reach this result, Citigroup concluded that the adverse developments in the Argentine +economy and the related actions by the Argentine government, described above, during the fourth +quarter of 2001 were not specific identifiable economic events that caused the decline in the value +of Bansud. Citigroup’s position was not reasonable, particularly considering the impact of the +Argentine economic crisis on financial institutions like Bansud. +By improperly treating the entire $552 million loss on the sale of Bansud as a reallocation +of the purchase price rather than as a loss due to specific identifiable economic events, Citigroup +avoided a charge to income. Had Citigroup properly accounted for the transaction, it would have +recorded a pre-tax charge to income of at least $151 million, representing the difference between +the $552 million ultimate loss on the sale of Bansud and the $401 million anticipated loss from the +October 2001 failed attempt to sell Bansud.8 This additional $151 million pre-tax or $98.2 +7 In relevant part, EITF 87-11 provides that the difference between the carrying amount at the time of +sale of a subsidiary intended to be disposed of and the proceeds from the sale lead to a reallocation of the +purchase price rather than a gain or loss to earnings, unless specific identifiable economic events occurred +during the holding period that change the fair value of the subsidiary from the fair value estimated at the +time of acquisition. If specific identifiable economic events that decrease the value of the subsidiary occur +during the holding period, that decline in value is to be reflected as a charge to the parent company’s income +for the quarter. +8 The lack of documentation relating to Citigroup’s accounting for the disposition of Bansud makes +it difficult to reach a conclusive determination of the full amount of the losses that should have been +charged to income. +8 + +million after-tax loss would have decreased the company’s earnings per share for the fourth +quarter by nearly $.02. +Citigroup’s Financial Results +On January 17, 2002, Citigroup issued a press release announcing its results. Among other +things, the company reported that its earnings for the fourth quarter of 2001 were $3.88 billion,9 or +diluted earnings per share of $.74, which included a $470 million pre-tax charge related to +Argentina. Citigroup’s reported results were $.01 per share above analysts’ consensus earnings +estimates for the period.10 If Citigroup had properly recorded the charges related to the Bond +Swap, the Non-Swapped Bonds, the pesification of consumer loans, and the Bansud disposition +described above, the company’s earnings per share for the quarter would have been no more than +$.68, or $.05 below consensus earnings estimates for the quarter. +On January 18, 2002, Citigroup filed a Form 8-K with the Commission that incorporated +the company’s January 17, 2002, earnings release. In addition to reporting earnings of $3.88 +billion, and diluted earnings per share of $.74, the company further reported that its core earnings +per share increased 14% over those earnings for the fourth quarter of 2000. If Citigroup had +recorded the charges described above related to the Bond Swap, the Non-Swapped Bonds, the +pesification of consumer loans, and the Bansud disposition, these results would have differed +materially because the company would have recorded additional charges after tax of at least $311 +million. +On March 12, 2002, Citigroup filed its annual report on Form 10-K for 2001. For the +fourth quarter of 2001, Citigroup reported earnings of $3.875 billion and diluted earnings per share +of $.74. As set forth above, these results were misstated. The company’s earnings for the quarter +were no more than $3.56 billion. In its 2001 Form 10-K, Citigroup also reported earnings for fiscal +year 2001 of $14.13 billion, or $2.72 per diluted share. If Citigroup had recorded the charges +described above related to the Bond Swap, the Non-Swapped Bonds, the pesification of consumer +loans, and the Bansud disposition, it would have reported 2001 earnings of no more than $13.82 +billion and its diluted earnings per share for the year would have been no more than $2.66. +D. LEGAL ANALYSIS +As a result of the conduct described above, Citigroup violated Sections 13(a), 13(b)(2)(A), +and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-11. +Section 13(a) of the Exchange Act requires issuers of registered securities to file periodic +reports with the Commission containing information prescribed by Commission rules and +9 The $3.88 billion in earnings was a rounded number from the $3.875 billion that the company +reported in its financial supplement to its January 17, 2002, press release and, subsequently, in its Form +10-K filed on March 12, 2002. +10 At the time, each $52 million of after-tax earnings equated to earnings per share of $.01. +9 +regulations. Exchange Act Rule 13a-1 requires issuers to file annual reports on Form 10-K, and +Exchange Act Rule 13a-11 requires issuers to file current reports on Form 8-K. Further, Exchange +Act Rule 12b-20 requires that, in addition to the information required to be included in annual and +current reports, such further material information as may be necessary to make the required +statements not misleading also must be included. These annual and current reports must be +complete and accurate. See SEC v. Savoy Industries, 587 F.2d 1149, 1165 (D.C. Cir. 1978). Rule +210.4-01 of Regulation S-X provides that financial statements filed with the Commission are +presumed misleading or inaccurate if they are not prepared in conformity with GAAP.11 +Citigroup’s accounting for the Bond Swap, the Non-Swapped Bonds, the pesification of consumer +loans, and the sale of Bansud was not in conformity with GAAP. +With respect to the Bond Swap, the relevant accounting guidance, which Citigroup +reviewed at the time,12 provided that registrants should determine fair value by following an +approach that provides the most clearly evident or readily determinable value of the instrument +received in the exchange. This GAAP guidance reflected a preference for using quoted market +prices because they provide an objective and reliable value of the instrument exchanged.13 The +guidance provided, however, that, in certain circumstances, other approaches to determining fair +value may also be appropriate. +Citigroup took the position that the quoted market prices of the bonds surrendered were not +a reliable indicator of the value of the GPNs that it received. Instead, Citigroup used a discounted +cash flow analysis of the GPNs to determine their fair value. Regardless of whether this approach +was appropriate, Citigroup’s discounted cash flow analysis was based on unreasonable +assumptions that caused Citigroup to overvalue the GPNs. +A discounted cash flow analysis of the GPNs using reasonable assumptions would have +resulted in a fourth quarter pre-tax loss of approximately $236 million on the Bond Swap. Thus, +Citigroup’s pre-tax Bond Swap losses for the fourth quarter should have been in the range of $236 +million to $416 million (the amount of the loss under the Market Approach). Citigroup thus should +have recorded a pre-tax loss of at least $236 million on the Bond Swap, or at least $154 million +more than the amount included in the financial statements and other financial results in Citigroup’s +2001 Form 10-K and the company’s January 18, 2002, Form 8-K. +With respect to the Non-Swapped Bonds, for the reasons described above, Citigroup +improperly failed to record any charge to income. Had Citigroup properly assessed the fair value +11 17 CFR § 210.4-01(a)(1). +12 Because it determined that there was no accounting guidance specifically addressing an exchange +of bonds for loans, Citigroup considered the following analogous accounting literature: Statement of +Financial Accounting Standards No. 115, Accounting for Investments in Debt and Equity Securities; +Practice Bulletin 4, Accounting for Foreign Debt/Equity Swaps; and EITF Issue No. 94-8, Accounting for +a Conversion of a Loan into a Debt Security in a Debt Restructuring. +13 See id.; see also Statement of Financial Accounting Standards No. 157, Fair Value +Measurements. +10 + +of the Non-Swapped Bonds, Citigroup would have found that the fair value of these bonds had +declined significantly. Applying a reasonable valuation indicates that these bonds had an other- +than-temporary impairment as of the fourth quarter in the amount of approximately $117 million +pre-tax or $76 million after-tax. Thus, Citigroup should have recorded a pre-tax loss of $117 +million on the Non-Swapped Bonds and included this loss in the financial statements and other +financial results set forth in Citigroup’s 2001 Form 10-K and the company’s January 18, 2002, +Form 8-K. +In connection with Citigroup’s accounting for its consumer loan pesification losses, +Citigroup improperly recorded a loss to income in its fourth quarter financial results of only $235 +million pre-tax. As discussed, Citigroup’s reported loss was based on an exchange rate of 1.4 +pesos to one dollar. Statement of Financial Accounting Standards No. 52, Foreign Currency +Translation, provides that the appropriate exchange rate is the rate at which the foreign-currency +denominated asset could be settled at the end of the period. Pursuant to the Argentine +government’s pesification decree, that rate was the free market rate on the date the markets opened, +or between 1.6 and 1.7 pesos to 1 dollar. Citigroup did not follow these GAAP guidelines or +guidance from its auditor, who advised Citigroup to use a rate of at least 1.6 pesos to one dollar, +and instead used a rate of 1.4 pesos to one dollar. Had Citigroup used a rate of 1.6 pesos to one +dollar, it would have incurred an additional loss of $57 million pre-tax or $37 million after-tax for +the fourth quarter. Thus, Citigroup should have recorded a pre-tax loss of $292 million on the +consumer loan pesification issue, or $57 million more than the amount included in the financial +statements and other financial results set forth in Citigroup’s 2001 Form 10-K and the company’s +January 18, 2002, Form 8-K. +Citigroup’s accounting for the disposition of Bansud also was not in conformity with +GAAP. As discussed above, EITF Issue No. 87-11 provides that, if specific identifiable economic +events occurred during the holding period that decreased the value of the subsidiary, that decline in +value was to be reflected as a charge to the parent company’s income for the quarter. Despite the +collapse of the Argentine economy and the related actions by the Argentine government during the +holding period, Citigroup did not record a charge to income for the fourth quarter to reflect +Bansud’s decline in value, as required by EITF 87-11. Had Citigroup complied with EITF 87-11, +the company would have incurred a loss to income of at least $151 million for the fourth quarter of +2001. Thus, Citigroup should have recorded a pre-tax loss of $151 million or $98.2 million after- +tax on the sale of Bansud and included that loss in the financial statements and other financial +results set forth in Citigroup’s 2001 Form 10-K and the company’s January 18, 2002, Form 8-K. +As a result of its improper accounting for the Bond Swap, the Non-Swapped Bonds, the +pesification of consumer loans, and the Bansud disposition, Citigroup materially misstated the +financial results that it reported in its 2001 Form 10-K and its January 18, 2002, Form 8-K. As set +forth above, these misstatements included Citigroup’s reported fourth quarter 2001 earnings of +$3.875 billion, which were overstated by at least $311 million, or 8%, after tax, and the company’s +reported diluted earnings per share of $.74, which were overstated by at least $.06. Citigroup thus +violated Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-11. +11 + +Section 13(b)(2)(A) of the Exchange Act requires reporting companies to make and keep +books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the +transactions and dispositions of the assets of the issuer. As described above, the manner in which +Citigroup accounted for the Bond Swap, the Non-Swapped Bonds, the pesification of the consumer +loans, and the disposition of Bansud resulted in the company’s financial statements for 2001, +including the results for the fourth quarter of the year, being inaccurate, and the underlying +documentation related to the improper accounting also was inaccurate.14 Citigroup thus violated +Section 13(b)(2)(A) of the Exchange Act. +Section 13(b)(2)(B) of the Exchange Act, in relevant part, requires reporting companies +to devise and maintain a system of internal accounting controls sufficient to provide reasonable +assurances that transactions are recorded as necessary to permit preparation of financial +statements in conformity with GAAP or other applicable criteria. As reflected above, +Citigroup’s system of internal controls was not sufficient to provide reasonable assurances that +the value of the GPNs received in the Bond Swap, the changes in value of the Non-Swapped +Bonds, and the disposition loss on the sale of Bansud were recorded in accordance with GAAP. +Citigroup thus violated Section 13(b)(2)(B) of the Exchange Act. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Citigroup’s Offer. +Accordingly, it is hereby ORDERED that: +Pursuant to Section 21C of the Exchange Act, Respondent Citigroup 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 Exchange Act Rules 12b-20, 13a-1, and 13a-11. + By the Commission. + F lorence E. Harmon + A cting Secretary +In this regard, it is noteworthy that Citigroup’s purported support for the company’s accounting +related to the Non-Swapped Bonds and the Bansud transaction consisted of brief internal memoranda. +Among other things, the memorandum concerning the Non-Swapped Bonds did not properly analyze +whether the bonds were impaired. The memorandum related to the Bansud transaction was not prepared +until months after the company filed its Form 10-K for 2001 and set forth the erroneous conclusion that +there were no specific identifiable economic events, as defined in EITF 87-01, that occurred during the +holding period to change the value of Bansud. +12 +14 \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2843.txt b/raw/aaer/2008/AAER-2843.txt new file mode 100644 index 0000000000000000000000000000000000000000..e5dc449b1065f15c6a313e5cea295cae4a784fa8 --- /dev/null +++ b/raw/aaer/2008/AAER-2843.txt @@ -0,0 +1,1397 @@ + + + + + + + + + + + + + + + + SEC.gov | Sycamore Networks, Inc., Frances M. Jewels, Cheryl E. Kalinen, and Robin A. 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Jewels, Cheryl E. Kalinen, and Robin A. Friedman + + + + + + + + + + + + Sycamore Networks, Inc., Frances M. Jewels, Cheryl E. Kalinen, and Robin A. Friedman + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20638 / July 9, 2008 + + Accounting and Auditing Enforcement Release No. 2843 / July 9, 2008 + + Securities and Exchange Commission v. Sycamore Networks, Inc., Frances M. Jewels, Cheryl E. Kalinen, and Robin A. Friedman , United States District Court for the District of Massachusetts, Civil Action No. 1:08-CV-11166 (DPW) + + SEC Charges Sycamore Networks and Three Former Officials in Options Backdating Case + + The Securities and Exchange Commission today filed a settled civil enforcement action against Sycamore Networks, Inc., an optical networking company based in Chelmsford, Massachusetts, as well as its former Chief Financial Officer Frances M. Jewels, former Director of Financial Operations Cheryl E. Kalinen, and former Director of Human Resources Robin A. Friedman in connection with the backdating of stock options to employees over several years and the failure to disclose options-related expenses to the company's auditors and investors. + + The Commission's complaint, filed in federal district court in Massachusetts, alleges that Sycamore's unreported options-related expenses during its fiscal years 2000 through 2005 totaled nearly $250 million. The Commission's complaint further alleges that Jewels and Kalinen repeatedly backdated options grants between October 1999 and July 2002 to prices at or near monthly or quarterly low points for the company's stock, providing employees with options with prices at which they could purchase shares that were lower than the market price at the time the options actually were granted. The Commission also alleges that Jewels and Kalinen falsified grant approval documentation and that they personally benefited from grants of below-market options. + + The Commission's complaint describes an internal memorandum that outlines a plan to grant options at below-market prices to five company employees and keep the company's outside auditors from discovering these grants. The memo, drafted by Kalinen and provided to Jewels and Friedman, analyzed the risk that the company's outside auditors would uncover the conduct. Friedman participated in the plan by altering or creating, or causing others to alter or create, company personnel and payroll records so that they would reflect inaccurate start dates for the employees, according to the Commission's complaint. + + All defendants have agreed to settle this matter, without admitting or denying the allegations in the Commission's complaint, on the following terms: + + Jewels has consented to the entry of a permanent injunction prohibiting her from violating Section 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Jewels will disgorge ill-gotten gains of $30,000 (plus prejudgment interest on that amount of $4,980.04), reimburse Sycamore (pursuant to Section 304 of the Sarbanes-Oxley Act of 2002) for $190,000 in cash bonuses she received during the period of the fraud, and pay a civil monetary penalty of $230,000. Jewels also will be barred from serving as an officer or director of any public company for a period of five years, and, in a related administrative proceeding, will be prohibited from appearing or practicing before the Commission as an attorney or accountant for a period of five years. + + Kalinen has consented to the entry of a permanent injunction prohibiting her from violating Sections 10(b), 13(b)(5), and 14(a) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, and 14a-9 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Kalinen also will disgorge ill-gotten gains of $28,000 (plus prejudgment interest on that amount of $7,060.71) and pay a penalty of $150,000. + + Friedman has consented to the entry of a permanent injunction prohibiting her from violating Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. Friedman also will pay a penalty of $40,000. + + Sycamore has consented to the entry of a permanent injunction against 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 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. + + The settlement with Sycamore takes into account the company's cooperation during the Commission's investigation. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2847.txt b/raw/aaer/2008/AAER-2847.txt new file mode 100644 index 0000000000000000000000000000000000000000..6aa2ff7db623512273e00b731670c9d3c0cfc613 --- /dev/null +++ b/raw/aaer/2008/AAER-2847.txt @@ -0,0 +1,1392 @@ + + + + + + + + + + + + + + + + SEC.gov | HCC Insurance Holdings, Inc.; Stephen L. Way; and Christopher L. Martin + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503811","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + HCC Insurance Holdings, Inc.; Stephen L. Way; and Christopher L. Martin + + + + + + + + + + + + HCC Insurance Holdings, Inc.; Stephen L. Way; and Christopher L. Martin + + + + + + + + + + + + + + + + + + + CORRECTED + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20651 / July 22, 2008 + + Accounting and Auditing Enforcement Release No. 2847 / July 22, 2008 + + Securities and Exchange Commission v. HCC Insurance Holdings, Inc.; Stephen L. Way; and Christopher L. Martin , Civil Action No. 4:08 cv 2270 (S.D. Tex. Filed July 21, 2008) + + SEC Files Lawsuit against HCC Insurance Holdings, Inc., Former HCC CEO, and Former HCC General Counsel for Stock-Option-Backdating Violations + + The Securities and Exchange Commission filed a civil lawsuit on July 21 against HCC Insurance Holdings, Inc. (HCC), a Houston, Tex. insurance company; its former Chief Executive Officer, Stephen L. Way, 59, of Houston; and its former General Counsel, Christopher L. Martin, 41, of Houston, alleging violations related to stock-options backdating. Without admitting or denying the allegations, all three defendants agreed to settle the matter. The SEC filed its complaint in United States District Court in Houston. + + The complaint alleges that, on at least 38 and as many as 58 occasions from 1997 through 2005, Way looked back at HCC's historical stock prices and, with the benefit of hindsight, chose grant dates for the options that coincided with the dates of low closing prices for the stock. At Way's direction or with his knowledge, Martin, among other things, prepared documents indicating that HCC's option grants had been made on earlier dates when HCC's stock price had closed lower whereas in fact no such grants had been made on those dates. These inaccurate and misleading documents included written actions of HCC's compensation committee, stock option agreements, and Forms 4 and 5 reporting the grants to the SEC. Among other things, the backdating of options caused the company to understate its compensation expense by approximately $26.6 million. + + HCC consented to a permanent injunction from violations of the issuer-reporting, books-and-records, and internal-controls provisions of the federal securities laws, specifically Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The Commission did not allege fraud claims and did not seek a monetary penalty against HCC based in part on the Company's remedial measures and its extraordinary cooperation in the Commission's investigation. + + Way consented to a permanent injunction from violations of anti-fraud provisions of the federal securities laws and multiple other provisions, specifically Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, 14a-9, and 16a-3, and aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Way agreed to pay a $200,000 penalty and to be barred from serving as an officer or director of a public reporting company for five years. + + Martin consented to a permanent injunction from violations of anti-fraud provisions of the federal securities laws and multiple other provisions, specifically Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act Sections 13(b)(5) and 16(a), and Exchange Act Rules 13b2-1, 13b2-2, and 16a-3, and aiding and abetting 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-11, 13a-13, 14a-3, and 14a-9 thereunder. Martin agreed to pay a $50,000 penalty. Martin also settled a related administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by consenting, without admitting or denying the Commission's findings, to the entry of an order suspending him from appearing or practicing before the Commission as an attorney for two years. 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Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2848.txt b/raw/aaer/2008/AAER-2848.txt new file mode 100644 index 0000000000000000000000000000000000000000..6cf744486160338e73d4fb3c704c7823d97288a3 --- /dev/null +++ b/raw/aaer/2008/AAER-2848.txt @@ -0,0 +1,138 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58232 / July 25, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2848 / July 25, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13102 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +FRANCES M. JEWELS, : 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 Frances +M. Jewels (“Respondent” or “Jewels”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . attorney, accountant . . +. or other professional . . . who has been by name . . . permanently enjoined by any court of +competent jurisdiction, by reason of his or her misconduct in an action brought by the +Commission, from violating or aiding and abetting the violation of any provision of the Federal +securities laws or of the rules and regulations thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over her and the subject matter of these +proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Jewels, age 43, is and has been an attorney licensed to practice in the +Commonwealth of Massachusetts, and has been a certified public accountant licensed to practice in +the State of New York. She served as Chief Financial Officer, Vice President of Finance and +Administration, Secretary and Treasurer of Sycamore Networks, Inc. (“Sycamore”) from +approximately mid-1999 until October 2004. Thereafter, she served as an adviser to Sycamore until +October 2005. +2. Sycamore was, at all relevant times, a Delaware corporation with its +principal place of business in Chelmsford, Massachusetts. During the relevant period, Sycamore +was engaged in the business of developing and marketing optical networking products for +telecommunications service providers and government entities. At all relevant times, Sycamore’s +common stock was registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 +(“Exchange Act”) and traded on the Nasdaq National Market System. +3. On July 10, 2008, a final judgment was entered against Jewels, permanently +enjoining her from future violations of Section 17(a) of the Securities Act of 1933 and Sections +10(b), 13(b)(5), 14(a) and 16(a) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, 13a-14, +14a-9 and 16a-3 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, in the +civil action entitled Securities and Exchange Commission v. Sycamore Networks, Inc., et al., Civil +Action Number 08-CA-11166(DPW), in the United States District Court for the District of +Massachusetts. Jewels was also ordered to pay $30,000 in disgorgement, together with +prejudgment interest thereon in the amount of $4,980.04; to reimburse Sycamore $190,000 +consisting of cash bonuses she received from 2003 through 2004; to pay a $230,000 civil money +penalty; and was barred from serving as an officer or director of a public company for five years. +4. The Commission’s complaint alleged, among other things, that Jewels, in +connection with the granting of “in-the-money” stock options and resulting underreporting of +2 + +expenses, made materially false and misleading statements in various Form 10-K annual reports, +Form 10-Q quarterly reports, Form 8-K current reports, and proxy statements during periods +including fiscal years 2000 through 2004. The complaint further alleged that Jewels made “in- +the-money” options grants to employees in connection with company-wide grants which were +issued on dates on which the market price of Sycamore’s stock was at or near the low for the +period, but failed to record associated stock-based compensation expenses, and backdated other +grants, such as new hire and promotional grants, which had significant options expense +implications that she disregarded. The complaint further alleged that Jewels was the recipient of +at least two grants of “in-the-money” stock options to Company officers issued as of the same +dates as company-wide grants and, although Jewels did not directly authorize the grants to +herself and other officers, she knew that the favorable grant dates that she selected for the +company wide grants would be applied to her options as well, and failed to record compensation +expenses related to the officer grants. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanctions agreed to in Respondent Jewels’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Jewels is suspended from appearing or practicing before the Commission as an +attorney for five years. After five years from the date of this order, Jewels has the right to apply for +reinstatement to appear or practice before the Commission as an attorney by submitting an affidavit +to the Commission’s Office of the General Counsel truthfully stating, under penalty of perjury, that +she has complied with this Order, that she is not subject to any suspension or disbarment as an +attorney by a court of the United States or of any state territory, district, commonwealth, or +possession, and that she has not been convicted of a felony or misdemeanor involving moral +turpitude as set forth in Rule 102(e) of the Commission’s Rules of Practice. +B. Jewels is suspended from appearing or practicing before the Commission as an +accountant. +C. After five years from the date of this order, Respondent may request that the +Commission consider her reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in her practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which she works or in some other acceptable manner, as long as she practices before the +Commission in this capacity; and/or +3 + +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which she is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which +she is associated, has been inspected by the Board and that inspection did not identify any +criticisms of or potential defects in the respondent’s or the firm’s quality control system that +would indicate that the respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges her responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +D. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission as an accountant provided that her state +CPA license is current and she has resolved all other disciplinary issues with the applicable +state boards of accountancy. However, if state licensure is dependent on reinstatement by +the Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2852.txt b/raw/aaer/2008/AAER-2852.txt new file mode 100644 index 0000000000000000000000000000000000000000..753c3deef57f4768651c309d01ee42a98a59aa69 --- /dev/null +++ b/raw/aaer/2008/AAER-2852.txt @@ -0,0 +1,168 @@ +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58242 / July 29, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2852 / July 29, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12793 +In the Matter of +JAY J. SHAPIRO, CPA, P.C. +AND JAY J. SHAPIRO, CPA, +Respondents. +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +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. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) issued +an 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, and Notice of Hearing against Jay J. Shapiro, CPA, P.C. (the “Firm” or “Shapiro P.C.”) +and Jay J. Shapiro, CPA (“Shapiro”) (collectively “Respondents”). +II. +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, Respondents consent to the entry of +this Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order +Pursuant to 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 Respondents’ Offer, the Commission finds1 that: +A. RESPONDENTS +1. The Firm is a California corporation and public accounting firm headquartered in +Los Angeles, California. Shapiro P.C. prepared and issued an audit report dated January 12, 2004 +in connection with its audit of Daleco Resources Corp. (“Daleco”). +2. Shapiro, 57, of Los Angeles, California, is a certified public accountant licensed in +the state of California since 1978. As engagement partner on the Daleco engagement, Shapiro +participated in the preparation and issuance of the January 12, 2004 Daleco audit report. +B. FACTS +1. Daleco is a Nevada corporation based in West Chester, Pennsylvania. Daleco’s +common stock trades on the OTC Bulletin Board and is registered with the Commission pursuant +to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). Daleco reported $1.5 +million of revenues and total assets of $25 million for fiscal year ended September 30, 2003. +2. Daleco has at all relevant times been an issuer as defined by the Sarbanes-Oxley +Act of 2002 (the “Act”). +3. The Firm audited Daleco’s 2003 financial statements included in Daleco’s annual +report for fiscal year ended September 30, 2003, on Form 10-KSB, filed with the Commission on +January 14, 2004. +4. The Firm prepared and issued an audit report dated January 12, 2004 (the “Daleco +audit report”), which Daleco included in its Form 10-KSB for fiscal year ended September 30, +2003. +5. At the time the Firm issued the Daleco audit report, it was not registered with the +Public Company Accounting Oversight Board (the “PCAOB”), as required by Section 102(a) of +the Act. +6. Shapiro participated in auditing the 2003 financial statements included in Daleco’s +annual report for fiscal year ended September 30, 2003, on Form 10-KSB, filed with the +Commission on January 14, 2004. +7. Shapiro participated in the preparation and issuance of the Daleco audit report, +which was included in Daleco’s Form 10-KSB. +The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +1 +8. The Firm received $40,800 for conducting an audit of Daleco’s 2003 financial +statements and for issuing the Daleco audit report on those statements.2 +C. VIO LATIONS +1. Section 4C(a) of the Exchange Act 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 by the +Commission … (1) not to possess the requisite qualifications to represent others … 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 issued thereunder.” +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +not to possess the requisite qualifications to represent others … or ( iii) to have willfully violated … +any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”3 +4. The provisions of Section 102(a) of the Act became effective on October 22, 2003.4 +5. Based on the conduct described above, the Firm willfully5 violated Section 102(a) +of the Act. +6. Based on the conduct described above, Shapiro caused the Firm’s violation of +Section 102(a) of the Act. +2 Subsequent to the institution of these proceedings, the Firm voluntarily reimbursed +Daleco $40,800 in audit fees along with $10,964.72 in interest. In view of the Firm’s +reimbursement, the Commission deems its request for disgorgement and prejudgment interest +satisfied. +3 A violation of the Act or any rule that the PCAOB issues under the Act is treated for all +purposes in the same manner as a violation of the Exchange Act, including with respect to +penalties. Sarbanes-Oxley Act of 2002, 15 U.S.C.A. § 7202(b)(1) (West 2002). +4 Section 102(a) became effective “[b]eginning 180 days after the date of the determination +of the Commission under Section 101(d)” of the Act that the Board was prepared to undertake its +statutory responsibilities. The Commission made the required determination on April 25, 2003. +See Order Regarding Section 101(d) of the Sarbanes-Oxley Act of 2002, Securities Act Release +No. 8223, Exchange Act Release No. 47746, 2003 WL 1956164 (Apr. 25, 2003). +5 A willful violation of the securities laws means merely that the peron charged with the +violation knows what he is doing. Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000). +3 + +D. FINDINGS +1. Based on the foregoing, the Commission finds that the Firm and Shapiro did not +possess the requisite qualifications to represent others. +2. Based on the foregoing, the Commission finds that the Firm willfully violated +Section 102(a) of the Sarbanes-Oxley Act of 2002, and that Shapiro caused the Firm’s violation of +Section 102(a) of the Act. +IV. +On the basis of the foregoing, Respondents hereby consent to the entry of an Order by the +Commission imposing the following remedial sanctions: +Accordingly, it is hereby ORDERED, effective immediately, that: +1. Jay J. Shapiro, CPA, P.C. +A. The Firm shall cease and desist from committing or causing any violations +and any future violations of Section 102(a) of the Act. +B. The Firm is denied the privilege of appearing or practicing before the +Commission as an accountant. +C. After one year from the date of this Order, the 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 the Firm’s work in the Firm’s practice before the +Commission will be reviewed either by the independent audit committee of the public company for +which the Firm works or in some other acceptable manner, as long as the Firm practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) the Firm is registered with the PCAOB in accordance with the +Sarbanes-Oxley Act of 2002, and such registration continues to be effective. However, if +registration with the PCAOB is dependent upon reinstatement by the Commission, the +Commission will consider an application on its other merits; +4 + +(b) the Firm 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 +(c) the Firm acknowledges responsibility, as long as the Firm +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, concurring partner reviews and quality control standards. +D. The Commission will consider an application by the Firm to resume +appearing or practicing before the Commission provided that the Firm’s state CPA license is +current and the Firm 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 Firm’s character, integrity, professional conduct, or qualifications to appear or practice before +the Commission. +2. Jay J. Shapiro, CPA +A. Shapiro shall cease and desist from committing or causing any violations +and any future violations of Section 102(a) of the Act. +B. Shapiro is censured. +C. Shapiro may practice before the Commission as an independent accountant +provided that: +1. The public accounting firm with which he is associated is registered +with the PCAOB in accordance with the Act, and such registration continues to be effective; and +2. He has submitted to the Commission staff (Attention: Office of the +Chief Accountant) the PCAOB’s letter notifying the public accounting firm with which he is +associated that its registration application has been approved. +By the Commission. + F lorence E. Harmon + A cting Secretary +5 diff --git a/raw/aaer/2008/AAER-2853.txt b/raw/aaer/2008/AAER-2853.txt new file mode 100644 index 0000000000000000000000000000000000000000..bff186e6c331f2325780cbdfecac53cfa59214f6 --- /dev/null +++ b/raw/aaer/2008/AAER-2853.txt @@ -0,0 +1,1379 @@ + + + + + + + + + + + + + + + + SEC.gov | Phillip R. 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Bennett + + + + + + + + + + + + Phillip R. Bennett + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20660 / July 30, 2008 + + Accounting and Auditing Enforcement Release No. 2853 / July 30, 2008 + + U.S. Securities and Exchange Commission v. Phillip R. Bennett , 08-cv-1631 (GEL) (S.D.N.Y. filed Feb. 19, 2008) + + Former Refco CEO Phillip R. Bennett Settles SEC Fraud Action + + The U.S. Securities and Exchange Commission (the Commission) announced that on July 29, 2008, a final judgment by consent was entered by the United States District Court for the Southern District of New York against Phillip R. Bennett, the former Chairman and Chief Executive Officer of Refco Inc., in a civil injunctive action brought by the Commission. The final judgment permanently enjoins Bennett from violating antifraud, record keeping, periodic reporting, internal controls, and certification provisions of the federal securities laws and bars him from serving as an officer or director of a public company. The settlement concludes the Commission's civil injunctive action against Bennett. + + The Commission's complaint alleged that Bennett orchestrated a fraud that periodically concealed hundreds of millions of dollars owed to Refco Inc. and its corporate predecessor, Refco Group Ltd. (together, Refco), by Refco Group Holdings, Inc. (RGHI), a private entity that Bennett controlled. The debt was primarily the result of trading losses and operating expenses that Refco transferred over time to RGHI. From at least 1998 to October 2005, the debt was concealed by short-term transactions Bennett directed that temporarily shifted the debt from RGHI to third parties at the ends of fiscal periods. The public revelation of Bennett's scheme in October 2005, two months after the company's initial public offering of common stock, caused hundreds of millions of dollars in losses to Refco shareholders. The complaint also alleged that Bennett directed practices that artificially inflated Refco's reported financial results. + + The judgment against Bennett, to which he consented without admitting or denying the Commission's allegations, enjoins him from 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), and Exchange Act Rules 10b-5, 13b2-1, and 15d 14, and from aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Exchange Act Rules 15d-2 and 15d-13. The judgment also bars Bennett, pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act, from serving as an officer or director of a public company. + + Bennett also agreed to settle proposed administrative proceedings against him pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Investment Advisers Act of 1940, to be based on the entry of the Court's final judgment enjoining him. Pursuant to his offer of settlement, Bennett consented to the issuance of a Commission order barring him from association with any broker, dealer, or investment adviser. + + In a related federal criminal prosecution, on July 3, 2008, the United States District Court for the Southern District of New York sentenced Bennett to sixteen years incarceration for his role in the Refco fraud and ordered him to forfeit assets up to an amount of $2.4 billion. + + The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York, the United States Postal Inspection Service, and the Commodity Futures Trading Commission. + + The Commission's investigation is continuing. + + For further information about the Commission's action in U.S. Securities and Exchange Commission v. Bennett , see Litigation Release No. 20460 (Feb. 19, 2008); see also Administrative Proceeding Release No. 34-58257 (July 30, 2008); Administrative Proceeding Release No. 34-57102 (Jan. 4, 2008); Litigation Release No. 20405 (Dec. 19, 2007); Litigation Release No. 20402 (Dec. 18, 2007); and Litigation Release No. 19716 (June 5, 2006). + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2854.txt b/raw/aaer/2008/AAER-2854.txt new file mode 100644 index 0000000000000000000000000000000000000000..37e15babc89a046264c3fe723c8ee5e14f569336 --- /dev/null +++ b/raw/aaer/2008/AAER-2854.txt @@ -0,0 +1,86 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58257 / July 30, 2008 +INVESTMENT ADVISERS ACT OF 1940 +Release No. 2762 / July 30, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2854 / July 30, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13108 +In the Matter of +PHILLIP R. BENNETT, +Respondent. +ORDER INSTITUTING +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO SECTION 15(b) OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND 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 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Section 203(f) of the +Investment Advisers Act of 1940 (“Advisers Act”) against Phillip R. Bennett (“Bennett” 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, and the findings contained in Section III.2. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 15(b) +of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, +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. Bennett, age 60, a resident of Gladstone, New Jersey was associated with +Refco Securities, LLC, a registered broker-dealer, from August 1999 to October 2005. Bennett held +a controlling interest in Refco Securities until August 2004. In addition, from December 1999 to +October 2005, Bennett was a member of the board of managers of Refco Securities, which managed +and controlled the broker-dealer’s business and affairs. From August 1999 to October 2005, +Bennett held a controlling interest in and was chairman of the board of managers of Forstmann-Leff +Associates LLC and FLA Asset Management LLC, both of which were registered as investment +advisers with the Commission. He is not currently associated with any regulated entity. +2. On July 29, 2008, a final judgment was entered by consent against Bennett, +permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 +(“Securities Act”), Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act +Rules 10b-5, 13b2-1, and 15d-14 and from aiding and abetting violations of Sections 13(b)(2)(A), +13(b)(2)(B), and 15(d) of the Exchange Act and Exchange Act Rules 15d-2 and 15d-13, in the civil +action entitled United States Securities and Exchange Commission v. Phillip R. Bennett, Civil +Action Number 08-cv-1631 (GEL), in the United States District Court for the Southern District of +New York. +3. The Commission’s complaint in that action alleged, among other things, +that from at least 1998 to October 2005, Bennett orchestrated a fraudulent scheme that repeatedly +concealed, at the end of Refco fiscal periods, hundreds of millions of dollars owed to Refco Inc. +and its corporate predecessor Refco Group Ltd. (together “Refco”) by a non-Refco entity that +Bennett controlled. In addition, the complaint alleged that, in 2004 and 2005, Bennett directed +practices that artificially inflated Refco’s results of operations. As a result of this conduct, Refco +provided false and materially misleading information in registration statements and other reports it +filed with the Commission and provided to investors. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanctions agreed to in Respondent Bennett’s Offer. +Accordingly, it is hereby ORDERED: +Pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, +that Respondent Bennett be, and hereby is barred from association with any broker, dealer, or +investment adviser; +Any reapplication for association by the Respondent will be subject to the applicable laws +and regulations governing the reentry process, and reentry may be conditioned upon a number of +factors, including, but not limited to, the satisfaction of any or all of the following: (a) any +disgorgement ordered against the Respondent, whether or not the Commission has fully or partially +waived payment of such disgorgement; (b) any arbitration award related to the conduct that served +as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a +customer, whether or not related to the conduct that served as the basis for the Commission order; +and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct +that served as the basis for the Commission order. + By the Commission. + F lorence E. Harmon + A cting Secretary +3 diff --git a/raw/aaer/2008/AAER-2855.txt b/raw/aaer/2008/AAER-2855.txt new file mode 100644 index 0000000000000000000000000000000000000000..22b82af657dde85f98220e173104f27a5ca3a41d --- /dev/null +++ b/raw/aaer/2008/AAER-2855.txt @@ -0,0 +1,123 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58273 / July 31, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2855 / July 31, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13111 +In the Matter of +JAMES B. KINNEY, CMA +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 (the “Commission”) deems it appropriate and in +the public interest that public admi nistrative proceedings be, and hereby are, i nstituted against +James B. Kinney (the “Respondent” or “Kinney”) pursuant to Rule 102(e)(3) of the Commission’s +Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.2. below, which are admitted, Respondent +consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule +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 . . . accou ntant . . . wh o has been by name . . . permanently +enjoined by any cou rt of c ompetent juri sdiction, by reas on of hi s or h er misconduct i n an act ion br ought by t he +Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of +the rules and regulations thereunder. +1 +102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (the “Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Kinney, age 53, is and has been a certi fied management ac countant +(“CMA”) licensed to practice in Canada. From August 2002 through April 2004 he was the Vice +President of Finance for the Wireless business unit of Nortel Networks Corporation (“Nortel”), a +Canadian telecommunications equipment manufacturer. Nortel’s common stock is and at all relevant +times was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act +of 1934 (the “Exchange Act”) and trades publicly on the New York and Toronto Stock Exchanges +under the symbol “NT.” +2. On May 2, 2008, a final judgment was entered against Kinney, permanently +enjoining him from future violations of Section 17(a) of the Securities Act of 1933 (the “Securities +Act”), Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5 and 13b2-1, and +from aiding and abetting f uture violations of Exchange Act Sections 13(a), 13(b)(2)(A) and +13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1 and 13a-13 in the civil action entitled United +States Securities and Exchange Commission v. Frank A. Dunn, et al., Civil Action Number 07 - +CV-8851 (LAP), in the United States District C ourt for the Southern Di strict of Ne w York . +Kinney was also order ed to pay $52,000 i n di sgorgement of ill-gotten gains, $16,481 i n +prejudgment interest, and a $75,000 civil money penalty. +3. The Commission’s complaint alleged that, from the second half of 2002 +through January 2003, Kinney determined that his business unit held tens of millions of dollars in +excess reserves, and that he did not release those excess reserves as required under U.S. Generally +Accepted Accounting Principles (“GAAP”), but instead used th em for earnings mana gement +purposes. The complaint also alleged that, in early January 2003, during the 2002 year-end closing +process, Kinney and other finance executives improperly established additional excess reserves in +order to lower Nortel’ s consolidat ed earnings and bring it in line with internal and m arket +expectations. As alleged, his efforts, in conjunction with those of other finance executives, helped +erase Nortel’s pro forma profit for the fourth quarter of 2002 and caused it to report a loss instead. +The complaint also alleged that, in the first and second quarters of 2003, Kinney and other finance +executives improperly released hundreds of m illions o f d ollars i n e xcess r eserves a s p art o f a +company-wide effort t o inflate consolidated earnings and pay bonuse s. According to the +complaint, these e fforts turned Nort el’s first quarter 2003 l oss into a re ported profit under U.S. +GAAP, largely erased Nortel’s second quarter loss and generated a pro forma profit in the second +quarter. +-2 +- +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Kinney’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Kinney is suspended from appearing or practicing before the Commission as an +accountant. +B. After 5 years from the date of the 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. +-3 +- +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. + F lorence E. Harmon + A cting Secretary +-4 +- \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2857.txt b/raw/aaer/2008/AAER-2857.txt new file mode 100644 index 0000000000000000000000000000000000000000..e733997687b49467bb0117bb1b6ae79c4ab338c8 --- /dev/null +++ b/raw/aaer/2008/AAER-2857.txt @@ -0,0 +1,1377 @@ + + + + + + + + + + + + + + + + SEC.gov | Michael F. Crowley, Jr. and Jerry L. 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Crowley, Jr. and Jerry L. Burdick + + + + + + + + + + + + Michael F. Crowley, Jr. and Jerry L. Burdick + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20668 / August 1, 2008 + + Accounting and Auditing Enforcement Release No. 2857 / August 1, 2008 + + Securities and Exchange Commission v. Michael F. Crowley, Jr. , United States District Court for the Southern District of California, Civil Action No. 08-CV-1388 J (RBB) + + Securities and Exchange Commission v. Jerry L. Burdick , United States District Court for the Southern District of California, Civil Action No. 08-CV-1390 JAH (JMA) + + SEC Charges Former CEO and Former Director and Interim CFO of SeraCare Life Sciences With Financial Fraud + + On July 31, 2008, the Securities and Exchange Commission filed securities fraud charges against Michael F. Crowley, Jr., the former chief executive officer of SeraCare Life Sciences, Inc., and Jerry L. Burdick, a former member of SeraCare's board of directors and the former interim chief financial officer, for their roles in financial fraud at SeraCare during 2005. At the time, SeraCare was based in Oceanside, Calif., and operated and continues to operate as a supplier and manufacturer of biological products for the biotechnology and pharmaceutical industry. + + The SEC's complaint against Crowley, filed in federal district court in San Diego, alleges that Crowley, age 40, of San Diego, failed to disclose material information in SeraCare's Form 10-Q and earnings release for the first quarter of its fiscal year 2005 and during an earnings call with investors. Specifically, the complaint alleges that Crowley learned the day before these disclosures were made that a bill and hold sale representing almost 11% of SeraCare's quarterly net income before taxes had been cancelled by a major customer. In spite of this knowledge, Crowley failed to disclose the cancelled sale in any of SeraCare's first quarter disclosures, including the quarterly report that Crowley signed and certified, an earnings release, and an investor conference call. + + The SEC also filed a separate complaint against Burdick, age 68, of Westlake Village, Calif., alleging that in SeraCare's second and third quarters of 2005, Burdick improperly released general inventory reserves that he had created following a major acquisition by SeraCare in 2004. As a result, SeraCare's net income before taxes was artificially inflated in the second and third quarters by 20% and 17%, respectively, and misstated in the corresponding quarterly reports filed by SeraCare that Burdick prepared and/or certified. The complaint further alleges that Burdick also caused misrepresentations to SeraCare's outside auditors by creating a backdated letter that was given to the auditors in order to recognize revenue on an almost $1 million sale before the close of the 2005 fiscal year. Finally, the Commission's complaint alleges that Burdick misled SeraCare's auditors by providing them an increased inventory valuation without any documented or verifiable support. + + Crowley and Burdick each agreed to settle the SEC's charges without admitting or denying the allegations in the complaint. These settlements are subject to approval by the court. Crowley agreed to pay a civil penalty of $25,000 and will be permanently enjoined from violations of Section 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act") and Rule 13a-14 of the Securities Exchange Act of 1934 ("Exchange Act"), and aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13. Burdick agreed to pay a civil penalty of $25,000 and also agreed to be permanently enjoined from violations of Section 17(a)(2) and (3) of the Securities Act and Rules 13a-14, 13b2-1, and 13b2-2 of the Exchange Act, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. Burdick, a certified public accountant, also agreed to a one year suspension from appearing or practicing before the Commission as an accountant under Rule 102(e) of the Commission's Rules of Practice. + + # # # + + + SEC Complaint in this matter +--> + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2858.txt b/raw/aaer/2008/AAER-2858.txt new file mode 100644 index 0000000000000000000000000000000000000000..707ea58ead670c300d7e28fd12bf2f58bf1003a0 --- /dev/null +++ b/raw/aaer/2008/AAER-2858.txt @@ -0,0 +1,532 @@ +UNITED STATES OF AMERICA +Before the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58309 / August 5, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2858 / August 5, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13114 / August 5, 2008 +In the Matter of +ERNST & YOUNG LLP, +JOHN F. FERRARO, CPA, and +MICHAEL G. LUTZE, 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 pursuant to Sections +4C and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice, against Ernst & Young LLP (“E&Y”) and John F. Ferraro, CPA +(“Ferraro”), and pursuant to Exchange Act Section 4C and Rule 102(e)(1)(ii) of the Commission’s +Rules of Practice against Michael G. Lutze, CPA (“Lutze”) (collectively “Respondents”). +II. +In anticipation of the institution of these proceedings, Respondents have submitted Offers of +Settlement (“Offers”), which the Commission has determined to accept. Solely for the purpose of +these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as to +the Commission’s jurisdiction over them and the subject matter of these proceedings, which are +admitted, Respondents consent to the entry of this Order Instituting 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 Respondents’ Offers, the Commission finds1 that: +A. Over view +This matter arises from an independence-impairing business relationship between E&Y +and Mark C. Thompson, while Thompson was a member of the board of directors of three of its +audit clients. The E&Y/Thompson relationship involved their collaboration in creating a series +of audio CDs called The Ernst & Young Thought Leaders Series. The relationship spanned 19 +months—October 2002 through early May 2004—during th e entirety of which Thompson served +as a director of E&Y audit client Company A, and during parts of which Thompson also served +(i) as a member of Company A’s Audit Committee; and (ii) as a director of two other E&Y audit +clients: Company B and Company C. As detailed below, through their acts and omissions in +this matter, all three Respondents engaged in improper professional conduct; Respondents E&Y +and Ferraro were each a cause of certain issuer-reporting violations; and E&Y also violated, and +Ferraro was a cause of E&Y’s violations of, Rule 2-02(b) of Regulation S-X. +B. Re spondents +Ernst & Young LLP (“E&Y”) is a professional services firm, headquartered in New York +City, with offices located throughout the United States. At all relevant times and continuing to the +present, E&Y has provided auditing, consulting, and tax services to a variety of companies, +including companies whose securities are registered with the Commission and trade in the U.S. +markets. +John F. Ferraro, CPA, a resident of Magnolia, Massachusetts, has been a CPA for over +twenty-seven years; he has been licensed as a CPA by the state of Wisconsin since May 1980. He +currently also has an active license in Ohio, and inactive or expired licenses in New York, Illinois, +Kansas and Missouri. Ferraro was at all relevant times an E&Y partner and Vice-Chairman of the +firm whose title was Americas Vice-Chair of Markets, with oversight responsibility for the firm’s +sales organization. Ferraro first joined the firm in 1977, and by October 2002 had at least 19 years +of public-company audit experience. He has not practiced as an auditor for at least the last five +years. +Michael G. Lutze, CPA, a resident of Brookfield, Wisconsin, has been a licensed CPA for +over twenty-four years; he has been licensed as a CPA by the state of Wisconsin since January +1984. He currently also has active licenses in Illinois, Minnesota and Pennsylvania, and an expired +license in Maine. Lutze was at all relevant times an E&Y audit partner. Lutze became the +coordinating partner on E&Y’s Company A audit engagement in April 2003 and served in that role +until May 2005. +The findings herein are made pursuant to Respondents’ Offers of Settlement and are not +binding on any other person or entity in this or any other proceeding. +2 +1 +C. Relevant Issuers +At all relevant times, Company A’s common stock was registered with the Commission +pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange, and its +fiscal year has ended on the last day of February. E&Y served as Company A’s auditor from +August 1994 until May 2005. +At all relevant times, Company B’s common stock was registered with the Commission +pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange, and its +fiscal year has ended on the last day of April. E&Y has served as Company B’s auditor since April +2002. +At all relevant times, Company C’s common stock was registered with the Commission +pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market, and its +fiscal year has ended on the last day of December. E&Y served as Company C’s auditor from May +2002 until May 2007. +D. The Director +Mark C. Thompson served on Company A’s board from March 2000 through May 4, +2004, and on its Audit Committee from March 2000 until August 2003. Thompson served on +Company B’s board from March 2000 until September 10, 2003; and on Company C’s board from +February 26, 2004 until May 10, 2004. As a board member of these issuers, Thompson participated +in annual board votes concerning E&Y’s retention as auditor; these included votes on the inclusion +of recommendations to retain E&Y in annual proxy solicitations to shareholders. Thompson also +signed Forms 10-K filed with the Commission by Company A and Company B containing +statements that each issuer’s auditor was independent. As a member of Company A’s Audit +Committee, Thompson shared direct responsibility, under Company A’s Audit Committee Charter, +“for the appointment … compensation and oversight … of the [company’s] independent auditor.” +See Appendix A to Company A’s May 20, 2003 proxy statement. +E. F ACTS +1. Establishment and Operation of the Relationship +In October 2002, at a time when Thompson was serving on the boards of two E&Y public +company audit clients—Company A and Company B—and while Th ompson was also serving on +Company A’s audit committee, E&Y entered into the business relationship with Thompson that is +the subject of this proceeding. At the time, Thompson had recently completed a two-year project +involving the production of eight CDs of prominent-leader interviews for his first customer for such +an effort and wished to continue working on similar ventures. For its part, E&Y had recently +established what it termed an “industry sector focus” approach to business development, which +aimed to build its partners’ expertise as “thought leaders” within particular industries and industry +sectors. +3 + +During this period Respondent Ferraro was serving as the firm’s Vice-Chair for Markets. In +early October 2002, at the suggestion of an E&Y sales partner, Ferraro met with Thompson. +Shortly thereafter, Thompson furnished a plan for a “pilot program” of four audio CDs to be called +the “E&Y Thought Leaders Series.” In this plan, Thompson proposed creating CDs of interviews of +industry CEOs, with each CD featuring a particular industry or industry sector. According to +Thompson’s proposal, he would appear as host on the CDs; E&Y partners would also appear on the +CDs and would—with Thom pson’s coaching and assistance—co nduct the interviews of the +industry leaders. In this way, Thompson proposed to “build the confidence and visibility” of E&Y +“subject matter experts” and to promote them “as Thought Leaders in interviews that give [them] a +seat at the table with CEOs and CFOs to discuss critical leadership issues in key industry sectors.” +(Italics in original.) +Ferraro agreed to Thompson’s proposal and, when the two met again later that month, +signed a one-page contract, thereby launching the venture. This initial contract was for $104,000. +Ferraro knew, at the time he signed the initial contract, that Thompson was a director of Company +A and Company B, and that both companies were E&Y audit clients. Notwithstanding this +knowledge, Ferraro failed to seek, or perform, or otherwise obtain any auditor-independence +assessment prior to executing the contract. Ferraro had only limited involvement with the matter +thereafter, because he asked one of his direct reports to implement the pilot series. On June 4, 2003, +upon the pilot series’ completion, Ferraro’s direct report signed a second, more detailed agreement +with Thompson to produce additional CDs over a two-year period for a fee of $270,000 per year, +with an option to cancel after one year. +In its operation, the relationship proceeded in accordance with Thompson’s proposal, and +the resulting CDs were provided to prospective E&Y audit and non-audit clients for business +development purposes. During the course of the venture, memoranda were circulated within the +firm characterizing the project as “Business Development Support for [E&Y’s] Industry Sector +Leaders” with “every potential to define [E&Y] as the number one provider” and “obviously great +business development for E&Y’s [audit and non-audit] strategies.” The venture’s business- +development aims embraced not only the CDs’ distribution, but also their creation; as one internal +memorandum noted: “Since the CEO [interviewee] and the [E&Y] Partner actually sit at the +table together, the opportunity to discuss business and make a ‘sales call’ with the decision +maker is obviously much more direct than with distributing traditional brochures. For example, +after we completed the interview with [one public company CEO] we were immediately able to +set up meetings for anticipated projects valued at $500,000. That’s just one of the nine CEO +meetings so far.” +Each CD’s packaging included both E&Y’s and Thompson’s proprietary logos and website +addresses. Each CD’s packaging also listed the name, title and contact information for E&Y +personnel within the relevant industry or industry sector. Each CD included language +recommending the services of E&Y and also endorsing a CD product line of Thompson; and each +CD contained statements reflecting that it was the product of collaboration between Thompson and +E&Y. Both Thompson and the E&Y personnel working on the project routinely addressed one +another as members of a team; in one such message, an E&Y sales partner thanked Thompson for +his “commitment to helping us win.” During the course of the relationship, E&Y and Thompson +produced a total of seven completed CDs, in five separate audiobooks; and E&Y paid Thompson +4 + +compensation totaling $377,500—a s um comprising, unbeknownst to E&Y, approximately half of +Thompson’s net income at the time. +2. E&Y Claimed Independence From Company A, Company B and Company C +Notwithstanding the fact that its business relationship with Thompson proceeded +contemporaneously with either periods covered by its audits of companies on whose boards +Thompson sat, or periods during which the work on those audits was performed, or both, E&Y +claimed to be independent in its audit reports for Company A’s 2002 through 2004 fiscal years, +Company B’s 2003 and 2004 fiscal years, and Company C’s 2004 fiscal year.2 With E&Y’s +knowledge and consent, those audit reports were, in turn, included, or incorporated by reference, in +their clients’ annual reports on Form 10-K and proxy statements filed with the Commission +throughout the relevant period. +In addition, E&Y expressly confirmed to Company A, Company B, and Company C at the +end of each affected fiscal year that it was “independent” and therefore able to serve as each client’s +external auditor. These written confirmations—called ISB(1) Letters (f or Independence Standards +Board Standard No. 1, Independence Discussions With Audit Committees)—di d not disclose E&Y’s +business relationship with Thompson until after the relationship was terminated in early May 2004. +3. Respondent Lutze Fails to Respond to an Email Referencing the Relationship +On August 7, 2003, Respondent Lutze—who had b een serving as the coordinating partner +on the Company A audit engagement since April 2003—le arned, for the first time, through an email +from another E&Y partner, that Thompson was serving as a “paid advisor to E&Y at the National +Industry level,” and that the E&Y partner sending the email was “not sure what this all entails other +than some consulting/advisory type work.” At the time, Lutze knew that Thompson was then +serving on Company A’s Audit Committee and board; but Lutze took no follow-up action, whether +to learn the relationship’s details, or to assess, or have others assess, its independence implications, +or to inform Company A of its existence, or otherwise. On April 19, 2004, E&Y furnished an +ISB(1) letter to Company A that did not disclose the firm’s business relationship with Thompson. +On April 29, 2004, Company A filed its annual report on form 10-K with the Commission, which +included the purportedly “independent” audit report that Lutze had overseen. +For the fiscal years referenced in text that ended prior to E&Y’s termination of its business +relationship with Thompson in May 2004, i.e., Company A’s 2002 and 2003 fiscal years and +Company B’s 2003 and 2004 fiscal years, E&Y’s audit fees totaled $2,381,965. +5 +2 +4. E&Y Performs a Flawed Independence Assessment of the Relationship, On +Which It Relies in Continuing to Claim Independence Thereafter +By April 2004, E&Y’s policies required that matters potentially bearing on independence (i) +be elevated for review by the firm’s independence office; and (ii) be promptly disclosed, by the +relevant coordinating audit partner, to the audit client. On April 19, 2004, as the firm considered +whether to renew its relationship with Thompson, Ferraro’s direct report notified the firm’s +independence office of the relationship and inquired whether it was embraced by these policies. +The independence office responded affirmatively, thereby initiating an E&Y process that led to +Lutze’s informing Company A’s financial management of the relationship on May 4, 2004. (Prior +to that day, neither E&Y nor Thompson had disclosed the relationship to Company A.) At +approximately the same time, E&Y terminated its relationship with Thompson and, thereafter, +certain E&Y partners for the first time conducted an analysis of the relationship’s independence +implications. The conclusion reached through that assessment was that the relationship did not +impair the firm’s independence because it fit within the “consumer in the ordinary course of +business” exception to the independence rules’ general prohibition on such relationships. See Rule +2-01(c)(3) of Regulation S-X; see also Codification of Financial Reporting Policies, § 602.02.e. +This conclusion was erroneous, for the reasons set forth below. +Within weeks, E&Y relied on its erroneous independence analysis in claiming to be +independent from Company B, on whose board Thompson had served during the fiscal year +covered by E&Y’s claim. E&Y’s Company B audit report, with this incorrect claim of +independence, was filed with Company B’s July 14, 2004 Form 10-K and its August 12, 2004 +proxy statement. +5. Respondent Lutze Furnishes Letter that Fails Fully to Inform Company A +On May 4, 2004, the same day that E&Y informed Company A of Thompson’s undisclosed +business relationship with E&Y, Company A immediately asked for and received Thompson’s +resignation. On May 12, 2004, Company A’s Audit Committee, through a member of Company +A’s management, asked Lutze to confirm in writing that neither he, nor the prior coordinating +partner, nor anyone currently serving on the Company A audit engagement was aware, at any time +prior to May 4, 2004, of the engagement between E&Y and Thompson. Shortly after receiving this +request, Lutze remembered and then promptly retrieved, reviewed, and forwarded to other E&Y +partners the email concerning the E&Y/Thompson relationship that he had received on August 7, +2003. Nevertheless, on May 14, 2004, Lutze furnished to Company A’s Audit Committee a letter +on behalf of E&Y that failed fully to disclose the August 7, 2003 email that he had received. This +letter, which was included in Company A’s Audit Committee Minute Book, inadequately informed +Company A regarding Lutze’s pre-May 2004 notice of the E&Y/Thompson relationship. Based on +the letter from Lutze, Company A believed that Lutze had no notice of the business relationship +between Thompson and the firm before May 4, 2004. This understanding was a material factor in +Company A’s decision to continue to retain E&Y as its auditor. Company A also materially relied +upon this mistaken understanding from the letter in connection with the language of two subsequent +filings it made with the Commission: its May 14, 2004 Form 8-K and its May 17, 2004 proxy +statement. +6 + +6. E&Y Again Fails Fully to Inform Company A’s Audit Committee +At the time it requested the May 14th letter, Company A’s Audit Committee had also +requested a commitment by an E&Y “national managing partner to personally appear” before the +Committee at its next meeting and “be prepared to answer all questions of the Committee +regarding,” among other things, “the reasons why the relationship was not communicated to +Company A until May 4, 2004.” A senior E&Y official accordingly appeared (along with others +from the firm) at the company’s June 23, 2004 Audit Committee meeting. The senior E&Y official, +who knew of the August 7, 2003 email, stated to the Committee that it was certain E&Y policies, +adopted in the Spring of 2004, that caused the relationship to surface, and that E&Y had not +disclosed the relationship to Company A earlier because the policies in question were not in place in +prior years. The Committee emerged from the meeting with the continued impression that no one +on E&Y’s audit team was aware of the E&Y/Thompson relationship prior to May 2004. This +incorrect understanding was recorded in the Audit Committee’s minutes. +F. LEGAL ANALYSIS +1. Independence Principles Governing the E&Y/Thompson Relationship +The basic elements of an auditor independence violation in the business-relationship context +are (1) an independence-impairing relationship; (2) existing during all or part of the period covered +by the audit, or the period of the audit work, or both; followed by (3) issuance of an audit report +claiming to be independent from the client.3 See Rule 2-01(c)(3) of Regulation S-X.4 Business +relationships with persons associated with the audit client in a decision-making capacity, such as +audit client directors, officers and substantial stockholders are embraced by this prohibition. See +Rule 2-01(c)(3). Section 6.02.02.e of the Commission’s Codification of Financial Reporting +Policies (“Codification”) (available at 7 Fed. Sec. L. Rep. (CCH) ¶ 73,272) provides, among other +things, that: +In addition to the relationships specifically prohibited by Rule 2-01, joint business ventures, +limited partnership agreements, investments in supplier or customer companies, leasing +interests, (except for immaterial landlord-tenant relationships) and sales by the accountant of +3 An independence violation need not be consummated through the filing of a year-end audit +report falsely claiming independence, because the Commission requires that interim financial +statements included in quarterly reports on Form 10-Q must also be reviewed by an independent +public accountant. See Rule 10-01(d) of Regulation S-X. +4 Rule 2-01(c)(3) provides: +An accountant is not independent if, at any point during the audit and professional +engagement period, the accounting firm or any covered person in the firm has any direct or +material indirect business relationship with an audit client, or with persons associated with +the audit client in a decision-making capacity, such as an audit client’s officers, directors, or +substantial stockholders. The relationships described in this paragraph do not include a +relationship in which the accounting firm or covered person in the firm provides professional +services to an audit client or is a consumer in the ordinary course of business. +7 + +items other than professional services are examples of other connections which are also +included within this classification. +The instant relationship fits squarely within one of the Codification’s specific factual +examples at Section 6.02.02.e. Example 18 provides: +Facts: A consultant to an accounting firm was also a director and member of the audit +committee of a client served by the accounting firm. The consultant’s compensation from +each of these two involvements was significant in relation to his total earnings. +Conclusion: The apparent conflict of interest which arose from the dual roles of the +consultant caused the appearance of the accounting firm’s independence to be affected +adversely. +As in Example 18, E&Y’s relationship with Thompson impaired the appearance of E&Y’s +independence because Thompson was an audit-client director and audit committee member whose +compensation from the relationship with E&Y constituted approximately one-half of his net +income. +Rule 2-01(c)(3) provides an exception for “relationship[s] in which the accounting firm or +covered person in the firm provides professional services to an audit client or is a consumer in the +ordinary course of business.” This exception is applicable only if both of its prongs are met, that is, +the relationship must be “in the normal course of business” for both parties, and at least one of the +parties must be “acting in the capacity of a consumer.” See Commission Letter dated 2/14/89, +responding to 3/29/88 Petition by Arthur Andersen & Co. and Others (available at: +http://www.sec.gov/info/accountants/noaction/aaartan1.htm) (hereinafter the “1989 Response”) at +7-8 (rejecting petitioners’ claim that subcontracting falls within the exception because “while the +prime/subcontractor provision of services might be in the normal course of the auditor’s and client’s +businesses, neither party is acting in the capacity of a consumer”). Further, in rejecting the +petitioners’ request to permit prime/subcontractor relationships — “or any other si milar cooperative +service arrangement”— be tween auditors and their audit clients so long as they were not +quantitatively material to either party, id. at 1, the 1989 Response explained that the “closeness and +unity of interest inherent in [such] joint business ventures” creates an intolerable risk that “financial +statement users [may] question the auditor’s objectivity.” Id. at 8. This risk derives, according to +the 1989 Response, from the fact that prime/subcontractor ventures entail the two parties (i) +“join[ing] together in a profit-seeking venture,” thereby creating a “unity of interest” id. at 4; (ii) +rendering, to some extent, “the auditor’s interest . . . wedded to that of its client” thereby creating a +situation of “interdependence”; id.; or (iii) working together as “coventurers” to generate +“interdependent” revenues from a third party. Id. at 6. According to the 1989 Response, any +auditor-audit client business relationship containing such features possesses an unacceptable +“mutuality or identity of interest” between the auditor and the audit client because, in it, “the +advancement of the auditor’s interest would, to some extent, be dependent upon the client,” which is +inconsistent with the essential requirement that the appearance of independence be maintained. Id. +at 7. +8 + +Here, the E&Y/Thompson relationship was a direct business relationship between E&Y and +an audit client director, and therefore within the independence rules’ general prohibition. The +relationship’s collaborative nature—a s detailed above—gav e it the very kind of “mutuality of +interest” that the Codification and the 1989 Response proscribe. The venture does not fit within +either prong of the narrow consumer in the ordinary course of business exception. It involved an +auditor’s and an audit client director’s collaboration in creating customized joint products designed +for use by third parties. Thompson’s past experience with closely similar ventures was limited to +just one prior customer; and his relationship with E&Y had been established by high-level +signatories on both sides. (Ferraro, who signed the initial contract with Thompson on E&Y’s +behalf, was a Vice-Chair of the firm at the time.) +2. Violation of Rule 2-02(b) of Regulation S-X and of Issuer Reporting Provisions +Because E&Y’s business relationship with Thompson impaired E&Y’s independence, and +endured for 19 months, it both constituted and caused certain statutory and regulatory violations. +Each time E&Y signed an audit report for Company A, Company B or Company C where +either the period covered by the audit, or the period of the audit work, or both, overlapped with its +business relationship with Thompson, E&Y directly violated Rule 2-02(b) of Regulation S-X. See +Rule 2-02(b) (requiring accountant’s report to “state whether the audit was made in accordance with +generally accepted auditing standards”). Issuing an audit report, or issuing a consent for the filing +of an audit report, incorrectly stating that the audit was performed in accordance with the +independence requirements of GAAS violates Rule 2-02(b). The E&Y fiscal year-end audit reports +incorrectly stating that they were performed in accordance with the independence standards of +GAAS included (i) for Company A, reports dated April 1, 2003 and March 29, 2004; (ii) for +Company B, reports dated May 27, 2003 and May 26, 2004; and (iii) for Company C, a report dated +March 7, 2005.5 In addition to issuing each of these reports, E&Y also issued consents for their +inclusion with later Commission filings. +Likewise, each time non-independent audit reports were filed with Company A’s, Company +B’s or Company C’s annual reports and proxy statements, the issuer violated federal securities +statutes and rules requiring that those Commission filings include independently audited financials. +See Exchange Act §§ 13(a) and 14(a) and Rules 13a-1 and 14a-3 thereunder (requiring annual +reports and proxy statements to include independently audited financials).6 E&Y bears +responsibility for causing all of these reporting violations, since it should have known that the firm’s +5 The two audit reports referenced in text that were dated after May 24, 2004—th e effective +date of PCAOB Auditing Standard 1—wer e required to state that they were performed in accordance +with the standards of the PCAOB; while the remaining reports, all dated prior to May 24, 2004, were +required to state they were performed in accordance with the standards of GAAS. +6 The filings that failed to include or incorporate independently-audited financials included (i) +for Company A, annual reports filed May 30, 2003 and April 29, 2004; and proxy statements filed +May 20, 2003 and May 17, 2004; (ii) for Company B, annual reports filed July 22, 2003 and July 14, +2004; and proxy statements filed August 4, 2003 and August 12, 2004; and (iii) for Company C, an +annual report and a proxy statement filed March 8 and April 6, 2005. +9 + +business relationship with Thompson would cause all three issuers on whose boards Thompson sat +to lack independent audits and thus to violate the reporting provisions listed above. +Ferraro bears responsibility for being a cause of some of the foregoing violations. Such +liability requires findings that (1) a primary violation occurred; (2) an act or omission by the +respondent contributed to the violation; and (3) the respondent knew, or should have known, that his +or her conduct would contribute to the violation. See, e.g., Gateway Int'l Holdings, Inc., Exchange +Act Rel. No. 53907 (May 31, 2006), 88 SEC Docket 430, 444; Erik W. Chan, 77 SEC Docket 851, +859-60 (Apr. 4, 2002). Here, by his act of entering into the relationship despite knowing that +Thompson served on the boards of Company A and Company B and that both were firm audit +clients, Ferraro both contributed to, and should have known his actions would contribute to, E&Y’s +violations of Rule 2-02(b) of Regulation S-X with respect to E&Y’s Company A and Company B +audit reports. Likewise, Ferraro should have known his act of entering into the relationship would +cause Company A and Company B to lack independent audits and thus to violate the reporting +provisions set forth above in connection with their annual reports and proxy statements. +3. Improper Professional Conduct +All three Respondents’ actions with respect to E&Y’s independence-impairing relationship +with Thompson constituted improper professional conduct under Exchange Act § 4C and Rule +102(e) of the Commission’s Rules of Practice. Rule 102(e) and Exchange Act Section 4C both +define improper professional conduct to include “highly unreasonable conduct” in a situation where +the auditor “knows, or should know, that heightened scrutiny is required.” The Commission has +made clear that auditor independence is always an area requiring heightened scrutiny. See Adopting +Release for Rule 102(e) [Rel. Nos. 33-7593, 34-40567, 1998 SEC LEXIS 2256 (Oct. 19, 1998)] +(“Because of the importance of an accountant’s independence to the integrity of the financial +reporting system, the Commission has concluded that circumstances that raise questions about an +accountant’s independence always merit heightened scrutiny.”) Likewise, the Commission has +found negligent conduct where an auditor, when it knew or should have known that independence +was implicated, failed to gather all the salient relevant facts pertinent to the independence +determination. Matter of KPMG Peat Marwick LLP, Rel. No. 34-43862, 54 S.E.C. 1135, 1182-83 +(Jan. 19, 2001), reconsideration denied, Rel. Nos. 34-44050 and AAER-1374 (Mar. 8, 2001), +petition for review denied, 289 F.3d 109 (D.C. Cir. 2002). +In this case, there were repeated failures of this nature, including (i) at the point of entry into +the E&Y/Thompson relationship, when no independence review was sought despite Ferraro’s +knowledge that Thompson was serving on the boards of two firm audit clients; (ii) at the point when +Lutze received an email referencing the relationship in August 2003, when no follow up action was +taken; and (iii) at the point when annual ISB(1) letters were prepared, when the relationship was not +identified. E&Y bears responsibility for all of this improper professional conduct, while Ferraro +bears responsibility for that occurring at the point of entry into the relationship, and Lutze for the +failure to respond to the August 2003 email. +By furnishing to Company A’s Audit Committee a letter and an in-person presentation that +failed fully to disclose the August 7, 2003 email that Lutze had received concerning the +E&Y/Thompson relationship, E&Y and Lutze engaged in improper professional conduct under +10 + +Rule 102(e) and Exchange Act Section 4C. Rule 102(e) proceedings are warranted where, as here, +(i) the standard violated is within the coverage of Rule 102(e); (ii) the violation was committed “in +circumstances meeting one of [the] standards of culpability” articulated in the Rule; and (iii) the +violation threatens “the integrity of Commission processes” or “affects the operation of the federal +securities laws.” See Rel. Nos. 33-7593, 34-40567 (October 19, 1998) (Adopting Release for the +current Rule 102(e)), 1998 SEC LEXIS 2256 at *45 & *58. +With respect to the first factor, the professional standards violated here include ethical rules +that were expressly incorporated in the adopting release for the current version of Rule 102(e) in +1998—and whos e violation has been the subject of Commission 102(e) proceedings in the past.7 +Specifically, Rule 102(e)’s adopting release states that the “applicable professional standards” +referenced in Rule 102(e) include the AICPA Code of Professional Conduct (“AICPA Code”) (See +1998 SEC LEXIS 2256 at *19.) That Code, in turn, includes Rule 501, which proscribes, among +other things, negligently making a communication to an audit client that fails fully to inform that +audit client under the circumstances of this case. +With respect to the second factor, the instant conduct was committed in circumstances +meeting Rule 102(e)’s “highly unreasonable” negligence standard. E&Y and Lutze should have +known that the circumstances of the May 14, 2004 letter to, and the senior E&Y official’s June 23, +2004 appearance before, the Audit Committee were those in which heightened scrutiny was +warranted. The Audit Committee had specifically asked for the communications, under +circumstances suggesting the Audit Committee intended to rely on them in connection with some +action it would take; and the communications touched upon auditor independence— which, as the +Commission has stated, is always a matter warranting heightened scrutiny. See 1998 SEC LEXIS +2256 at *34. Thus, by furnishing the May 14, 2004 letter that inadequately informed Company A, +and by making a presentation at the June 23, 2004 Company A Audit Committee meeting that did +not correct the letter’s inadequate disclosure, E&Y and Lutze negligently permitted Company A to +not be fully informed by their communications regarding Lutze’s and the other E&Y auditors’ pre- +May 2004 notice of the E&Y/Thompson relationship—a nd did so in circumstances where they +should have known that heightened scrutiny was warranted. +Finally, the instant violation threatened both the integrity of Commission processes and the +proper operation of the federal securities laws: the party not fully informed by these +communications was a public company; the company’s mistaken understanding concerned a matter +that was material to the company; and that mistaken understanding impacted the company’s +decisions regarding the language of two of its Commission filings: its May 14, 2004 8-K and its +May 17, 2004 proxy statement, as well as its decision to retain E&Y as its auditor. +IV. +Based on the foregoing, the Commission finds that Respondent E&Y (a) engaged in +improper professional conduct pursuant to Exchange Act Section 4C and Rule 102(e) of the +See In re Clete D. Madden, CPA and David L. Huffman, CPA, Admin. Proc. File No. 3­ +12252 (March 30, 2006); In re Oliver Flanagan, Chartered Accountant, Admin. Proc. File No. 3­ +11269 (Sep. 25, 2003); In re Alan S. Goldstein, CPA, Admin. Proc. File No. 3-8463 (Sept. 6, 1994). +11 +7 +Commission’s Rules of Practice; (b) violated Rule 2-02(b) of Regulation S-X; and (c) caused +Company A, Company B and Company C to violate Exchange Act Sections 13(a) and 14(a), and +Exchange Act Rules 13a-1 and 14a-3. +Based on the foregoing, the Commission finds that Respondent Ferraro (a) engaged in +improper professional conduct pursuant to Exchange Act Section 4C and Rule 102(e) of the +Commission’s Rules of Practice; (b) was a cause of E&Y’s violation of Rule 2-02(b) of Regulation +S-X; and (c) was a cause of Company A’s and Company B’s violations of Exchange Act Sections +13(a) and 14(a), and Exchange Act Rules 13a-1 and 14a-3. +Based on the foregoing, the Commission finds that Respondent Lutze engaged in improper +professional conduct pursuant to Exchange Act Section 4C and Rule 102(e) of the Commission’s +Rules of Practice. +E&Y’s Remedial Efforts +In determining to accept the Offer, the Commission considered the remedial steps taken by +E&Y. Since the conduct discussed in this Order, E&Y has significantly improved its independence +policies and procedures. E&Y has, among other things, established a new business-relationship +evaluation process for review and evaluation of both existing and new business relationships. +V. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offers. +Accordingly, it is hereby ORDERED, effective immediately, that Respondents E&Y, +Ferraro and Lutze each be, and hereby is, censured. +IT IS FURTHER ORDERED that Respondent E&Y shall, within ten (10) days of the entry +of this Order, pay disgorgement of $2,381,965 and prejudgment interest of $537,022.79 to the +Securities and Exchange Commission. Such payment shall be: (A) made by United States postal +money order, certified check, bank cashier’s check or bank money order; (B) made payable to the +Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial +Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, +Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies E&Y as a +Respondent in these proceedings, and the file number of these proceedings, a copy of which cover +letter and money order or check shall be sent to J. Lee Buck, II, Deputy Assistant Director, Division +of Enforcement, Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549­ +5631. +IT IS FURTHER ORDERED, effectively immediately, that Respondent Ferraro shall cease +and desist from causing any violations and any future violations of Rule 2-02 of Regulation S-X, +and from causing any violations and any future violations of Sections 13(a) and 14(a) of the +Securities Exchange Act of 1934, and Rules 13a-1 and 14a-3 thereunder. +12 + +IT IS FURTHER ORDERED, effectively immediately, that Respondent Lutze is denied the +privilege of appearing or practicing before the Commission as an accountant. After one year from +the date of this Order, Respondent Lutze 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 Lutze’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 Lutze, 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 Lutze, 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 Lutze 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 Lutze acknowledges his responsibility, as long as +Respondent Lutze appears or practices before the Commission as +an independent accountant, to comply with all requirements of the +Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring +partner reviews and quality control standards. +The Commission will consider an application by Respondent Lutze 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 +13 + +relating to Respondent Lutze’s character, integrity, professional conduct, or qualifications +to appear or practice before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +14 diff --git a/raw/aaer/2008/AAER-2861.txt b/raw/aaer/2008/AAER-2861.txt new file mode 100644 index 0000000000000000000000000000000000000000..1716796a691461c9f239c1bbc149177beeff853d --- /dev/null +++ b/raw/aaer/2008/AAER-2861.txt @@ -0,0 +1,1365 @@ + + + + + + + + + + + + + + + + SEC.gov | Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. 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Jorissen, Gary A. Shiffman and Mary A. Petrella + + + + + + + + + + + + Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. Petrella + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20680 / August 12, 2008 + + Accounting and Auditing Enforcement Release No. 2861 / August 12, 2008 + + Securities and Exchange Commission v. Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. Petrella , Civil Action No. 2:06-CV-10845 (E.D.Mich. filed February 27, 2006) (Feikens, J.) + + SEC Resolves Sun Communities Litigation + + The Securities and Exchange Commission today announced that it has resolved its litigation against certain officers and employees of Sun Communities, Inc., a publicly-traded company headquartered in Michigan which owns and operates manufactured housing and mobile home communities. Without admitting or denying the allegations of the SEC's complaint, which was filed in the United States District Court for the Eastern District of Michigan, the company's former Chief Financial Officer, Jeffrey P. Jorissen, consented to the entry of a final judgment enjoining him from violations of Rule 13b2-1 of Securities Exchange Act of 1934 and from aiding and abetting violations of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder and imposing a civil penalty of $25,000. Jorissen also consented, without admitting or denying the findings therein, to an administrative order suspending him from appearing or practicing before the SEC as an accountant with a right to apply for reinstatement after two years. The SEC agreed to dismiss its claims against the company's Chief Executive Officer, Gary A. Shiffman, and former Controller, Mary A. Petrella. For more information, see LR-19580 (Feb. 27, 2006). + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2862.txt b/raw/aaer/2008/AAER-2862.txt new file mode 100644 index 0000000000000000000000000000000000000000..9333b5a257f7d7ee3d1d441e92a1b9258e826767 --- /dev/null +++ b/raw/aaer/2008/AAER-2862.txt @@ -0,0 +1,114 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58348 / August 12, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2862 / August 12, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13127 +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +JEFFREY P. JORISSEN (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 Jeffrey +P. Jorissen (“Respondent” or “Jorissen”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules +of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + +herein, except as to the Commission’s jurisdiction over him and over the subject matter of these +proceedings and the findings contained in Section 3 of Part III below, which are admitted, +Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to +Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Jorissen, age 63, is a certified public accountant licensed to practice in the +State of Michigan. At all times relevant to this matter, he served as Chief Financial Officer, Senior +Vice President, Secretary, and Treasurer of Sun Communities, Inc. (“Sun”). +2. Sun is a Maryland corporation operating as a real estate investment trust +headquartered in Southfield, Michigan. Through various subsidiaries, Sun owns, operates, +develops and finances manufactured housing communities. At all times relevant to this matter, +Sun's common stock was registered with the Commission pursuant to Section 12(b) of the +Exchange Act and traded on the New York Stock Exchange. +3. On February 22, 2006, the Commission filed a complaint against Jorissen +and others in SEC v. Jorissen et al (E.D. Mich.) Civil Action No. 2:06-10845. On July 21, 2008, +the Court entered an order permanently enjoining Jorissen, by consent, from future violations of +Rule 13b2-1 under the Securities Exchange Act of 1934 (“Exchange Act”), and from aiding and +abetting violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b- +20, 13a-1, and 13a-13 thereunder. Jorissen was also ordered to pay a $25,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that from the +first quarter of 2000 through the third quarter of 2002, Sun engaged in false financial record- +keeping and reporting. The complaint alleged that Sun's financial statements failed to properly +account for losses resulting from Sun's investment in a joint venture involved in the development +of manufactured housing communities. The Commission alleged that contrary to generally +accepted accounting principles, Sun failed to account for any of the joint venture's losses during +seven quarters and underreported Sun's share of the losses in four additional quarters. The +complaint also alleged that Sun maintained an improper "cookie jar reserve" and improperly +smoothed earnings, and that Sun's false financial statements were incorporated in documents +filed with the SEC, including quarterly reports, annual reports, and non-periodic filings. The +complaint alleged that Jorissen, in his position as Chief Financial Officer, initiated and directed +Sun's false record-keeping and reporting. +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. +2 + +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent is suspended from appearing or practicing before the Commission as an +accountant. +B. After two years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the Chief +Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or review, +of any public company’s financial statements that are filed with the Commission. Such an +application must satisfy the Commission that Respondent’s work in his/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. +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 +3 + +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. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2863.txt b/raw/aaer/2008/AAER-2863.txt new file mode 100644 index 0000000000000000000000000000000000000000..e278f0e30ed1e7f2258ccf4d0d6d3413f5a189a9 --- /dev/null +++ b/raw/aaer/2008/AAER-2863.txt @@ -0,0 +1,86 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58355 / August 13, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2863 / August 13, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13129 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +SCOTT HIRTH, : 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 Scott +Hirth (“Respondent” or “Hirth”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (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. Scott Hirth, age 41, is a resident of Carleton, Michigan. Hirth was the Vice- +President of Finance and Chief Financial Officer of ProQuest Company’s Information and +Learning Division from 1999 through 2005. +2. ProQuest Company, now known as Voyager Learning Company +(collectively “ProQuest”), was a Delaware corporation with its headquarters located in Ann Arbor, +Michigan between 2001 and 2005. ProQuest was formerly known as Bell & Howell Company +from 1907 to 2001. ProQuest specialized in aggregating, organizing and packaging data from +various publishers to provide information-service products to its customers. +3. On July 28, 2008, a final judgment was entered against Hirth, permanently +enjoining him from future violations of Section 17(a) of the Securities Act of 1933 (“Securities +Act”), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), and +Rules 10b-5, 13b2-1, 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 +thereunder in the civil action entitled Securities and Exchange Commission v. Scott Hirth et al., +Civil Action Number 08-cv-13139, in the United States District Court for the Eastern District of +Michigan. Hirth was also ordered to pay $233,676.00 in disgorgement of ill-gotten gains, +$54,474.25 in prejudgment interest, a $130,000 civil money penalty, and was prohibited from +serving as an officer or director of an issuer that has a class of securities registered pursuant to +Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the +Exchange Act. +4. The Commission’s complaint alleged, among other things, that Hirth +engaged in accounting fraud at ProQuest from at least 2001 through 2005. At the end of monthly +and quarterly reporting periods, Hirth made fraudulent manual journal entries in order to favorably +alter ProQuest’s financial results and these manual journal entries were designed to increase +revenue and decrease expenses at ProQuest. The complaint alleged that through these false +accounting entries, Hirth materially inflated ProQuest’s reported Earnings Before Interest and +2 + +Taxes (“EBIT”) for 2001 though 2004 and the first three quarters of 2005. This false EBIT +information was disclosed to the investing public in ProQuest’s registration statements, financial +reports, and filings such as its S-3, S-8, Form 10-K, and Form 10-Q filings made with the +Commission. The complaint further alleged that Hirth’s scheme overstated ProQuest’s EBIT by +31% between 2001 and the first three quarters of 2005. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Hirth’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Hirth is suspended from +appearing or practicing before the Commission as an accountant. + By the Commission. + F lorence E. Harmon + A cting Secretary +3 diff --git a/raw/aaer/2008/AAER-2865.txt b/raw/aaer/2008/AAER-2865.txt new file mode 100644 index 0000000000000000000000000000000000000000..62a47756e7ebae4889b3aecf5f4df4a9891df994 --- /dev/null +++ b/raw/aaer/2008/AAER-2865.txt @@ -0,0 +1,1371 @@ + + + + + + + + + + + + + + + + SEC.gov | Mark David Shapiro, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503991","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Mark David Shapiro, et al. , Civil Action No. 4:05-CV-0364, United States District Court for the Eastern District of Texas, Sherman Division (Schneider, J.) (Complaint filed September 15, 2005) + + SEC Settles Enforcement Proceedings Against Former Fleming Companies, Inc. Executives Mark David Shapiro, Albert M. Abbood, and James H. Thatcher for Their Roles in Financial Fraud Scheme + + The Securities and Exchange Commission announced that on August 15, 2008, the Honorable Michael H. Schneider, United States District Judge for the Eastern District of Texas, entered Final Judgments as to former Fleming Companies, Inc. executives Mark David Shapiro, Albert M. Abbood, and James H. Thatcher, in SEC v. Mark David Shapiro, et al. , permanently enjoining the defendants from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder. The defendants consented to the entry of the Final Judgments without admitting or denying the allegations of the Commission's complaint. Pursuant to the Final Judgments, Abbood and Thatcher will pay civil penalties of $25,000 each, and Shapiro will pay a civil penalty of $135,000. Further, Shapiro agreed to settle proposed administrative proceedings against him pursuant to Rule 102(e) of the Commission's Rules of Practice, to be based on the entry of the Court's final judgment enjoining him. Pursuant to his offer of settlement, Shapiro consented to the issuance of a Commission order suspending him from appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after three years. + + The Commission's Complaint alleges that over several quarters in late 2001 and the first half of 2002, Fleming improperly executed and recorded a number of accounting transactions to "bridge the gap" between Wall Street expectations and disappointing actual operation results. According to the Complaint, the defendants participated directly and indirectly in this wrongdoing by obtaining misleading side letters from Fleming vendors that were used to improperly accelerate recognition of the vendors' up-front payments, in violation of generally accepted accounting principles. These transactions were the subject of settled enforcement actions the Commission brought against Fleming and several of its vendors and vendor employees on September 14, 2004. See In the Matter of Fleming Companies, Inc. , Lit. Rel. No. 18884 (September 14, 2004). The Complaint alleges that Shapiro, Fleming's chief accounting officer at the time, compounded his wrongdoing by giving Fleming's outside auditors false and misleading representation letters and signing Fleming's fraudulent 2001 Form 10-K and Forms 10-Q for the first and second quarters of 2002. Further, the Complaint alleges that Shapiro inflated earnings by executing large quarter-end inventory purchases solely to generate discounts that Fleming could immediately recognize as earnings in an effort to help meet Wall Street analysts' earnings expectations. Fleming failed to disclose that these purchases were part of an intentional scheme to inflate earnings. Finally, the Complaint alleges that Shapiro improperly inflated Fleming's 2001 earnings by directing the release of extensive accounting reserves, without proper justification or disclosure. + + Two other defendants, former Fleming executives Philip B. Murphy and Thomas Gerald Dahlen, Jr., previously settled Commission charges concerning the same conduct. + + For additional information, see Litigation Release No. 18884 (Sept. 14, 2004). + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Con-way Inc. + + + + + + + + + + + + Con-way Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20690 / August 27, 2008 + + Accounting and Auditing Enforcement Release No. 2866 / August 27, 2008 + + Securities and Exchange Commission v. Con-way Inc. , Civil Action No. 1:08-CV-01478 (D.D.C.) (EGS) + + SEC Files Settled Enforcement Action Charging Con-way Inc. with Violations of the Foreign Corrupt Practices Act + + The Securities and Exchange Commission today filed a settled civil action in the United States District Court for the District of Columbia charging Con-way Inc. ("Con-way"), a San Mateo, California international freight transportation company, with violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act. According to the complaint, a Philippines-based firm controlled by Con-way made approximately $417,000 in improper payments to numerous foreign government officials between 2000 and 2003. Without admitting or denying the allegations in the Commission's complaint, Con-way agreed to pay a $300,000 civil penalty. + + The complaint alleges that Emery Transnational, a Manila, Philippines-based firm engaged in shipping and freight operations in the Philippines, was controlled by a wholly-owned, U.S.-based subsidiary of Con-way. The complaint further alleges that between 2000 and 2003, Emery Transnational made approximately $244,000 in improper payments to foreign officials at the Philippines Bureau of Customs and the Philippine Economic Zone Area. The complaint alleges that these payments were made to induce these foreign officials to violate customs regulations, settle customs disputes, and reduce or not enforce otherwise legitimate fines for administrative violations. + + The complaint also alleges that, during this period, Emery Transnational made approximately $173,000 in improper payments to foreign officials at fourteen state-owned airlines that conducted business in the Philippines. The complaint alleges that these payments were made to induce airline officials to improperly reserve space for Emery Transnational on the airplanes, to falsely under-weigh shipments, and to improperly consolidate multiple shipments into a single shipment, resulting in lower shipping charges. + + According to the complaint, none of the improper payments made by Emery Transnational were accurately reflected in Con-way's books and records, and Con-way knowingly failed to implement a system of internal accounting controls concerning Emery Transnational that would both ensure that Emery Transnational complied with the FCPA and require that the payments it made to foreign officials were accurately reflected on its books and records. As a result of the conduct described above, the Commission's complaint alleges violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934. + + In a related administrative proceeding, the Commission today issued a settled cease-and-desist order against Con-way finding that Con-way violated the books and records and internal controls provisions of the Exchange Act in connection with the improper payments made by Emery Transnational. Without admitting or denying the Commission's findings, Con-way consented to the issuance of an order that requires Con-way to cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act. + + SEC Complaint in this matter + + + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2868.txt b/raw/aaer/2008/AAER-2868.txt new file mode 100644 index 0000000000000000000000000000000000000000..c174dde98216afec2a7240db8f082261455894e0 --- /dev/null +++ b/raw/aaer/2008/AAER-2868.txt @@ -0,0 +1,131 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58438 / August 28, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2868 / August 28, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13149 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +SHANE H. TRAVELLER (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 Shane +H. Traveller (“Respondent” or “Traveller”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings and the findings contained in Section III.3 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Traveller, age 40, is a resident of North Logan, Utah. From August 28, +2003 until February 28, 2005, Traveller was a member of the Board of Directors of 21st Century +Inc. (“21st Century”). During the relevant period, Traveller provided consulting services that +facilitated 21st Century’s election to be regulated as a business development company. Traveller +obtained a license as a CPA from the State of California in 1994. The license lapsed in 2003 after +he failed to renew it. +2. 21st Century was, at all relevant times, a Nevada corporation with its +principal place of business in Las Vegas, Nevada. As a business development company regulated +under the Investment Company Act of 1940, 21st Century raised capital and made investments in +various entities. At all relevant times, 21st Century’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 Over-the-Counter Bulletin Board. On November 1, 2005, 21st Century filed for +protection under Chapter 11 of the U.S. Bankruptcy Code and was formally dissolved by the State +of Nevada on July 13, 2007. +3. On April 10, 2008, the Commission filed a complaint against Traveller in +SEC v. Compass Capital Group, Inc., et al., Civil Action No. 2:08-cv-00457-ECR-PAL (D. Nev.). +On August 6, 2008, the U.S. District Court for the District of Nevada entered an order permanently +enjoining Traveller, by consent, from future violations of Section 17(a) of the Securities Act of +1933; Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder +and from aiding and abetting 21st Century’s violations of Sections 13(a) and 13(b)(2)(A) of the +Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Traveller also was ordered to pay +a $50,000 civil money penalty and was barred for five years from acting as an officer or director of +a public company and from participating in an offering of penny stock. +4. The Commission’s complaint alleged, among other things, that Traveller +violated the antifraud provisions of the securities laws when he supervised the drafting of 21st +Century’s 2004 Form 1-E and offering circular and failed to ensure that proper disclosures were +made concerning the precarious financial state of the company. In August 2004, Traveller +drafted a memo describing 21st Century as a “house of cards.” Traveller further noted that the +company was in a “cash crisis” and that its financial statements did not clearly present its +financial condition. The complaint also alleged that Traveller failed to disclose the terms of 21st +2 + +Century’s financing arrangement with Compass Capital and that Compass Capital was acting as +an underwriter for the company’s 2004 offering. The complaint further alleged that Traveller +aided and abetted 21st Century’s reporting and record-keeping violations when he knew in +August 2004 that the CEO’s brothers had loaned money for operating capital to 21st Century and +did nothing to ensure the disclosure of those loans. He also agreed to approve certain +investments after they had been made, in violation of the company’s internal policies, and +prepared false Board minutes concerning the Board’s determination of the fair values of the +company’s assets that were supplied to 21st Century’s auditors in connection with their 2003 +audit of 21st Century. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Traveller’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Traveller 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/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 +3 + + (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/she has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2869.txt b/raw/aaer/2008/AAER-2869.txt new file mode 100644 index 0000000000000000000000000000000000000000..12eb92b6cbf378f679b3aeb3f9591c9bdc591c51 --- /dev/null +++ b/raw/aaer/2008/AAER-2869.txt @@ -0,0 +1,125 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58439 / August 28, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2869 / August 28, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13150 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +ALVIN L. DAHL (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 Alvin L. +Dahl (“Respondent” or “Dahl”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings and the findings contained in Section III.3., below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Dahl, age 65, is a resident of Plano, Texas. From June 2000 through April +2002, Dahl rendered accounting services to 21st Century Technologies, Inc. (“21st Century”) on a +contract basis. From April 2002 through November 2004, Dahl served as 21st Century’s Chief +Financial Officer. He signed and certified 21st Century’s annual report on Form 10-K for the year +2003 and its quarterly reports on Form 10-Q for the first and second quarters of 2004 as the +company’s Chief Financial Officer. At all relevant times, Dahl has also been self-employed as a +certified public accountant. Dahl’s CPA license was granted by the State of Texas. +2. 21st Century was, at all relevant times, a Nevada corporation with its +principal place of business in Las Vegas, Nevada. As a business development company regulated +under the Investment Company Act of 1940, 21st Century raised capital and made investments in +various entities. At all relevant times, 21st Century’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 Over-the-Counter Bulletin Board. On November 1, 2005, 21st Century filed for +protection under Chapter 11 of the U.S. Bankruptcy Code and was formally dissolved by the State +of Nevada on July 13, 2007. +3. On April 10, 2008, the Commission filed a complaint against Dahl in SEC +v. Compass Capital Group, Inc., et al., Civil Action No. 2:08-cv-00457-ECR-PAL (D. Nev.). On +August 6, 2008, the U.S. District Court for the District of Nevada entered an order permanently +enjoining Dahl, by consent, from future violations of Rule 13a-14 promulgated under the Exchange +Act and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b- +20, 13a-1, and 13a-13 thereunder. Dahl was also ordered to pay a $5,000 civil money penalty and +barred from participating in an offering of penny stock. +4. The Commission’s complaint alleged, among other things, that Dahl aided +and abetted 21st Century’s violations of Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 +when he prepared 21st Century’s false and misleading Form 10-K for 2003 and Forms 10-Q for +the first and second quarters of 2004. The complaint alleged that Dahl also violated Exchange +Act Rule 13a-14 when he certified that those filings were complete and accurate, even though +they contained material omissions concerning certain of 21st Century’s reported investments. +The complaint further alleged, among other things, that Dahl knew at the time he certified +certain filings that (i) a supposed “commercial loan” was actually a loan to prevent a foreclosure +2 + +on a personal residence; and (ii) the recipient of another loan was misidentified in 21st Century’s +filings with the Commission in order to avoid potential stigma from association with the entity +that received the loan, which was involved in pornography. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Dahl’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Dahl is suspended from appearing or practicing before the Commission as an +accountant. +B. After 12 months 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. +3 + +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. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2870.txt b/raw/aaer/2008/AAER-2870.txt new file mode 100644 index 0000000000000000000000000000000000000000..fd42f60be499fc8c92fcf22c0b96818d9f3fe1ae --- /dev/null +++ b/raw/aaer/2008/AAER-2870.txt @@ -0,0 +1,134 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58441 / August 29, 2008 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2870 / August 29, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-13151 + + + : + In the Matter of : ORDER INSTITUTING + : ADMINISTRATIVE PROCEEDINGS + JERRY L. BURDICK, CPA, : PURSUANT TO RU LE 102(e) OF THE + : COMMISSION’S RULES OF PRACTICE, + Respondent. : 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 Jerry L. +Burdick (“Respondent” or “Burdick”) 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 Co mmission finds that: +1. Burdick, age 68, is a former director of SeraCare Life Sciences, Inc. +(“SeraCare”). He also served as SeraCare’s interim chief financial officer from February 2005 +through May 2005. Burdick served as a director on SeraCare’s board until his resignation in +March 2006. Burdick is a certified public accountant licensed in the State of California whose +license was obtained in 1964 and which lapsed in 1997. +2. SeraCare is a Delaware corporation currently based in West Bridgewater, +Massachusetts. In 2005, SeraCare’s principal headquarters were in Oceanside, California and its +common stock was registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 +(“Exchange Act”) and listed on the Nasdaq National Market. SeraCare operated as a supplier and +manufacturer of biological products (such as blood and plasma) for the biotechnology and +pharmaceutical industry. +3. On August 14, 2008, a final judgment was entered against Burdick +permanently enjoining him from future violations of Section 17(a)(2) and (3) of the Securities Act +of 1933 and Rules 13a-14, 13b2-1, and 13b2-2 of the Exchange Act, and aiding and abetting +violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 +thereunder, in the civil action entitled SEC v. Michael F. Crowley and Jerry L. Burdick in the +United States District Court for the Southern District of California. The final judgment also +ordered Burdick to pay $25,000. Burdick consented to the entry of the judgment without admitting +or denying any of the allegations in the complaint. +4. The Commission’s complaint alleged, among other things, that SeraCare, +through the misconduct of Burdick, misstated its financial statements by inflating income before +taxes for the second and third quarters of fiscal year 2005 by 20% and 17%, respectively. The +complaint alleged that Burdick improperly released general inventory reserves that he created +following a major acquisition by SeraCare, which caused SeraCare’s net income before taxes to be +inflated in the second and third quarters of 2005. The complaint further alleged that Burdick +caused misrepresentations to be made to SeraCare’s auditors by creating a backdated letter that was +given to the auditors as support for recognizing revenue on an almost $1 million sale before the + 3 +close of the fiscal year. The complaint further alleged that Burdick also caused misrepresentations +to be made to SeraCare’s auditors by providing an increased inventory valuation without any +documented or verifiable support. +IV. + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Burdick’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Burdick is suspended from appearing or practicing before the Commission as +an accountant. +B. After one year from the date of this Order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +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. + + + + F l o r e n c e E . H a r m o n + A c t i n g S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2871.txt b/raw/aaer/2008/AAER-2871.txt new file mode 100644 index 0000000000000000000000000000000000000000..fa1eb845c4e68e0f10d012044c6bec7c2b858a97 --- /dev/null +++ b/raw/aaer/2008/AAER-2871.txt @@ -0,0 +1,1389 @@ + + + + + + + + + + + + + + + + SEC.gov | Albert Jackson Stanley + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504056","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Albert Jackson Stanley + + + + + + + + + + + + Albert Jackson Stanley + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20700 / September 3, 2008 + + Accounting and Auditing Enforcement Release No. 2871 / September 3, 2008 + + Securities and Exchange Commission v. Albert Jackson Stanley , 08-CV-02680, S.D. Tex. (Houston) + + SEC Charges Former CEO of Kellogg, Brown & Root, Inc. with Foreign Bribery + + The Securities and Exchange Commission announced today that it charged former KBR executive Albert Jackson Stanley with violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and related provisions of the federal securities laws. The Commission alleges that over a ten-year period, Stanley and others participated in a scheme to bribe Nigerian government officials in order to obtain construction contracts worth more than $6 billion. The contracts were awarded to a four-company joint venture of which The M.W. Kellogg Company, and later KBR, was a member. + + The Commission alleges that beginning as early as 1994, Stanley and other members of the joint venture determined that it was necessary to pay bribes to individuals within the Nigerian government in order to obtain contracts to build liquefied natural gas facilities (LNG Trains) in Bonny Island, Nigeria. Stanley and others met with high-ranking Nigerian government officials and their representatives on at least four occasions to arrange the bribe payments. To conceal the illicit payments, Stanley and others approved entering into sham contracts with two "agents" to funnel money to the Nigerian officials. Thereafter, as the joint venture was paid for its work building the LNG Trains, the joint venture paid the agents over $180 million. In turn, substantial payments were made to various Nigerian government officials. + + Without admitting or denying the allegations in the complaint, Stanley has consented to the entry of a final judgment that permanently enjoins him from violating the anti-bribery, record-keeping and internal control provisions of Securities Exchange Act of 1934 (Sections 30A and 13(b)(5) and Rule 13b2-1). Stanley has also agreed to cooperate with the SEC's ongoing investigation. The proposed settlement with Stanley is subject to the court's approval. + + In a related criminal proceeding announced today, the United States Department of Justice filed criminal charges against Stanley for conspiring to violate the FCPA and conspiring to commit mail and wire fraud. Stanley has pleaded guilty to one count of conspiring to violate the FCPA and one count of conspiring to commit mail and wire fraud (unrelated to the FCPA charge). He faces seven years in prison and payment of $10.8 million in restitution. + + The Commission's investigation is continuing. The Commission acknowledges the assistance of the Department of Justice, Criminal Division, Fraud Section, and foreign authorities in the Commission's investigation. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2874.txt b/raw/aaer/2008/AAER-2874.txt new file mode 100644 index 0000000000000000000000000000000000000000..57a25ba6d85cbc28c0ae1a02fc2b9d7864afee9f --- /dev/null +++ b/raw/aaer/2008/AAER-2874.txt @@ -0,0 +1,1399 @@ + + + + + + + + + + + + + + + + SEC.gov | United Rentals, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504086","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. The link you have selected is located on another server. Please click on the OK button below to proceed to the selected site. The SEC does not endorse this web site, its sponsor, or any of the policies, activities, products, or services offered on the site or by any advertiser on the site.","extHideIcons":false,"mailtoClass":"0","telClass":"","mailtoLabel":"(link sends email)","telLabel":"(link is a phone number)","extUseFontAwesome":false,"extIconPlacement":"append","extPreventOrphan":false,"extFaLinkClasses":"fa fa-external-link","extFaMailtoClasses":"fa fa-envelope-o","extAdditionalLinkClasses":"","extAdditionalMailtoClasses":"","extAdditionalTelClasses":"","extFaTelClasses":"fa fa-phone","allowedDomains":null,"extExcludeNoreferrer":""}},"field_group":{"html_element":{"mode":"default","context":"view","settings":{"classes":"rightrail-list","show_empty_fields":false,"id":"","element":"div","show_label":true,"label_element":"h2","label_element_classes":"","attributes":"","effect":"none","speed":"fast"}}},"user":{"uid":0,"permissionsHash":"e506dfd1572f94bd1f339f1a7483bfbded31d4a9d2bdfdca3fdbc235153380ee"}} + + + + + + + + + + + + + + Skip to search field + + + + Skip to main content + + + + + + + + + + + + + + + + + + An official website of the United States government + Here’s how you know + + + Here’s how you know + + + + + + + + + + + Official websites use .gov + + + A .gov website belongs to an official government organization in the United States. + + + + + + + + + Secure .gov websites use HTTPS + + + A lock + ( Lock A locked padlock ) + or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + United Rentals, Inc. + + + + + + + + + + + + United Rentals, Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20706 / September 8, 2008 + + Accounting and Auditing Enforcement Release No. 2874 / September 8, 2008 + + SEC v. United Rentals, Inc. , Civil Action No. 3:08-cv-1354 (CFD) / District of Connecticut + + United Rentals, Inc. to Pay $14 Million to Settle Financial Fraud Charges + + The Securities and Exchange Commission announced today that it filed charges against United Rentals, Inc. (URI) alleging that URI engaged in financial fraud and in a broad range of other improper accounting practices. URI is one of the largest equipment rental companies in the world with a network of rental locations in the Unites States, Canada and Mexico. + + The Commission's complaint, filed in the United States District Court for the District of Connecticut, alleges that, from late 2000 through 2002, URI engaged in a series of fraudulent transactions undertaken in order to meet URI's earnings forecasts and analyst expectations. The fraud was accomplished primarily through a series of interlocking three-party sale-leaseback transactions orchestrated by URI's then- Chief Financial Officer, Michael Nolan, and its then- Chief Acquisitions Officer, John Milne. Nolan and Milne were previously charged by the SEC for individual wrongdoing. + + The complaint alleges that in these transactions URI sold used equipment to a financing company and leased it back for a short period, and then arranged for a third party equipment manufacturer to agree to sell the equipment at the end of the lease period and guarantee the financing company against any losses incurred in the resale of the equipment. URI separately guaranteed the equipment manufacturer against any losses it might incur under the guarantee it had extended to the financing company. + + The SEC's complaint also alleges that in another effort to improve its earnings, URI engaged in a series of fraudulent "trade packages" with suppliers. The company sold blocks of used equipment for amounts in excess of fair value, in exchange for certain undisclosed financial inducements offered to those suppliers. + + In addition, the SEC alleges that from 1997 to 2000, during a period of enormous growth through acquisitions, URI engaged in other improper accounting practices involving its valuations of acquired assets, use of acquisition reserves, and accounting for customer relationships as well as improperly accounting for other items that overstated net income, including its estimation and recording of self-insurance reserves, its recognition of equipment rental revenues, and its income tax accounting. + + Without admitting or denying the charges, URI has agreed to settle the SEC's enforcement action and pay $14 million penalty, which the Commission intends to place in a Fair Fund for distribution to affected investors. + + In addition to the financial penalty, URI consented to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13, thereunder. The settlement is subject to court approval. + + In determining to accept URI's settlement offer, the Commission considered URI's cooperation with the Commission and its staff in the investigation leading to this action, and the remedial actions it has taken. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut and the New Haven Field Office of the Federal Bureau of Investigation. The SEC's investigation continues. + + For further information, see Litigation Release Nos. 20396 (December 12, 2007), 20418 (December 31, 2007), and 20518 (April 7, 2008). + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2877.txt b/raw/aaer/2008/AAER-2877.txt new file mode 100644 index 0000000000000000000000000000000000000000..431b2f62ba51bf38a5d043f630c6e53cd979c066 --- /dev/null +++ b/raw/aaer/2008/AAER-2877.txt @@ -0,0 +1,1416 @@ + + + + + + + + + + + + + + + + SEC.gov | American Italian Pasta Company; Timothy S. Webster; Warren B. Schmidgall and David E. Watson; and Stephanie S. Ruskey + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504131","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Webster; Warren B. Schmidgall and David E. Watson; and Stephanie S. Ruskey + + + + + + + + + + + + American Italian Pasta Company; Timothy S. Webster; Warren B. Schmidgall and David E. Watson; and Stephanie S. Ruskey + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20715 / September 15, 2008 + + Accounting and Auditing Enforcement Release No. 2877 / September 15, 2008 + + SEC v. American Italian Pasta Company , Civil Action No. 4:08-CV-00675 (W.D. Mo.); SEC v. Timothy S. Webster , Civil Action No. 4:08-CV-00674 (W.D. Mo.); SEC v. Warren B. Schmidgall and David E. Watson , Civil Action No. 4:08-CV-00677 (W.D. Mo.); SEC v. Stephanie S. Ruskey , Civil Action No. 4:08-CV-00676 (W.D. Mo.) + + SEC Charges American Italian Pasta and Senior Executives with Accounting Fraud + + + + The Securities and Exchange Commission ("Commission") today filed several actions charging Kansas City-based American Italian Pasta Company ("AIPC"), and its senior executives with securities fraud and other violations of the federal securities laws. The Commission's complaints allege that, from its fiscal year 2002 through the second quarter of its fiscal year 2004, AIPC, AIPC's former chief executive officer Timothy S. Webster, former chief financial officer Warren B. Schmidgall, and former executive vice president of corporate development and strategy David E. Watson, engaged in a fraudulent scheme to mislead the investing public about the growth of the company's earnings and to increase artificially the company's stock price. According to the Commission's complaints, the fraudulent accounting and other errors arising from inadequate internal controls, resulted in the overstatement of AIPC's pre-tax income for the relevant period by approximately $59 million, or 66 percent. + + In a related criminal action, the U.S. Attorney's Office for the Western District of Missouri announced today that it resolved its investigation of AIPC and that Webster and Schmidgall both pled guilty to one count of conspiracy to commit wire fraud for their roles in concealing AIPC's true financial condition and filing materially false reports with the Commission. [United States v. Timothy S. Webster, 08-00259-01-Cr-W-DGK (W.D. Mo.); United States v. Warren B. Schmidgall, No. 08-00260-01-Cr-W-DW.] AIPC agreed to resolve the criminal investigation of the company by paying a $7.5 million monetary penalty. + + The Commission's complaints, filed in federal district court in the Western District of Missouri, allege that Webster, Schmidgall, and Watson engaged in a variety of fraudulent accounting from AIPC's fiscal year 2002 through the second quarter of its fiscal year 2004 to inflate AIPC's reported earnings. This caused period costs to be fraudulently capitalized in order to meet AIPC's external targets. The Commission further alleges that AIPC and its former executives manipulated AIPC's trade promotion accounting; failed to write off obsolete or missing spare parts; structured fraudulent round-tripping of cash transactions; and recorded false receivables. + + The Commission additionally charged AIPC's former controller Stephanie S. Ruskey in a civil action in federal court. The Commission alleges that Ruskey knew or was reckless in not knowing that AIPC's quarterly and annual financial statements were misleading, and alleges that she signed representation letters to AIPC's auditor that falsely stated that the financial statements were prepared in accordance with generally accepted accounting principles. + + Without admitting or denying the allegations in the Commission's complaints, AIPC, Webster, and Ruskey agreed to settle the matters. AIPC consented to a final judgment enjoining it from violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. + + Webster consented to a final judgment enjoining him from violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13, imposing disgorgement of $751,978, plus prejudgment interest of $32,610; imposing a $250,000 civil money penalty; and barring him from serving as an officer or director of a public company. + + Ruskey consented to a final judgment enjoining her from violations of Rule 13b2-1 and 13b2-2 under the Exchange Act, and for her aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13, and imposing a $25,000 civil money penalty. + + The Commission's case against Schmidgall and Watson is ongoing. + + The SEC acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Western District of Missouri and the Kansas City Field Office of the Federal Bureau of Investigation. + + + + + Complaint v. AIPC Complaint v. Webster Complaint v. Schmidgall and Watson Complaint v. Ruskey + + +  + + + + + + + + + + + Resources + + + + + Complaint v. AIPC + + + + + Complaint v. Webster + + + + + Complaint v. Schmidgall and Watson + + + + + Complaint v. Ruskey + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Angel Alvarez-Perez and Annie Astor-Carbonell + + + + + + + + + + + + Angel Alvarez-Perez and Annie Astor-Carbonell + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20721 / September 17, 2008 + + Accounting and Auditing Enforcement Release No. 2881 / September 17, 2008 + + Securities and Exchange Commission v. Angel Alvarez-Perez and Annie Astor-Carbonell , 08-CV-8009DAB (Batts, J.) (S.D.N.Y. filed September 16, 2008) + + First BanCorp's Former CEO and CFO Settle Civil Charges with SEC for Aiding and Abetting Fraud By Doral Financial + + The Securities and Exchange Commission filed civil charges against Angel Alvarez-Perez and Annie Astor-Carbonell, former officers and directors of First BanCorp, a NYSE-listed bank holding company based in Puerto Rico. The Commission charges Alvarez and Astor with aiding and abetting violations of the federal securities laws by Doral Financial Corporation, another NYSE-listed bank holding company based in Puerto Rico. Alvarez was First BanCorp's Chief Executive Officer, and Astor was the company's Chief Financial Officer, during the relevant period. + + According to the Commission's complaint, which was filed in the United States District Court for the Southern District of New York, First BanCorp senior management, including Alvarez and Astor, concealed the true nature of more than $4 billion worth of mortgage-related transactions from the company's independent auditor and the investing public between 2000 and 2005. First BanCorp, which purportedly purchased the mortgages, is alleged to have profited from the transactions by earning over $100 million in net interest income with minimal risk. The contra-party to the transactions, Doral Financial, which purportedly sold the mortgages to First CanCorp, is alleged to have improperly recognized income from the transactions. The Commission further alleges that First BanCorp senior management, including Alvarez and Astor, created and backdated certain documents and affirmatively misrepresented the terms of certain mortgage-related transactions to the company's independent auditor to avoid a restatement in November 2004. + + The Commission charges Alvarez and Astor with aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 13a-1 and 13a-13 thereunder and with violating Rules 13b2-1 and 13b2-2 of the Exchange Act. Without admitting or denying the Commission's allegations, Alvarez and Astor consented to being permanently enjoined from violating those provisions of the federal securities laws. In addition, Alvarez consented to a five (5) year officer and director bar and $100,000 civil penalty, and Astor consented to a five (5) year officer and director bar, $75,000 civil penalty and to an administrative order suspending her privilege to appear and practice before the Commission as an accountant for five (5) years. + + Doral Financial previously consented to the entry of a court order enjoining it from violating the federal securities laws and ordering that it pay a $25 million civil penalty [ LR-19837 (Sept. 19, 2006)]. First BanCorp consented to a similar court order and an $8.5 million civil penalty [ LR-20227 ] (Aug. 7, 2007). The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Company. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2883.txt b/raw/aaer/2008/AAER-2883.txt new file mode 100644 index 0000000000000000000000000000000000000000..736c5fe9f5ac24c78413cfc0a70f252cfcc16b19 --- /dev/null +++ b/raw/aaer/2008/AAER-2883.txt @@ -0,0 +1,174 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58624 / September 23, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2883 / September 23, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13231 +In the Matter of +NORMAN STUMACHER, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE AND CEASE- + AND-DESIST PROCEEDINGS PURSUANT +TO SECTION 21C OF THE SECURITIES +EXCHANGE ACT OF 1934 AND RULE 102(e) +OF THE COMMISSION’S RULES OF +PRACTICE, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS AND A +CEASE-AND-DESIST ORDER +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative and cease-and-desist proceedings be, and hereby are, instituted against Norman +Stumacher, CPA (“Respondent” or “Stumacher”) pursuant to Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) and (iii) of the Commission’s +Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. +Rule 102(e)(1)(iii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it . . . to any person who is found… to have willfully violated, or willfully aided and abetted the violation of any +provision of the Federal securities laws or the rules and regulations thereunder. +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities +Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, +and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +A. SUMMARY +Video Without Boundaries, Inc. (“Video”), a consumer electronics company based in Fort +Lauderdale, Florida, recorded fictitious revenue and assets at the direction of its sole officer and +director through a number of accounting schemes, including improper revenue recognition, in +violation of generally accepted accounting principles (“GAAP”). Stumacher audited Video’s 2002 +and 2003 annual financial statements and issued audit reports containing unqualified audit +opinions, representing that the financial statements were presented in conformity with GAAP and +that he conducted his audits in accordance with generally accepted auditing standards (“GAAS”). +These representations were false because Video’s financial statements contained numerous +departures from GAAP that materially overstated Video’s revenues and understated its net losses. +Moreover, contrary to Stumacher’s audit reports, his audits were not conducted in accordance with +GAAS because he utterly failed to comply with professional standards related to field work and +general standards in the performance of his audits. Stumacher thereby violated Section 10(b) of +the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder and engaged in +improper professional conduct within the meaning of Rule 102(e). +B. RESPONDENT +Norman Stumacher, CPA, age 81, of Bellmore, New York, is a certified public accountant +licensed in New York since 1965. Since 1990, Stumacher has done business as a sole proprietor. +Stumacher served as Video’s auditor from April 2001 to February 2005. +2 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 + +C. OTHER RELEVANT ENTITY +Video was incorporated in 1999 and operates in the consumer electronics market. Since +1999, Video’s common stock has been registered with the Commission pursuant to Section 12(g) of +the Exchange Act. Video changed its name to MediaREADY, Inc. in September 2006 and, in +March 2008, again changed its name to China Logistics Group, Inc. +D. F ACTS +1. Video’s Fraudulent Accounting Practices +a. Video, at the direction of its sole officer and director, engaged in fraudulent +accounting practices that included improper revenue recognition and recording false entries in its +annual financial statements for 2002 and 2003. +b. In May 2002, Video signed a contract to provide services to an +entertainment company, Cornerstone Entertainment Inc. (“Cornerstone”), in exchange for shares of +Cornerstone stock. Although Video received the shares of Cornerstone stock, Video never +provided any services to Cornerstone because, shortly thereafter, Cornerstone went out of business. +Notwithstanding its representation in its financial statements that “[s]ervice revenue is recognized +when services are performed,” nearly all of the revenue Video reported in its Form 10-KSB for +fiscal year 2002 – $325,000 of approximately $331,000 – was based on its improper recognition of +services it never provided to Cornerstone. +c. Moreover, although Cornerstone went out of business, Video recorded the +Cornerstone stock as an investment (which it valued at approximately $211,000) in its annual +financial statements for 2002. Video even reported a fictitious stock dividend of Cornerstone +shares to Video shareholders (which it valued at approximately $114,000) in its annual financial +statements for 2002 and 2003. +d. Commencing in 2003, Video had an informal arrangement with one of its +distributors under which Video could ship its products to the distributor’s warehouse but the +distributor was not obligated to pay for them until it sold them to third party customers. Video +used this arrangement to inflate its revenue in 2003. Specifically, in its 2003 Form 10-KSB, nearly +all of Video’s reported revenue – $189,000 of about $191,000 – was based on Video’s purported +sales to the distributor. In fact, Video did not sell any merchandise to the distributor in 2003, and +overstated revenue by fraudulently recognizing the products shipped as sold. +e. As a result of Video’s fraudulent accounting practices, Video filed Forms +10-KSB for fiscal years 2002 and 2003 that materially overstated Video’s revenues and +understated net losses. Video restated its financial statements for the year ended December 31, +2002 in June 2005 and again in September 2005. Video restated its financial statements for the +year ended December 31, 2003 in September 2005. Based on the restatements, Video’s revenues, +net losses, and total assets for fiscal year 2002 were misstated by over 5000%, 12%, and 276%, +3 + +respectively. Based on the restatements, Video’s revenues, net losses, and total assets for fiscal +year 2003 were misstated by over 10,000%, 33%, and 68%, respectively. +2. Stumacher’s Failures in Connection With Video’s 2002 and 2003 Audits +a. While conducting audits of Video’s financial statements for fiscal years +2002 and 2003, Stumacher failed to comply with professional standards related to field work, +including standards related to evidential matter, audit risk and materiality, consideration of fraud, +analytical procedures and documentation, and general standards, including due professional care in +the performance of the audits. +b. Under the professional standards related to field work, Stumacher failed to +consider audit risk, fraud, and materiality when planning and performing the audits of Video’s +financial statements. Stumacher did not develop nor document any audit procedures to assess audit +risk. He failed to consider adequately audit risk or identify significant business risks or unusual +reporting issues. +c. Additionally, in performing his field work, Stumacher was required to +obtain corroborating evidential matter to support the accounting information Video provided. +However, Stumacher failed to review any corroborating evidential matter, other than the +Cornerstone agreement provided to him by Video’s management. He made no other efforts to +obtain or review any corroborating evidential matter concerning that agreement, the value of the +Cornerstone stock, or the 2003 recorded sales to the distributor. +d. Among other failures related to the auditing standards of field work, +Stumacher failed to verify or perform any tests on any of the account balances in the general +ledgers, failed to perform any procedures to identify related party transactions, and failed to +perform any analytical procedures. + e . Stumacher also failed to prepare and maintain audit documentation to +support his audit conclusions or to show a reasonable basis for his audit reports containing +unqualified opinions on Video’s 2002 and 2003 financial statements. Stumacher failed to create +any audit programs, worksheets, schedules or analyses, planning or other memoranda, engagement +or management representation letters, or documents reflecting that he observed auditing standards. + f . Contrary to Stumacher’s audit reports containing unqualified audit opinions +on Video’s 2002 and 2003 annual financial statements, his audits were not conducted in +accordance with GAAS and Video’s financial statements were not presented in conformity with +GAAP. +3. Violations +a. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit a +person, in connection with the purchase or sale of a security, from making an untrue statement of a +material fact or from omitting to state a material fact necessary to make statements made, in light +4 + +of the circumstances under which they were made, not misleading. An auditor violates Section +10(b) of the Exchange Act and Rule 10b-5 thereunder if he prepares and certifies publicly-filed +financial statements that he knows, or is reckless in not knowing, are false. Ponce v. SEC, 345 +F.3d 722, 729-30 (9th Cir. 2003); Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1225-27 (10th +Cir. 1996). Auditors also violate these provisions by issuing a false audit report. McGann v. Ernst +& Young, 102 F.3d 390, 397 (9th Cir. 1996); Ponce, 345 F.3d at 731 (auditors violated Section +10(b) and Rule 10b-5 by issuing a false audit report). +b. Stumacher willfully violated these antifraud provisions by issuing audit +reports, in connection with Video’s 2002 and 2003 annual financial statements, which falsely +stated that Video’s financial statements were presented in conformity with GAAP and that his +audits were conducted in accordance with GAAS. +4. Findings +a. Based on the foregoing, the Commission finds that Stumacher engaged in +improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of +Practice. +b. Based on the foregoing, the Commission finds that Stumacher willfully +violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Stumacher’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Stumacher shall cease and desist from committing or causing any violations and any +future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; +B. Stumacher is denied the privilege of appearing or practicing before the Commission +as an accountant. + By the Commission. + F lorence E. Harmon + A cting Secretary +5 diff --git a/raw/aaer/2008/AAER-2884.txt b/raw/aaer/2008/AAER-2884.txt new file mode 100644 index 0000000000000000000000000000000000000000..e1072cc323ac279863fc10accf8bf06ba4c818b3 --- /dev/null +++ b/raw/aaer/2008/AAER-2884.txt @@ -0,0 +1,280 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 8960 / September 24, 2008 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58633 / September 24, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2884 / September 24, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13234 +In the Matter of +BEAZER HOMES USA, INC., +Respondent. +ORDER INSTITUTING CEASE-AND- +DESIST PROCEEDINGS PURSUANT TO +SECTION 8A OF THE SECURITIES ACT +OF 1933 AND SECTION 21C OF THE +SECURITIES EXCHANGE ACT OF 1934, +MAKING FINDINGS, AND IMPOSING 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 Beazer Homes USA, Inc. ("Beazer" 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 8A of the Securities Act of 1933 and Section +21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist +Order ("Order"), as set forth below. + +III. +On the basis of this Order and Respondent's Offer, the Commission finds1 that: +Summary +1. In certain periods between 2000 and 2007, Beazer, acting through certain of its +officers and employees, fraudulently misstated its net income for the purpose of improperly +managing its quarterly and annual earnings. In May 2008, as a result of its earnings management +and other errors, Beazer restated its financial statements to reflect adjustments for the fiscal years +1998 through 2006, as well as the first and second quarters of fiscal year 2007. Beazer restated +its fiscal year 2006 net income from $389 million to $369 million (a reduction of $20 million or +5%). Beazer also restated its fiscal 2005 net income from $263 million to $276 million (an +increase of $13 million or 5%) and increased its beginning retained earnings for the fiscal year +2005 by $34 million (from $742 million to $776 million or 5%) to reflect the cumulative effect +of adjustments for the fiscal years 1998 through 2004. Finally, Beazer also restated its net loss +for the first quarter of fiscal year 2007 from $59 million to $80 million (an increased loss of $21 +million or 36%), and its net loss for the second quarter of fiscal year 2007 from $43 million to +$57 million (an increased loss of $14 million or 33%). +Respondent +2. Beazer, a Delaware corporation headquartered in Atlanta, Georgia, is a +homebuilder with operations in at least twenty-one states. Since March 1994, Beazer’s common +stock has been registered with the Commission pursuant to Section 12(b) of the Exchange Act +and listed on the New York Stock Exchange under the symbol BZH. On June 6, 2006, Beazer +issued and sold a $275 million aggregate amount of its 8.125% Senior Notes due 2016 in a +private placement to qualified institutional buyers pursuant to Rule 144A and in offshore +transactions pursuant to Regulation S. On August 15, 2006, Beazer filed an S-4 registration +statement offering to exchange $275 million in new notes for the notes issued on June 6, 2006. +The prospectus filed with the registration statement incorporates by reference Respondent’s +annual and quarterly reports. In a June 2006 private placement, Beazer also issued $103 million +of junior subordinated notes. Additionally, in November 2005, Beazer announced an increase to +10 million shares of its prior repurchase plan which resulted in 3.65 million of its shares being +repurchased during fiscal 2006 for an aggregate purchase price of $205.4 million. +Beazer’s Earnings Management +3. Between approximately 2000 and 2007, Beazer, acting through certain of its +officers and employees, fraudulently misstated certain of its quarterly and annual net income by +intentionally managing its earnings. From approximately 2000 to 2005, a period of strong +growth and financial performance for Beazer, Beazer decreased its reported net income by + 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 +1 +improperly increasing certain reported operating expenses. This created improper accruals, or +“reserves,” in Beazer’s books and records. In certain quarters, the existence of these reserves +had the effect of smoothing Beazer’s earnings, i.e., allowing Beazer to report earnings that still +met or exceeded analysts’ expectations for its quarterly net income and earnings per share +(“EPS”) while permitting it to improperly defer a portion of its income to future periods. +4. Beginning in the first quarter of fiscal year 2006, Beazer’s financial performance +began to decline. In order to continue to meet or exceed analysts’ expectations for its quarterly +net income and EPS, Beazer began reversing many of its previously created, improper reserves. +In certain instances, Beazer also began purposefully not recognizing certain current period +expenses. These actions had the effect of reducing Beazer’s operating expenses and thereby +improperly increasing its net income. +5. Additionally during fiscal 2006 and the first two quarters of fiscal 2007, Beazer, +again acting through certain of its officers and employees, improperly recognized income from +the sale of approximately 360 model homes to three separate investor pools compiled and +sponsored by a third party entity (the “Investor Pools”). +The Improper Accruals and Reversals +6. Between approximately 2000 and 2007, Beazer created, and later reversed, +improper accruals and reserves by, among other ways, manipulating the amounts recorded in two +series of accounts in order to manage earnings. These accounts were the land inventory accounts +and the house cost to complete accounts. +7. The Land Inventory Accounts. As part of its homebuilding and sales operations, +Beazer regularly acquired large parcels of land upon which it constructed houses. Beazer +recorded this purchased land as an asset on its balance sheet in accounts denoted as “land +inventory accounts.” Also recorded in these accounts were capitalized costs for the common +development of the parcel, such as costs for sewer systems and streets. Each Beazer subdivision +under construction had at least one land inventory account associated with it in Beazer’s general +ledger. +8. As subdivisions were built, Beazer allocated the land acquisition cost, as well as +past and future common development costs, to individual home lots which were then offered for +sale. When a home sale was recorded in Beazer’s general ledger, all associated homebuilding +costs, including the costs of the land recorded in the land inventory account, were expensed to +cost of sales. As part of these journal entries, the land inventory account was reduced and a cost +of sales expense account increased to reflect the value of the land and improvements that Beazer +sold with the house. Because Beazer sold houses within a subdivision as the development of that +subdivision progressed, the land expense recorded for any particular house sale was necessarily +an estimate. As individual houses in a development were sold, the land inventory accounts were +decreased by an amount representing the amounts of the land and development costs allocated to +each individual house. Shortly after the final house in a development had been sold, the balance +in the land inventory account would be at or near zero. +3 + +9. In certain quarters between 2000 through 2007, however, Beazer, acting through +certain officers and employees, manipulated the amounts recorded in the land inventory accounts +in order to manage earnings. Specifically, in various quarters during fiscal years 2000 through +2005, Beazer over-allocated land inventory expense to individual properties sold. This over- +allocation caused Beazer to report more expense and less profit on each sold house in certain +subdivisions. When all or most of the houses in a development were eventually sold, these over- +allocations resulted in the affected land inventory accounts having negative (or credit) balances. +The credit balances that resulted from the intentional over-allocation were then improperly held +open in Beazer’s general ledger—acting, in eff ect, as improper reserves. By these actions, +Beazer understated its net income by a total of $42 million for fiscal years 2000 through 2005. +10. Beginning at least by the second quarter of 2006, Beazer, acting through certain +officers and employees, began to reverse the excess reserves existing in the land inventory +accounts, which increased then-current period earnings. The credit balances in land inventory +accounts were debited, i.e., zeroed out, and a cost of sales expense credited, i.e., reduced. This +improperly reduced expenses and increased Beazer’s earnings. During 2006, Beazer overstated +its cumulative reported net income of $389 million by $16 million by “zeroing out” credit +balances in its land inventory accounts. For the first two quarters of fiscal 2007, Beazer +understated its cumulative reported net loss of $102 million by $1 million due to the reversal of +improper land inventory reserves. +11. The House Cost to Complete Accounts. Under its accounting policies, Beazer +recorded revenue and profit on the sale of a house after the close of the sale of that house to a +third party. In the journal entries to record the sale, Beazer typically reserved a portion of its +profit earned on the house. This reserve, called a “ house cost to complete” reserve, was +established to cover any known and unknown expenses that Beazer might incur on the sold +house after the close, such as outstanding invoices, unbudgeted cost overruns, minor repairs or +final cosmetic touchups. Although the amount of this reserve varied by region, it was typically +$2,000 to $4,000 per house, above known outstanding invoices. Beazer’s policy was to reverse +any unused portion of the house cost to complete reserve within four to nine months after the +house’s close, taking any unused portion into income at that time. Although creation of such a +house cost to complete reserve is proper, in some instances, Beazer, acting through certain +officers and employees, utilized these reserves to manage improperly its earnings. In various +quarters between 2000 and 2005, Beazer over-reserved house cost to complete expenses in order +to defer profit to future periods. In later periods, Beazer eliminated these cost to complete +reserves, resulting in inflated profits for those periods. In certain instances, Beazer also +purposefully did not recognize certain current period house cost to complete expenses, again +resulting in inflated profits for those periods. +12. Between fiscal years 2000 and 2005, Beazer understated its net income by $6 +million due to excess house cost to complete accruals. During fiscal year 2006, when Beazer +began to reverse some of the excess accruals, Respondent overstated its net income by over $1.2 +million. Beazer also understated its cumulative net loss for the first two quarters of fiscal 2007 +by $1 million. +4 + +The Sale-Leaseback Transactions +13. As part of its marketing activities, Beazer typically builds and furnishes between +one and five model homes for each of its housing developments. Prior to 2006, Beazer typically +retained ownership of the large majority (upwards of 70-80%) of its model homes, and entered +into sale-leaseback arrangements with third parties for the remaining ones. Beginning in fiscal +2006, Beazer significantly increased the number of model homes it leased. At the end of fiscal +2006, Beazer had leased 557 of its 793 model homes or 70%. Beazer improperly accounted for +more than half of these leased model homes as sale-leasebacks in order to improve Beazer’s +financial results. +14. Specifically, beginning near the end of fiscal 2005, Beazer, acting through certain +of its officers and employees, engaged in negotiations with the third party entity representing the +Investor Pools concerning possible sale-leaseback transactions for Beazer’s model homes. +Pursuant to the transaction terms under discussion, the Investor Pools would purchase certain +Beazer model homes at 92% of the homes’ appraised value. Beazer would then lease the model +homes, at monthly lease payments equal to the Investor Pools’ purchase price multiplied by the +current 30 day LIBOR rate plus 450 basis points (prorated on a monthly basis). Beazer would +also retain a right to receive a percentage of the appreciation of the model home upon its sale at +the end of the lease term (the “Appreciation Rights”). +15. However, Beazer’s outside auditor informed certain Beazer officers and +employees that any Appreciation Rights represented a “continuing interest” that, pursuant to +Generally Accepted Accounting Principles (“GAAP”), required Beazer to record the transactions +as financing, not as sale-leasebacks. This proper accounting treatment would not have permitted +Beazer to record the model home sales revenue and profit at the beginning of the lease term. +16. In order to circumvent GAAP, and deceive its outside auditor, Beazer, acting +through certain officers and employees, caused the model home sale-leaseback written +agreements with the Investor Pools to omit any reference to Appreciation Rights and recorded +the model home transactions as sale-leasebacks, recognizing home sales revenue in fiscal 2006. +Based upon the terms of the written agreements, the outside auditor agreed that the transactions +qualified for sale-leaseback accounting. However, unbeknownst to the outside auditor, Beazer, +acting through certain officers and employees, and the Investor Pools had also entered into oral +side agreements which contained the Appreciation Rights, and allowed Beazer to receive a +percentage of the model homes’ price appreciation upon their sale at the end of the lease term. +17. As a result of Beazer’s improper recording of these transactions as sale- +leasebacks, Beazer overstated its fiscal year 2006 revenues by $117 million and net income by +$14 million. For the first two quarters of fiscal 2007, Beazer understated its cumulative revenue +by $2.6 million and overstated its cumulative net loss by $3.9 million due to the improper sale- +leasebacks accounting. +5 + +Beazer’s Anti-fraud Violations: Section 17(a) of the Securities Act and Section 10(b) +of the Exchange Act and Rule 10b-5 Thereunder +18. As a result of the conduct described above, Beazer violated Section 17(a) of the +Securities Act, which prohibits materially false or misleading statements, or material omissions +in the offer or sale of any security. Specifically, Beazer knowingly departed from GAAP and +misstated its net income for certain periods in its registration statements and other filings with +the Commission and other investor disclosures by using certain reserves and other accrued +liabilities to recognize profits in 2006 and 2007 that were earned from 2000 through 2005. +Beazer also intentionally and improperly recognized sales revenue from certain model home +lease transactions, due to Respondent’s use of sale-leaseback accounting treatment for these +transactions despite knowing that such treatment was not in accordance with GAAP. +19. Additionally, Beazer violated Section 10(b) of the Exchange Act and Rule 10b-5 +thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of +securities. As set forth above, Beazer made untrue statements of material facts in registration +statements, periodic reports filed with the Commission and other investor disclosures or omitted +to state therein any fact necessary in order to prevent the statements made therein, in the light of +the circumstances under which they were made, from being materially misleading. Specifically, +Beazer falsely stated its net income in certain periods in various Commission filings and other +investor disclosures. +Beazer’s Reporting Violations: Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, +13a-11 and 13a-13 Thereunder +20. Also as a result of the conduct described above, Beazer violated Section 13(a) of +the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 promulgated under the Exchange +Act, which require that every issuer of a security registered pursuant to Section 12 of the +Exchange Act files with the Commission information, documents, and annual and quarterly +reports as the Commission may require, and mandate that periodic reports contain further +material information as may be necessary to make the required statements not misleading. +Beazer’s Record Keeping and Internal Control Violations: Sections 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act +21. As a result of the conduct described above, Beazer violated Section 13(b)(2)(A) +of the Exchange Act, which requires reporting companies to make and keep books, records, and +accounts, which, in reasonable detail, accurately and fairly reflect the transactions and +dispositions of the assets of the issuer. +22. As a result of the conduct described above, Beazer violated Section 13(b)(2)(B) of +the Exchange Act, which requires all reporting companies to devise and maintain a system of +internal accounting controls sufficient to provide reasonable assurances that transactions are +recorded as necessary to permit preparation of financial statements in accordance with GAAP. +Beazer’s insufficient internal controls failed to prevent the recording of the fraudulent accounting +6 + +entries in its general ledger and caused Respondent to file with the Commission financial +statements that failed to conform with GAAP. +Beazer's Remedial Efforts +23. In determining to accept the Offer, the Commission considered remedial acts +promptly undertaken by Respondent and cooperation afforded the Commission staff. +Undertakings +24. Respondent shall cooperate fully with the Commission in any and all +investigations, litigations or other proceedings relating to or arising from the matters described in +this Order. In connection with such cooperation, Respondent has undertaken: +a. To produce, without service of a notice or subpoena, any and all +documents and other information requested by the Commission's staff; +b. To use its best efforts to cause its employees to be interviewed by the +Commission's staff at such times as the staff reasonably may direct; +c. To use its best efforts to cause its employees to appear and testify +truthfully and completely without service of a notice or subpoena in such investigations, +depositions, hearings or trials as may be requested by the Commission's staff; and +d. That in connection with any testimony of Respondent to be conducted at +deposition, hearing or trial pursuant to a notice or subpoena, Respondent: +(i.) Agrees that any such notice or subpoena for Respondent’s appearance +and testim ony m ay be served by regular m ail on its attorney, David G. Januszewski, Esq., at +Cahill Gordon & Reindel LLP, Eighty Pine Street, New York, New York 10005-1702; and +(ii.) Agrees that any such notice or subpoena for Respondent’s appearance +and testimony in an action pending in a United States District Court m ay be served, and m ay +require testimony, beyond the territorial limits imposed by the Federal Rules of Civil Procedure. +25. In determining whether to accept th e Offer, the Commission has considered these +undertakings. +7 + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanction +agreed to in Respondent Beazer's Offer. +Accordingly, it is hereby ORDERED that: +Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, +Respondent Beazer cease and desist from committing or causing any violations and any future +violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 +promulgated under the Exchange Act. +By the Commission. +Florence E. Harmon +Acting Secretary +8 diff --git a/raw/aaer/2008/AAER-2886.txt b/raw/aaer/2008/AAER-2886.txt new file mode 100644 index 0000000000000000000000000000000000000000..b186ebdca80b08aa23ab6e608edf0ef587b2db51 --- /dev/null +++ b/raw/aaer/2008/AAER-2886.txt @@ -0,0 +1,184 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58637 / September 24, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2886 / September 24, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13237 +In the Matter of +ROBERT L. SAXTON, 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 Robert L. Saxton (“Saxton” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +Respondent +1. Robert L. Saxton, age 54, is a resident of Las Vegas, Nevada. Saxton served as +chief financial officer (“CFO”) of Bally from March 2000 through March 2005 when he became +executive vice president of sales. Saxton left Bally in July 2006. Saxton became licensed as a +certified public accountant in Nevada in 1984, but his license expired in 1989 and his current status +is inactive. +Related Party +2. Bally Technologies, Inc. (“Bally”), a Nevada corporation headquartered in Las +Vegas, Nevada, has been in business since 1968 and operates on a fiscal year that ends on June 30. +During the relevant time period, Bally designed, manufactured, and distributed gaming machines +and monitoring systems for casinos. Bally’s common stock is registered with the Commission +under Section 12(b) of the Exchange Act and trades on the New York Stock Exchange. +Background +3. While Saxton was CFO, Bally materially misstated its reported revenue in its +financial statements for the year ended June 30, 2003 and the first two quarters of 2004. Bally +included its misleading financial results in press releases and filings with the Commission relating +to these periods. Bally also made materially misleading disclosures and omissions in certain +filings and public statements during the relevant period. In December 2005 and November 2006, +Bally restated its financial results for the affected periods. +4. Bally’s reported revenues were misstated due to its recognition of revenue on a bill +and hold basis that was improper under Generally Accepted Accounting Principles (“GAAP”).2 +Bally’s Bill and Hold Transactions +5. Bally accounted for two types of transactions on a bill and hold basis. First, Bally +recognized revenue on a bill and hold basis on several individual sales to specific customers. +Second, Bally routinely recognized revenue on a bill and hold basis for games sold to New Jersey +casinos that were stored at quarter end in its Atlantic City, New Jersey warehouse. These games +1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. +2 A bill and hold sale is one in which delivery has not occurred, and requires adherence to specific criteria +before revenue can be recognized on the transaction. See In the Matter of Stewart Parness, Accounting and +Auditing Enforcement Rel. No. 108 (August 5, 1986), Staff Accounting Bulletin 104, Revenue Recognition. +2 + +were awaiting approval from New Jersey state regulators, which was required before the games +could be operated on a casino floor. +6. Bally’s improper bill and hold sales to both specific and New Jersey customers +resulted in the overstatement of its reported net sales revenue by $8.4 million in the fourth quarter +of fiscal 2003 and by $8.8 million and $10.2 million in the first and second quarters of fiscal 2004. +As a result, Bally should have reported net income from continuing operations for the fourth +quarter of fiscal 2003 of $12.2 million, rather than the $15 million that it did report. In the first +quarter of fiscal 2004, Bally should have reported a net loss from continuing operations of $0.1 +million rather than income of $2.6 million. In the second quarter of fiscal 2004, Bally should have +reported net income from continuing operations of $11.1 million rather than the $14.2 million it +did report. In addition, these bill and hold sales led to a $.06 overstatement of Bally’s reported +earnings per share (“EPS”) for the fourth quarter of fiscal 2003 and $.05 and $.06 cent +overstatements of Bally’s reported quarterly EPS numbers in the first and second quarters of fiscal +2004, respectively. +7. Bally improperly recorded revenue on a bill and hold basis on one individual +customer transaction in the fourth quarter of 2003, three individual customer transactions in the +first quarter of 2004, and one individual customer transaction in the second quarter of 2004. Bally +improperly recorded revenue on the New Jersey transactions throughout this period as well. Bally +improperly recognized revenue on each of these transactions because it failed to meet one or more +of the bill and hold criteria. +8. For each transaction, Bally could not demonstrate that the customer requested that +the transaction take place on a bill and hold basis. Bally also failed to meet the requirement of a +fixed schedule for delivery on each of the bill and hold transactions. In four cases, Bally relied on +alleged delivery schedules that were indefinite and insufficient for purposes of GAAP. Moreover, +in three of the transactions, true risk of ownership had not passed to the customers. Bally also +failed to meet the criterion requiring completeness of the equipment in its bill and hold transactions +with one customer. Finally, Bally failed to segregate the bill and hold inventory for at least one +transaction. +9. Bally also improperly recognized revenue on a bill and hold basis for games it sold +to New Jersey customers when the games were stored in its New Jersey warehouse at quarter end. +The games were manufactured in Nevada and shipped, by Bally, to its New Jersey warehouse, to +await inspection by state regulators. The New Jersey games did not qualify for bill and hold +revenue recognition and Bally’s records do not support such revenue recognition. Specifically, +Bally failed to meet the criteria relating to risk of ownership passing to the buyer, fixed schedule +for delivery, and customer request that the transaction be on a bill and hold basis. +10. Saxton was ultimately responsible for assuring the accuracy of Bally’s periodic and +current filings while he served as Bally’s CFO. Saxton knew that Bally had recognized revenue on +bill and hold transactions, but he did not take sufficient steps to ensure that this revenue was +recognized in accordance with GAAP. Saxton reviewed and signed filings with the Commission +in which Bally materially overstated its revenues as a result of improper revenue recognition on a +3 + +bill and hold basis. In addition, Saxton certified Bally’s Form 10-K for the year ended June 30, +2003 and Forms 10-Q for the quarters ended September 30, 2003 and December 31, 2003. +Improper Disclosure Relating to Bill and Hold Transactions +11. Bally did not disclose its use of bill and hold practices, which it should have +disclosed under GAAP, in any of its public filings during 2003 and 2004. Instead, Bally’s 2003 +and 2004 Forms 10-K and Forms 10-Q for 2004 contained the misleading disclosure that +“[r]evenue from sales of gaming machines is generally recognized at the time products are shipped +and title has passed to the customer.” This disclosure was misleading since it failed to explain that +Bally recognized revenue on a bill and hold basis. +12. Moreover, when the company stopped recognizing revenue on a bill and hold basis, +the company’s disclosures regarding its failure to meet earnings guidance for the quarter were +misleading. In its earnings press release dated April 21, 2004 and attached to a Form 8-K filed the +same day, Bally disclosed that “1,250 units to be delivered in the March 2004 quarter were delayed +until the June quarter at the request of three customers, due primarily to the delay in the completion +of their new or expanded gaming facilities being constructed.” However, these units were not +delayed due to construction. Instead, the revenue for these units was not recognized in the quarter +because Bally decided to stop recognizing revenue on a bill and hold basis. The company made a +similar disclosure in its earnings release call on April 21, 2004. +13. Saxton was ultimately responsible for Bally’s improper disclosures. He reviewed +Bally’s filings with the Commission, but did not take sufficient steps to ensure that the filings +accurately and completely disclosed Bally’s revenue recognition policy. Moreover, Saxton, who +participated in the April 21, 2004 earnings call, knew that Bally had decided to stop recognizing +revenue on a bill and hold basis, but Saxton did not take sufficient steps to ensure that the reason +for Bally’s missed guidance was accurately disclosed. +Books, Records, and Internal Controls +14. As described above, Bally improperly recorded revenue for the year ended June 30, +2003 and for the quarters ended September 30, 2003 and December 31, 2003. Therefore, its books, +records, and accounts did not, in reasonable detail, accurately and fairly reflect its transactions and +dispositions of assets. Saxton was ultimately responsible for Bally’s books, records, and accounts, +but failed to take the steps necessary to assure their accuracy. +15. Bally failed to implement internal accounting controls relating to its recording of +revenue that were sufficient to provide reasonable assurances that its accounts were accurately +stated in conformity with GAAP. Saxton was ultimately responsible for Bally’s internal +accounting controls but failed to take the steps necessary to assure their sufficiency. +4 + +Violations +16. As a result of the conduct described above, Bally violated and Saxton caused Bally +to violate Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 +thereunder, which require every issuer of a security registered pursuant to Section 12 of the +Exchange Act to file with the Commission information, documents, and annual, 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. +17. As a result of the conduct described above, Bally violated and Saxton caused Bally +to violate Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make +and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect +their transactions and dispositions of their assets. +18. As a result of the conduct described above, Bally violated and Saxton caused Bally +to violate Section 13(b)(2)(B) of the Exchange Act, which requires all reporting companies to +devise and maintain a system of internal accounting controls sufficient to provide reasonable +assurances that transactions are recorded as necessary to permit preparation of financial statements +in accordance with GAAP. +19. Rule 13b2-1 under 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. Bally’s books, records, and accounts were subject to Section +13(b)(2)(A) of the Exchange Act. As a result of the conduct described above, Saxton violated Rule +13b2-1 under the Exchange Act. +20. Rule 13a-14 under the Exchange Act requires financial officers to certify in +quarterly and annual Commission filings that, among other things, they have read the filing; that it +does not contain any untrue statements, or omissions, of material facts; and that the filing fairly +presents the financial condition and results of operations and cash flows of the issuer. As a result +of the conduct described above, Saxton violated Rule 13a-14 under the Exchange Act. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Saxton’s Offer. +5 + +Accordingly, it is hereby ORDERED that: +Pursuant to Section 21C of the Exchange Act, Respondent Saxton cease and desist from +causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of +the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 thereunder and from committing or +causing any violations of Exchange Act Rules 13a-14 and 13b2-1. +By the Commission. +Florence E. Harmon +Acting Secretary +6 diff --git a/raw/aaer/2008/AAER-2887.txt b/raw/aaer/2008/AAER-2887.txt new file mode 100644 index 0000000000000000000000000000000000000000..14c3e823174357ac326d71e2b970118a5a4f38b3 --- /dev/null +++ b/raw/aaer/2008/AAER-2887.txt @@ -0,0 +1,1385 @@ + + + + + + + + + + + + + + + + SEC.gov | Steven M. Des Champs and Martha W. Vlcek + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504246","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Des Champs and Martha W. Vlcek + + + + + + + + + + + + Steven M. Des Champs and Martha W. Vlcek + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20738 / September 24, 2008 + + Accounting and Auditing Enforcement Release No. 2887 / September 24, 2008 + + SEC v. Steven M. Des Champs and Martha W. Vlcek , Civil Action No. 2:08-CV-1279 (D. NV). + + The Securities and Exchange Commission ("Commission") today filed a civil injunctive action against two former accounting executives of Las Vegas-based Bally Technologies, Inc., f/k/a Alliance Gaming Corporation ("Bally") for engaging in a fraudulent accounting scheme to artificially inflate the company's reported revenue and present misleading information to investors about the company's earnings. + + The Commission's complaint filed in federal district court in the District of Nevada alleges that from the fourth quarter of fiscal year 2003 through the second quarter of fiscal year 2004, Bally's former chief accounting officer and former chief financial officer Steven M. Des Champs and former vice president of finance Martha W. Vlcek fraudulently recognized revenue on bill and hold transactions, made misleading disclosures and omissions regarding revenue recognition, and made materially false statements to the company's outside auditors when they represented the transactions were proper under generally accepted accounting principles. According to the complaint, the improper bill and hold sales led to a 25% overstatement of Bally's reported earnings per share ("EPS") for the fourth quarter of fiscal 2003 and to 33% and 27% overstatements of Bally's reported quarterly EPS numbers in the first and second quarters of 2004, respectively. + + The complaint also alleges that in the second and third quarters of 2005, Des Champs fraudulently recognized revenue on transactions where he knew that the company could not reasonably expect that it would be paid and again made materially false statements to the auditors about his knowledge of the improper accounting, among other things. As a result, the Commission alleges that Bally was later required to reverse $6.3 million of the $10.6 million of revenue originally recognized. + + The defendants are charged with 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 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and with aiding and abetting Bally's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Additionally, Des Champs is charged with falsely certifying the accuracy of Bally's financial statements in violation of Exchange Act Rule 13a-14. The Commission's complaint seeks permanent injunctions, disgorgement of ill-gotten gains, third tier civil penalties, prejudgment interest, and an officer and director bar against both defendants. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2889.txt b/raw/aaer/2008/AAER-2889.txt new file mode 100644 index 0000000000000000000000000000000000000000..bb9a07a3ead591b3579cb4c59789077750d7d6e0 --- /dev/null +++ b/raw/aaer/2008/AAER-2889.txt @@ -0,0 +1,115 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58662 / September 26, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2889 / September 26, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13240 +In the Matter of +URS KAMBER, CA +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 (the “Commission”) deems it appropriate and in +the public interest that public administrative proceedings be, and hereby are, instituted against Urs +Kamber (the “Respondent” or “Kamber”) pursuant to Rule 102(e)(3) of the Commission’s Rules of +Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.2. below, which are admitted, Respondent +consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule +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 . . . accou ntant . . . wh o has been by name . . . permanently +enjoined by any cou rt of c ompetent juri sdiction, by reas on of hi s or h er misconduct i n an act ion br ought by t he +Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of +the rules and regulations thereunder. +1 +102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (the “Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Kamber, age 55, is a charter ed accountant (“CA”) licensed to practice in +Switzerland, and has been since 1979. From September 2001 through October 2003, he was the +Chief Fi nancial Officer of Ce nterpulse Ltd., a Swiss public com pany th at m anufactured and +marketed va rious m edical devices. From January 2001 through Octobe r 2003, Centerpulse’s +American Depository Shares were registered in the United States pursuant to Section 12(b) of the +Securities Exchange Act of 1934 (the “Exchange Act”) and were traded on the New York Stock +Exchange under the symbol “CEP.” +2. On August 1, 2008, a final judgm ent was entered against Ka mber, +permanently enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange +Act and Rules 10b-5, 13a-14 and 13b2-1 thereunder, and from aiding and abetting future violations +of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and +13a-16 t hereunder, i n t he civil act ion entitle d Securities and Exchan ge Commission v. Urs +Kamber, et al., Civil Action Number 1:07-cv-01867 (JDB), in the United States District Court for +the District of Columbia. Kamber was also ordered to pay $65,013 in disgorgement of ill-gotten +gains, $22,824 in prejudgment interest, and a $50,000 civil money penalty. +3. The Commission’s complaint alleged that Kamber and others engaged in a +fraudulent scheme to inf late Centerpulse’s reported earnings during the second hal f of 2002 by +manipulating reserves a nd re fusing to rec ognize expe nses and liabiliti es. The complaint also +alleged that, as a result of t he scheme, Centerpulse issued and furnished to the Commission false +and misleading earnings releases for the third and fourth quarters of 2002, and issue d and file d +with the Commission a false and misleadi ng annual report for fi scal 2002, whic h m aterially +overstated Centerpulse’s third quarter 2002 reported pretax income by approximately $32 million, +and its fourth quarter 2002 and fiscal year 2002 reported pretax income by at least $26.4 million. +-2 +- +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Kamber’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Kamber is suspended from appearing or practicing before the Commission as an +accountant. +B. 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 + 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 status as an accountant is +-3 +- +current and he has resolved all other disciplinary issues with the applicable board of +accountancy. However, if resolution of any disciplinary action by a board of accountancy +is dependent on reinstatement by the Commission, the Commission will consider an +application on its other merits. The Commission’s review may include consideration of, in +addition to the matters referenced above, any other matters relating to Respondent’s +character, integrity, professional conduct, or qualifications to appear or practice before the +Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +-4 +- \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2890.txt b/raw/aaer/2008/AAER-2890.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc997d7749fdaffc534c9d540de90ac2f458050c --- /dev/null +++ b/raw/aaer/2008/AAER-2890.txt @@ -0,0 +1,123 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58667 / September 29, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2890 / September 29, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13245 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE + STEPHANIE S. RUSKEY (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 +Stephanie S. Ruskey (“Respondent” or “Ruskey”) pursuant to Rule 102(e)(3)(i) of the +Commission’s Rules of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over her and the subject matter of these +proceedings, and the findings contained in Section III.3. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Ruskey, age 43, is a resident of Richmond, Missouri. Ruskey served as +corporate controller of American Italian Pasta Company (“AIPC”) from April 1998 to April 2004. +Ruskey also served as AIPC’s director of regulatory affairs and external reporting from May 2004 +until April 2005, and director of accounting from May 2005 until June 2006, when she left the +company. Ruskey was licensed as a Certified Public Accountant in Missouri and in Kansas, but +her licenses lapsed in 1992. +2. At all relevant times, AIPC was a Delaware corporation with its principal +place of business in Kansas City, Missouri. AIPC is a producer and marketer of dry pasta. At all +relevant times, AIPC’s common stock was registered pursuant to Section 12(b) of the Securities +Exchange Act of 1934 (“Exchange Act”). The company filed annual, quarterly, and current reports +with the Commission on Forms 10-K, 10-Q, and 8-K, respectively. AIPC stock was traded on the +New York Stock Exchange (“NYSE”) until December 20, 2006, when the NYSE suspended +trading based on AIPC’s failure to keep current its Commission filings. The NYSE filed a Form 25 +on April 23, 2007 and, as a result, AIPC’s common stock was deregistered from Section 12(b) +effective April 23, 2007. +3. On September 15, 2008, the Commission filed a complaint against Ruskey +in United States District Court for the Western District of Missouri (Civil Action No. 4:08-CV- +00676). On September 17, 2008, the court entered an order permanently enjoining Ruskey, by +consent, from future violations of Rules 13b2-1 and 13b2-2 under the Exchange Act, and from +aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and +Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The court further ordered that Ruskey pay a +$25,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that Ruskey and +others caused AIPC to file materially false and misleading financial statements in the company’s +annual reports on Forms 10-K and quarterly reports on Forms 10-Q for fiscal years 2002, 2003, +and 2004. The complaint alleged that to meet aggressive external targets, Ruskey knew or should +2 + +have known of numerous inappropriate accounting practices that departed from generally accepted +accounting principles, including, among other things, capitalizing improperly normal operating +costs; overstating improperly the company’s spare parts inventory; recognizing improperly current +period revenue on sales of products that were not shipped until after the end of the current periods; +eliminating improperly the company’s vacation and paid time off liability; and failing improperly +to expense manufacturing variances. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Ruskey’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Ruskey 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 her reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or review, +of any public company’s financial statements that are filed with the Commission. Such an +application must satisfy the Commission that Respondent’s work in her practice before the +Commission will be reviewed either by the independent audit committee of the public company for +which she works or in some other acceptable manner, as long as she practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which she is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which she +is associated, has been inspected by the Board and that inspection did not identify any criticisms of +or potential defects in the Respondent’s or the firm’s quality control system that would indicate +that the Respondent will not receive appropriate supervision; +(c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges her responsibility, as long as Respondent +appears or practices before the Commission as an independent accountant, to comply with all +3 + +requirements of the Commission and the Board, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that her state CPA license is current +and she has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependant on reinstatement by the Commission, +the Commission will consider an application on its other merits. The Commission’s review +may include consideration of, in addition to the matters referenced above, any other matters +relating to Respondent’s character, integrity, professional conduct, or qualifications to appear +or practice before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2893.pdf b/raw/aaer/2008/AAER-2893.pdf new file mode 100644 index 0000000000000000000000000000000000000000..23d1a5dd853910f06142b6a7472defb5d38488b3 Binary files /dev/null and b/raw/aaer/2008/AAER-2893.pdf differ diff --git a/raw/aaer/2008/AAER-2893.txt b/raw/aaer/2008/AAER-2893.txt new file mode 100644 index 0000000000000000000000000000000000000000..d01c38957cc4abcab43d229a05e357b5bc13364b --- /dev/null +++ b/raw/aaer/2008/AAER-2893.txt @@ -0,0 +1,92 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58693 / September 30, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2893 / September 30, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13269 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE + TIMOTHY S. WEBSTER (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 Timothy +S. Webster (“Respondent” or “Webster”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules +of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (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. Webster, age 46, is a resident of Mission Hills, Kansas. Webster served as +president and chief executive officer of American Italian Pasta Company (“AIPC”) from May 1992 +until December 2005, when he left the company. Webster also served as chief financial officer and +chief operating officer of AIPC between 1989 and 1992. Webster was licensed as a Certified +Public Accountant in Missouri, but his license lapsed in 1991. +2. At all relevant times, AIPC was a Delaware corporation with its principal +place of business in Kansas City, Missouri. AIPC is a producer and marketer of dry pasta. At all +relevant times, AIPC’s common stock was registered pursuant to Section 12(b) of the Securities +Exchange Act of 1934 (“Exchange Act”). The company filed annual, quarterly, and current reports +with the Commission on Forms 10-K, 10-Q, and 8-K, respectively. AIPC stock was traded on the +New York Stock Exchange (“NYSE”) until December 20, 2006, when the NYSE suspended +trading based on AIPC’s failure to keep current its Commission filings. The NYSE filed a Form 25 +on April 23, 2007 and, as a result, AIPC’s common stock was deregistered from Section 12(b) of +the Exchange Act effective April 23, 2007. +3. On September 15, 2008, the Commission filed a complaint against Webster +in United States District Court for the Western District of Missouri (Civil Action No. 4:08-CV- +00674). On September 23, 2008, the court entered an order permanently enjoining Webster, by +consent, from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b- +5, 13a-14, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Sections +13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. +The court further ordered that Webster pay $751,978 in disgorgement; $32,610 in prejudgment +interest; and a $250,000 civil money penalty. The court further ordered that Webster be 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. +2 + +4. The Commission’s complaint alleged, among other things, that Webster and +others at AIPC engaged in a fraudulent scheme that hid from the investing public the true financial +state of the company by filing materially false and misleading statements in the company’s annual +reports on Forms 10-K, quarterly reports on Forms 10-Q, and current reports on Forms 8-K, for +AIPC’s fiscal years 2002, 2003, and 2004. The complaint alleged that to meet aggressive external +targets, Webster and others engaged in numerous accounting practices that departed from generally +accepted accounting principles (“GAAP”), including, among other things, capitalizing improperly +millions of dollars of normal operating costs; understating improperly millions of dollars of trade +promotion expenses; overstating improperly by millions of dollars the company’s spare parts +inventory; recognizing improperly millions of dollars of current period revenue on sales of +products that were not shipped until after the end of the current periods; structuring round-trip cash +transactions; and eliminating improperly the company’s vacation and paid time off liability. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Webster’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Webster is +suspended from appearing or practicing before the Commission as an accountant. + By the Commission. + F lorence E. Harmon + A cting Secretary +3 diff --git a/raw/aaer/2008/AAER-2894.txt b/raw/aaer/2008/AAER-2894.txt new file mode 100644 index 0000000000000000000000000000000000000000..a06894cd4bc405f3220fa697e2af2b6d63de6bba --- /dev/null +++ b/raw/aaer/2008/AAER-2894.txt @@ -0,0 +1,1394 @@ + + + + + + + + + + + + + + + + SEC.gov | Anthony J. Cuti and William J. 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Cuti and William J. Tennant + + + + + + + + + + + + Anthony J. Cuti and William J. Tennant + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20778 / October 9, 2008 + + Accounting and Auditing Release No. 2894 / October 9, 2008 + + SEC v. Anthony J. Cuti and William J. Tennant , 08 Civ. 8648 (JGK) S.D.N.Y filed October 9, 2008 + + SEC Charges Former Duane Reade Executives with Accounting Fraud + + The Securities and Exchange Commission today charged two former senior executives of Duane Reade with fraud for orchestrating multi-million dollar accounting schemes that caused the Duane Reade to inflate its reported earnings and overstate its net income. Duane Reade is the operator of the largest chain of drug stores in the New York Metropolitan area. + + The SEC's complaint, filed in federal court in Manhattan, alleges that the former Duane Reade executives entered into a series of fraudulent transactions designed to boost reported income, and enable the company to meet quarterly and annual earnings guidance. According to the SEC's complaint, the fraudulent transactions were designed by the company's former CEO, Anthony J. Cuti, and primarily implemented by its former Real Estate Administrator and one-time CFO, William J. Tennant. + + The SEC's complaint alleges that the earnings inflation scheme lasted from 2000 through 2004, and involved two kinds of transactions: The "Real Estate Concession" transactions and the "Credit and Rebilling" transactions. The Real Estate Concession transactions involved payments to Duane Reade for its agreement to relinquish purportedly valuable leases or other real-estate rights. The complaint alleges that these agreements were in reality a sham and that most transactions involved round-trip payments in which Cuti persuaded counter-parties to make payments to Duane Reade in exchange for his promise to repay them through other fictitious transactions. The complaint further alleges that Tennant prepared the false documentation used to implement the scheme. + + In the Credit and Rebilling scheme, Cuti allegedly engineered different round-trip transactions that he designed to produce additional current income. The complaint charges that, at Cuti's direction, Duane Reade vendors issued bogus credits to the company that were booked as a reduction to current expenses, resulting in a corresponding increase to current income. However, Cuti also directed these vendors to rebill Duane Reade for the credited amount in later periods under fictitious invoices. Accordingly, when Duane Reade later paid the vendors for phantom services, the fictitious credits were reversed. To disguise the connection between the invoice payments and the original credits, and to ensure that the payments could be capitalized and amortized, rather than charged against current income, Cuti allegedly had the vendors submit the fictitious invoices for work performed on a construction or maintenance project different from that on which the vendor had issued the credits. + + According to the complaint, these schemes together caused Duane Reade to overstate its pre-tax income by a total of approximately $17.5 million. To assure the success of the Real Estate Concession scheme in inflating reported income, Cuti and Tennant are alleged to have intentionally deceived the company's CFO and other members of management. Cuti also allegedly made false statements and omitted material facts in conversations with and written representations to the company's independent auditors as to the true nature of the Real Estate Concession and Credit and Rebilling transactions. + + The SEC seeks a final judgment permanently enjoining both defendants from committing future violations of Section 17(a) of the Securities Act of 1933, and from committing future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A), and 15(d) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, 13a-13, 15d-1, 15d-11, and 15d-13; and Cuti from committing future violations of Rules 13a-14 and 15d-14 of the Exchange Act, and from aiding and abetting future violations of Section 13(b)(2)(B); and ordering defendants to pay civil penalties and disgorgement of any ill-gotten gains with prejudgment interest. The Commission also seeks a judgment barring Cuti and Tennant from serving as officers or directors of any public company. + + The SEC acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigations in this matter. + + SEC Complaint in this matter + + + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Gardner, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504496","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. The link you have selected is located on another server. Please click on the OK button below to proceed to the selected site. The SEC does not endorse this web site, its sponsor, or any of the policies, activities, products, or services offered on the site or by any advertiser on the site.","extHideIcons":false,"mailtoClass":"0","telClass":"","mailtoLabel":"(link sends email)","telLabel":"(link is a phone number)","extUseFontAwesome":false,"extIconPlacement":"append","extPreventOrphan":false,"extFaLinkClasses":"fa fa-external-link","extFaMailtoClasses":"fa fa-envelope-o","extAdditionalLinkClasses":"","extAdditionalMailtoClasses":"","extAdditionalTelClasses":"","extFaTelClasses":"fa fa-phone","allowedDomains":null,"extExcludeNoreferrer":""}},"user":{"uid":0,"permissionsHash":"e506dfd1572f94bd1f339f1a7483bfbded31d4a9d2bdfdca3fdbc235153380ee"}} + + + + + + + + + + + + + + Skip to search field + + + + Skip to main content + + + + + + + + + + + + + + + + + + An official website of the United States government + Here’s how you know + + + Here’s how you know + + + + + + + + + + + Official websites use .gov + + + A .gov website belongs to an official government organization in the United States. + + + + + + + + + Secure .gov websites use HTTPS + + + A lock + ( Lock A locked padlock ) + or https:// means you’ve safely connected to the .gov website. 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Gardner, et al. + + + + + + + + + + + + Stephen P. Gardner, et al. + + + + + + + + + + + + + + + + + + + U.S. Securities and Exchange Commission + + Litigation Release No. 20788 / October 22, 2008 + + Accounting and Auditing Enforcement Release No. 2895 / October 22, 2008 + + Securities and Exchange Commission v. Stephen P. Gardner, et al., Civil Action No. 04 CV 2002 JAH (RBB) (S.D. Cal.) (October 5, 2004) + + FORMER PEREGRINE SYSTEMS PRESIDENT SETTLES SEC CHARGES FOR HIS ROLE IN CORPORATE ACCOUNTING FRAUD + + The Securities and Exchange Commission ("Commission") announced today that on October 20, 2008, United States District Judge John A. Houston approved the Commission's settlement with former Peregrine Systems, Inc. ("Peregrine") president Gary L. Lenz. The Commission's action, filed in 2004, charged Lenz with, among other things, securities fraud, in connection with his participation in a revenue inflation scheme with other senior officers of Peregrine, a San Diego software company that has since been acquired by Hewlett-Packard Company. To settle the Commission's case, Lenz agreed to pay a $110,000 civil penalty and to be barred from serving as an officer or director of any public company. + + The Commission's complaint includes the following allegations: Lenz joined Peregrine in 2000, and later that year became company president. To meet Peregrine's revenue forecasts, senior company officers exploited relationships with third parties by entering into sham reseller agreements with them. Lenz participated in some of these fraudulent agreements, including one for approximately $500,000 and another for approximately $1 million. Lenz knew, or was reckless in not knowing, that Peregrine was improperly recording revenue on the agreements. Lenz also helped arrange for an agreement to be backdated so that Peregrine could improperly record approximately $3 million in revenue in the wrong quarter. After engaging in these activities, in April 2001 Lenz signed a letter that misrepresented to Peregrine's independent auditors that the company's financial statements were in accordance with generally accepted accounting principles. + + In January 2008, Lenz entered a guilty plea in a related criminal case in the Southern District of California. He pleaded guilty to one count of making materially false statements to the FBI, in violation of 18 U.S.C. §1001. Lenz was sentenced to three years probation, a $5,000 fine and 200 hours of community service. + + In addition to the financial penalty and officer and director bar, without admitting or denying the Commission's allegations, Lenz agreed to be enjoined from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1 and 13a-13. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of California and the FBI. + + Additional materials: Litigation Release Nos. 18919 and 20449 . + +   + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Verheecke + + + + + + + + + + + + Blue Coat Systems, Inc. and Robert P. Verheecke + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20801 / November 12, 2008 + + Accounting and Auditing Release No. 2897 / November 12, 2008 + + Securities and Exchange Commission v. Blue Coat Systems, Inc. and Robert P. Verheecke , Case No. CV 08 5127 JF (RS) (N.D. Cal.) + + BLUE COAT SYSTEMS AND FORMER CFO SETTLE CHARGES OF STOCK OPTION BACKDATING + + The Securities and Exchange Commission today charged Sunnyvale, California, network security company Blue Coat Systems, Inc. and its former chief financial officer Robert P. Verheecke, alleging that they backdated stock option grants to executives and employees and reported false financial information to shareholders. + + The SEC's complaint alleges that from approximately 2000 through 2005, Blue Coat concealed nearly $50 million in compensation expenses associated with valuable "in-the-money" options by backdating paperwork to make it appear as if the options had been granted on earlier dates. Blue Coat and Verheecke have agreed to settle the SEC's charges without admitting or denying the allegations. Verheecke will pay more than $185,000 in disgorgement, penalties, and prejudgment interest. + + The SEC's complaint, filed in federal court in San Jose, alleges that Blue Coat regularly used hindsight to select favorable exercise prices for employee and officer stock option grants without accurately reporting the grants to investors. Blue Coat was required to record an expense for options issued at below-market prices ("in-the-money" options). In order to avoid these expenses, Blue Coat allegedly identified dates on which its stock was trading at historically low prices, then created documents making it look like options had been granted on those earlier dates. In March 2007, after an internal investigation, Blue Coat corrected its financial statements for fiscal years 2000 through 2005, recording nearly $50 million in additional expenses for misdated options. The majority of the expenses related to grants prior to May 2001. + + Verheecke served as CFO from May 2001 through May 2005. According to the SEC's complaint, at various times Verheecke used hindsight to pick stock option grant dates, prepared or distributed misleading option paperwork, and approved Blue Coat's false and misleading financial statements and SEC filings. The SEC alleges that Verheecke personally exercised backdated options for $30,000 in excess profits. + + Without admitting or denying the SEC's allegations, Verheecke consented to a permanent injunction against violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder. Verheecke also consented to disgorgement and prejudgment interest of $35,946, a financial penalty of $150,000, and five-year bars from serving as an officer or director of a public company and appearing or practicing as an accountant before the SEC. + + Blue Coat consented to be enjoined from violating Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act, and Rules 10b-5, 12b 20, 13a-1, 13a-11, 13a-13, and 14a-9. The Commission took into account the cooperation that Blue Coat provided Commission staff during its investigation. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Quinlan et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504586","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Quinlan et al. + + + + + + + + + + + + Patrick D. Quinlan et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20806 / November 13, 2008 + + Accounting and Auditing Release No. 2899 / November 13, 2008 + + Securities and Exchange Commission v. Patrick D. Quinlan et al. , Case No. 02-60082 (E.D. Mich.) + + FEDERAL COURT GRANTS SUMMARY JUDGMENT AND ENTERS PERMANENT INJUNCTION AND OFFICER AND DIRECTOR BAR AGAINST FORMER MCA CEO + + The Securities and Exchange Commission (Commission) announced that on November 7, 2008, the Honorable Judge Marianne O. Battanni of the United States District Court for the Eastern District of Michigan granted the Commission's motion for summary judgment against Patrick D. Quinlan, Sr., the former CEO of MCA Financial Corporation (MCA), for his involvement in a fraudulent scheme perpetrated by MCA. Quinlan was the last remaining defendant in a civil injunctive action filed by the Commission on April 23, 2002. The Complaint in that case alleged that Quinlan and six other defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws, among other things, as a result of their involvement in a financial and offering fraud by MCA. The Complaint further alleged that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials and that as a result, investors lost at least $49 million. The Complaint also alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission and that as a result, investors in the debentures lost all $19 million invested. + + In its 25-page summary judgment opinion, the Court found that Quinlan, as a result of the collateral estoppel effect of his guilty pleas in criminal proceedings, was primarily liable for MCA's misrepresentations of material facts to investors in connection with the offer and sale of MCA pass-through certificates and debentures from 1994 through 1999. The Court further found that Quinlan was liable for, among other things: (1) aiding and abetting MCA's filing of materially false annual and quarterly reports from 1996 through 1998; and (2) making false and misleading statements to MCA's auditors in 1997 and 1998. The Court permanently enjoined Quinlan from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 15(d) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 thereunder. The Court also imposed an officer and director bar against Quinlan. + + Previously, in February 2004, Quinlan pled guilty to one count of conspiracy to commit mail, wire and bank fraud and to make false statements in a matter within the jurisdiction of a federal agency and one count of making false statements to the Commission for his involvement in MCA's fraudulent scheme. In July 2005, Quinlan was sentenced to ten years in prison and ordered to pay $256.6 million in restitution based on his guilty pleas. U.S. v. Quinlan et al. , Case No. 01-80514 (E.D. Mich.). + + For additional information, see Litigation Release Nos. 17484 (April 23, 2002), 18131 (May 12, 2003), 18195 (June 19, 2003), 18512 (December 18, 2003) and 19323 (August 3, 2005). + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Hilger + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504596","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Alan C. Goldsworthy and Walter T. Hilger + + + + + + + + + + + + Alan C. Goldsworthy and Walter T. Hilger + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20808 / November 14, 2008 + + Accounting and Auditing Enforcement Release No. 2900 / November 14, 2008 + + Securities and Exchange Commission v. Alan C. Goldsworthy and Walter T. Hilger , Civil Action No. 06-CV-10012-JGD (D. Mass.) + + FINAL JUDGMENT ENTERED AGAINST FORMER CFO OF MASSACHUSETTS COMPANY + + The Securities and Exchange Commission announced today that on November 13, 2008, the U.S. District Court for the District of Massachusetts entered judgment against Walter T. Hilger, former Chief Financial Officer of Applix, Inc., a Westborough, Massachusetts software company. The court found Hilger liable for violating section 17(a)(3) of the Securities Act of 1933, which prohibits fraudulent practices, and for falsifying Applix's books and records in violation of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934. The court adjudged Hilger and his co-defendant Alan C. Goldsworthy, Applix's former Chief Executive Officer, not liable on the other claims asserted against them by the Commission. The court's judgment was based in part on the findings made by a jury after a four-week trial before Magistrate Judge Judith G. Dein which ended on February 15, 2008. For his violations, Hilger was ordered to pay a civil money penalty of $5000. + + The Commission's complaint, filed on January 4, 2006, had alleged that Goldsworthy, Hilger, and Mark Sullivan, another Applix employee, had inflated revenue at the company in 2001-2002. The court had entered a final judgment by consent against Sullivan on January 9, 2008, enjoining him from future violations of the securities laws and ordering him to pay a $25,000 civil money penalty. Separate settled administrative proceedings concerning the same conduct had been brought by the Commission against Applix on January 4, 2006. + + For further information see Litigation Release No. 19521 (January 4, 2006); Securities Act Release No. 8651 and Exchange Act Release No. 53049 (January 4, 2006); Exchange Act Release No. 57165 and Accounting and Auditing Enforcement Release No. 2768 (January 17, 2008); and Litigation Release No. 20473 and Accounting and Auditing Enforcement Release No. 2793 (March 3, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2902.txt b/raw/aaer/2008/AAER-2902.txt new file mode 100644 index 0000000000000000000000000000000000000000..e0795b1d1ded10051ff86fb26d0a08e79e3cf828 --- /dev/null +++ b/raw/aaer/2008/AAER-2902.txt @@ -0,0 +1,1372 @@ + + + + + + + + + + + + + + + + SEC.gov | Chancellor Corporation, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504616","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. The link you have selected is located on another server. Please click on the OK button below to proceed to the selected site. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Chancellor Corporation, et al. + + + + + + + + + + + + Chancellor Corporation, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20812 / November 18, 2008 + + Accounting and Auditing Enforcement Release No. 2902 / November 18, 2008 + + Securities and Exchange Commission v. Chancellor Corporation, et al. (United States Court of Appeals (1st Cir.) No. 08-1347) + + First Circuit Court of Appeals Dismisses Appeal of Brian M. Adley, Former Chairman and CEO of Boston-Based Chancellor Corporation, in Securities Fraud Case + + The Securities and Exchange Commission announced that on November 3, 2008, the United States Court of Appeals for the First Circuit dismissed the appeal of defendant Brian M. Adley of a judgment that was entered against him in January 2008 in a securities fraud action. Adley is the former Chairman and Chief Executive Officer of Chancellor Corporation, a now defunct Boston, Massachusetts transportation equipment-leasing company. + + The Commission originally filed an action against Adley and ten other defendants on April 24, 2003, in the United States District Court for the District of Massachusetts. The Commission's complaint alleged that Adley caused Chancellor to file false financial statements in 1999 and 2000 by directing the wholesale fabrication of corporate documents, by instructing that the fabricated documents be given to the company's auditors, and by coordinating the filing of false financial statements with the Commission. By the fall of 2007, all defendants other than Adley had settled the case with the Commission, and the Commission went to trial against Adley in November 2007. After a three week trial, on November 26, 2007, a Massachusetts federal court jury found Adley liable for violating the antifraud and record-keeping provisions of the federal securities laws, for making false statements to Chancellor's accountants, and for aiding and abetting Chancellor's reporting and recordkeeping provisions of the federal securities laws. SEC v. Chancellor Corporation, et al. , (United States District Court for the District of Massachusetts, C.A. No. 03-10762-PBS). + + On January 3, 2008, the District Court entered a Final Judgment against Brian Adley for his role in the multi-faceted financial fraud. The District Court ordered that Adley be enjoined from future violations of the federal securities laws, that he pay $930,000 in disgorgement and that Adley be barred from acting as an officer or director of a public company for twenty-years. Thereafter, on February 27, 2008, Adley filed a Notice of Appeal. The First Circuit Court of Appeals notified Adley on October 3, 2008, that he was in default for failure to file an opening brief in his appeal, and warned him to file the brief by October 20 or face dismissal. Adley failed to file the required brief. The First Circuit dismissed his appeal on November 3. + + The Commission had previously settled with ten other defendants, including: Chancellor Corporation; the company's former President and Chief Operating Officer; the company's former acting Chief Financial Officer; the company's former treasurer; two former Chancellor directors and audit committee members; Chancellor's outside auditing firm and three members of its audit team. + + For further information, see Litigation Release Nos. 18104 (April 24, 2003), 19177 (April 11, 2005), 20177 (July 2, 2007), 20370 (November 26, 2007) and 20426 (January 10, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2903.txt b/raw/aaer/2008/AAER-2903.txt new file mode 100644 index 0000000000000000000000000000000000000000..4b1a6e3be4642c0b44683368aeb45022415650fb --- /dev/null +++ b/raw/aaer/2008/AAER-2903.txt @@ -0,0 +1,117 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59007 / November 24, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2903 / November 24, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13297 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +ANNIE ASTOR- : 102(e) OF THE COMMISSION’S RULES OF +CARBONELL (CPA) : PRACTICE, MAKING FINDINGS, AND +: IMPOSING REMEDIAL SANCTIONS +Respondent. : +: +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Annie +Astor-Carbonell (“Astor”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Astor has submitted an Offer of +Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose +of these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over her and the subject matter of these proceedings, and the +findings contained in Section III.3 below, which are admitted, Astor 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. Astor, age 50, is and has been a certified public accountant licensed to practice in the +Commonwealth of Puerto Rico. She served as a Member of the Board of Directors, Senior +Executive Vice President and Chief Financial Officer of First BanCorp during the relevant period. +In September 2005, Astor resigned from her management role and as a member of the Board. She +retired from First BanCorp effective October 31, 2005. +2. First BanCorp is one of the largest financial holding companies in Puerto Rico. First +BanCorp provides commercial banking services through a network of offices in Puerto Rico and the +U.S. Virgin Islands. First BanCorp’s common stock is registered with the Commission pursuant to +Section 12(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and is listed on the New +York Stock Exchange. +3. On October 17, 2008, a final judgment was entered against Astor, permanently +enjoining her from future violations of Section 10(b) of the Exchange Act and Rules 10b-5, 13b2-1 +and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the +Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, in the civil action entitled +Securities and Exchange Commission v. Angel Alvarez-Perez and Annie Astor-Carbonell, Civil +Action Number 08-CV-08009 in the United States District Court for the Southern District of New +York. Astor was ordered to pay a $75,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that First BanCorp +senior management, including Astor, concealed the true nature of over $4 billion worth of +mortgage-related transactions from the company’s independent auditor and the investing public +between 2000 and 2005. First BanCorp, which purportedly purchased the mortgages, profited +from these transactions by earning over $100 million in net interest income with minimal risk. The +contra-party to the transactions, Doral Financial Corporation, which purportedly sold the +mortgages to First BanCorp, improperly recognized income on these transactions during the +relevant period. First BanCorp senior management, including Astor, also created and backdated +2 + +certain documents and affirmatively misrepresented the terms of certain mortgage-related +transactions to First BanCorp’s independent auditor to avoid a restatement in November 2004. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Astor’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Astor is suspended from appearing or practicing before the Commission as an +accountant. +B. After five (5) years from the date of this order, Astor may request that the +Commission consider her reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Astor’s work in her practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which she works or in some other acceptable manner, as long as she practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Astor, or the public accounting firm with which she is associated, +is registered with the Public Company Accounting Oversight Board (“Board”) in accordance +with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Astor, or the registered public accounting firm with which she is +associated, has been inspected by the Board and that inspection did not identify any criticisms of +or potential defects in the respondent’s or the firm’s quality control system that would indicate +that she will not receive appropriate supervision; +(c) Astor 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) Astor acknowledges her responsibility, as long as she appears or +practices before the Commission as an independent accountant, to comply with all requirements +of the Commission and the Board, including, but not limited to, all requirements relating to +registration, inspections, concurring partner reviews and quality control standards. +3 + +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that her CPA license is current +and she has resolved all other disciplinary issues with the applicable boards of +accountancy. 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 Astor’s character, integrity, professional conduct, or qualifications to appear or +practice before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2908.txt b/raw/aaer/2008/AAER-2908.txt new file mode 100644 index 0000000000000000000000000000000000000000..8b00c76960aeae0b7b39095149e1414a9d938d97 --- /dev/null +++ b/raw/aaer/2008/AAER-2908.txt @@ -0,0 +1,549 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59083 / December 11, 2008 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2908 / December 11, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-13306 + + +In the Matter of + + ORDER INSTITUTING CEASE- +AND-DESIST PROCEEDINGS + Zurich Financial Services PURSUANT TO SECTION 21C + OF THE SECURITIES +EXCHANGE ACT OF 1934, +MAKING FINDINGS, AND +IMPOSING A CEASE-AND- +DESIST ORDER + +Respondent. + + +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 Zurich Financial +Services (“Zurich” 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 +Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist +Order, as set forth below. + + + + + + +III. + On the basis of this Order and Respondent’s Offer, the Commission finds that: 1 +SUMMARY +1. Zurich caused a fraud by Converium Holding AG (“Converium”) +involving the use of finite reinsurance transactions to inflate improperly Converium’s +financial performance. Beginning in 1999, the management of Zurich’s reinsurance +group, which operated under the name Zurich Re, developed three reinsurance +transactions for the purpose of obtaining the financial benefits of reinsurance accounting. +However, in order for a company to obtain the benefits of reinsurance accounting, the +reinsurance transaction must transfer risk. Here, Zurich Re management designed the +transactions to make them appear to transfer risk to third-party reinsurers, when, in fact, +no risk was transferred outside of Zurich-owned entities. For two of the transactions at +issue, Zurich Re ceded risk to third-party reinsurers, but took it back through reinsurance +agreements - known as retrocessions - with another Zurich entity. For the third +transaction, Zurich Re ceded the risk to a third-party reinsurer but simultaneously entered +into an undisclosed side agreement with the reinsurer pursuant to which Zurich Re agreed +to hold the reinsurer harmless for any losses the reinsurer realized under the reinsurance +contracts. Because the ultimate risk under the reinsurance contracts remained with +Zurich-owned entities, these transactions should not have been accounted for as +reinsurance. + +2. In March 2001, Zurich announced its intent to spin off its assumed +reinsurance business in an initial public offering. Zurich then created and capitalized +Converium, which assumed the rights and obligations of Zurich’s assumed reinsurance +business. On December 11, 2001, Zurich spun off Converium in an IPO. At the +conclusion of the IPO, the members of Zurich Re management responsible for the three +reinsurance transactions described herein ceased to be affiliated with Zurich and +continued as officers of Converium. As a result of the improper accounting treatment +these reinsurance transactions received, the historical financial statements included in +Converium’s IPO documents, including the Form F-1 it filed with the Commission, were +materially misleading. Among other things, Converium understated its reported loss +before taxes by approximately $100 million (67%) in 2000 and by approximately $3 +million (1%) in 2001. In addition, for certain periods, the transactions had the effect of +artificially decreasing Converium’s reported loss ratios for certain reporting segments - +the ratio between losses paid by an insurer and premiums earned that is frequently cited +by analysts as a key performance metric for insurance companies. + +3. Converium’s misstatements relate to facts that were material to investors +who purchased shares in the IPO. Through the IPO, which was the largest reinsurance + +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 +IPO in history, Zurich raised significantly more than it would have raised had Zurich and +Converium not improperly inflated Converium’s financial performance. + +4. As a result of the foregoing conduct, Converium violated Section 10(b) of +the Exchange Act and Rule l0b-5 thereunder, and Zurich caused Converium’s violation +of Section 10(b) and Rule l0b-5. + +RESPONDENT +5. Zurich is a corporation organized under the laws of Switzerland with its +principal place of business in Zurich, Switzerland. Historically, Zurich operated its +reinsurance business under the brand name Zurich Re, which operated as a separate +division within Zurich Insurance Company (“ZIC”), a wholly-owned subsidiary of +Zurich, and through its North American subsidiary, Zurich Reinsurance (North America) +Inc. ("Zurich Re North America"). Prior to Converium’s IPO, Zurich restructured its +reinsurance operations and transferred substantially all of the reinsurance business +operated under Zurich Re to Converium. In December 2001 and January 2002, pursuant +to the Registration Statement and Prospectus, Zurich sold 40 million shares of Converium +in the form of shares and American Depository Shares (“ADSs”), representing its entire +stake in Converium, for proceeds of approximately $1.9 billion. Zurich’s common stock +trades on the SWX Swiss Exchange under the symbol ZURN and its ADSs trade on the +Over-the-Counter Bulletin Board (OTCBB) and on the Pink Sheets under the symbol +ZFSVY. Each Zurich ADS equals one-tenth of one share of Zurich common stock. + +OTHER RELEVANT ENTITIES +6. Converium, now known as SCOR Holding (Switzerland) Ltd., is a +corporation organized under the laws of Switzerland. Zurich formed Converium in 2001 +by transferring the rights and liabilities of the reinsurance businesses that made up +Zurich’s assumed reinsurance business, which operated under the name Zurich Re. +Converium began operations under the Converium brand name on or around October 1, +2001. From that time, until December 11, 2001, Converium operated as a wholly owned +subsidiary of Zurich. Between December 11, 2001 and January 7, 2008, Converium’s +common stock and ADSs were registered with the Commission pursuant to Section 12(b) +of the Exchange Act. In August 2007, SCOR SE, a French reinsurer acquired +Converium. + +7. Inter-Ocean Reinsurance Company, Ltd. (“Inter-Ocean”) was, at all +times relevant to this Order, a Bermuda corporation with its principal corporate offices in +Bermuda, and a wholly-owned subsidiary of Inter-Ocean Holdings, Inc., which was +formed in 1990 as a joint venture between ten reinsurers. In 1998, Zurich acquired a +9.9% interest in Inter-Ocean effective at the end of that year. Prior to Converium’s IPO, +Zurich transferred its 9.9% interest in Inter-Ocean to Converium. + +3 + +Reinsurance Accounting Principles +8. In basic terms, reinsurance is insurance for insurers. Reinsurance is the +transfer of insurance risk by the primary insurer to a second insurance carrier, called the +reinsurer, in exchange for a payment or premium. + +9. Whether a contract is accounted for as reinsurance depends on whether the +contract indemnifies the ceding company - here Zurich and Converium - from loss or +liability. Such indemnification is known as risk transfer. Risk is transferred when (1) the +reinsurer assumes significant insurance risk and (2) it is reasonably possible that the +reinsurer will realize a significant loss in the transaction. A risk transfer analysis for a +contract emphasizes substance over form, and Generally Accepted Accounting Principles +(“GAAP”) require “an evaluation of all contractual features that…limit the amount of +insurance risk to which the reinsurer is subject…”2 Accordingly, under GAAP, “if +agreements with the reinsurer…in the aggregate, do not transfer risk, the individual +contracts that make up those agreements also would not be considered to transfer risk, +regardless of how they are structured.”3 + +10. Where there is insufficient risk transfer, a transaction may not be treated +as reinsurance under GAAP, and must be accounted for using the deposit method, which +lacks the potential accounting benefits of reinsurance accounting. Under reinsurance +accounting, when losses on the ceded business are incurred, the ceding insurer records an +offset to the increase in its gross loss reserves in an amount equal to the reinsurance it +expects to recover from the reinsurer, thus increasing its net income by that amount. +Deposit accounting has no comparable income statement benefit. + +11. From 1999 through 2001, management of Zurich Re designed three +reinsurance transactions that created the appearance of risk transfer in order to benefit +from reinsurance accounting. These three transactions affected the financial statements +included in Converium’s IPO prospectus. In two of the three transactions, Zurich Re +purchased reinsurance from Inter-Ocean, which, in turn, ceded these liabilities to a Zurich +entity (the “Inter-Ocean transactions”), in one transaction directly and in the other +transaction indirectly through a third reinsurer. Zurich’s Re's use of Inter-Ocean as an +intermediary in the transaction helped obscure the transactions’ circular structure and the +fact that Zurich Re had merely moved the risk from one Zurich Re entity to another. In +the third transaction, Zurich Re entered into a reinsurance transaction for which the risk +transfer was negated by an undisclosed and purportedly unrelated side agreement that +protected the reinsurer against losses suffered under the reinsurance contract. Zurich Re +improperly accounted for these transactions using reinsurance accounting. + +2 FASB, Statement of Financial Accounting Standards No. 113, Accounting and Reporting for Reinsurance +of Short-Duration and Long-Duration Contracts (December 1992), para. 8. +3 FASB, Emerging Issues Task Force Topic D-34, Accounting for Reinsurance: Questions and Answers +about FASB Statement No. 113 (July 22, 1993), Question 13. + +4 + +The Circular Inter-Ocean Transactions +The Medical Defence Union Transactions +12. In 2000, Zurich Re sought reinsurance for medical malpractice coverage it +provided to British doctors who were members of the Medical Defence Union (“MDU”). +In an April 25, 2000 e-mail concerning expected losses related to the MDU contract, the +Chief Executive Officer of certain Zurich Re entities and later Converium (the “CEO”) +informed Zurich Re’s (and later Converium’s) Chief Underwriting Officer (the “CUO”) +that “we need to begin working on the actual placement of the [MDU] stop loss to relieve +the GAAP hit” for Zurich. Internally, Zurich Re personnel used the term “GAAP hit” to +mean the expense and increased reserve requirements associated with the medical +defense coverage. The expense would decrease or “hit” reported income. The CEO, who +was also a senior executive of Zurich, warned that, in obtaining the reinsurance, “we need +to be conscious of the issue of circularity.” + +13. Between April and December 2000, Zurich Re management attempted to +negotiate reinsurance contracts for its MDU business that contained genuine risk transfer. +However, by December 2, 2000, they had not found any reinsurer willing to take on such +a contract. In December 2000, the CUO emailed the CEO and suggested that Zurich Re +utilize Inter-Ocean or a similar non-controlled foreign corporation. The CEO responded +“we need to get something in the books now! We close our books this week.” + +14. Soon thereafter Zurich Re entered into the following agreements: ZIC UK +entered into a reinsurance agreement with Zurich Insurance Bermuda (“ZIB”) and ceded +80% of the MDU claims made on business written on or after July 1, 2000. At the same +time, ZIB entered into a reinsurance agreement with Inter-Ocean to cover a portion of +ZIB’s MDU liabilities for the 2000 policy year. This agreement provided for Inter-Ocean +to cover ultimate net losses in excess of 85% of gross premiums written for the 2000 +policy year. Inter-Ocean then ceded all the liabilities it had assumed under the ZIB/Inter- +Ocean agreement to an unaffiliated reinsurer (Company A). Company A, in turn, ceded +all the liabilities to a Zurich affiliate, ZIC Bermuda. + +ZIC +UK +ZIB + +IO + +Company +A +ZIC +Bermuda +MDU + + + + + + + + +15. Although Zurich Re accounted for the transactions with Inter-Ocean and +Company A as reinsurance, in reality, Zurich Re had re-circulated the risk from one +Zurich entity to another, while interposing intermediaries (Inter-Ocean and Company A) + +5 +that obscured the transaction’s circular structure. Because this transaction was circular, +there was no risk transfer and Zurich Re and later Converium should not have accounted +for the contract as reinsurance. As a result, and as reported in Converium’s December +2001 Form F1, Converium understated its pre-tax losses for the year ended December 31, +2000 by $1.36 million. + +16. Zurich Re and Company A renewed the ZIB/Inter-Ocean agreement in +2001 to include MDU business written from January 1, 2001 through March 31, 2002. +At the time the parties negotiated the agreement, Zurich had already announced its +intention to spin-off its reinsurance operations. Due to the increased scrutiny of Zurich +Re’s contracts occasioned by the due diligence for the IPO, the CUO requested that the +2001 MDU reinsurance contracts not include specific cross references that might have +revealed that the reinsurance structure was circular. The contracts ultimately executed by +the parties did not specifically reference the other related agreements. As a result of the +MDU transaction, in its December 2001 Form F-1, Converium understated its pre-tax +losses for the six months ended June 30, 2001 by $5.02 million. + +The GAUM Transaction +17. Just as it had done with MDU, in 2001, management of Zurich Re +negotiated a circular reinsurance transaction aimed at managing losses related to +reinsurance coverage it provided to Global Aerospace Underwriting Managers Ltd. +(“GAUM”), an aerospace underwriting pool. + +18. In July 2001, Zurich Re management estimated that losses under Zurich +Re's reinsurance agreement with GAUM would negatively affect Zurich Re’s earnings +for the year ended December 31, 2001. In a July 12, 2001 memo to the CEO and other +senior executives, the CUO suggested the “possibility to buy a GAAP cover” for the +GAUM business. In an August 31, 2001 email to the CEO and others, the CUO provided +the following description of the reinsurance structure, reflecting that Zurich Re +management intended it to be circular from early on: “Zurich Re retroceeds a 100% +[quota share] of its Stop Loss Reinsurance covering GAUM’s net retention for the +underwriting year 2001…to Interocean…Interocean enters into a Speed of Settlement +(SOS) excess of loss reinsurance with Zurich Insurance Bermuda…” + +19. In 2001, Zurich Re entered into the following transactions: On September +25, 2001, ZIC entered into an excess of loss reinsurance agreement with GAUM covering +GAUM’s losses for risks attaching during 2001 in excess of a certain attachment point. +On December 5, 2001, ZIC ceded 100% of its risks under the GAUM excess of loss +reinsurance agreement to Inter-Ocean, which in turn, ceded all of its liabilities to ZIB. + + ZIC IO ZIB +GAUM + + + + + + +6 + +20. Similar to the MDU transaction, Zurich Re and later Converium +improperly accounted for the GAUM contracts as reinsurance. Specifically, because +Zurich reassumed 100% of the risk from Inter-Ocean, it should not have accounted for +the contracts as reinsurance. Because Zurich Re, and later Converium, improperly +accounted for the transaction as reinsurance, in Converium’s December 2001 Form F-1, +Converium understated its pre-tax loss for the six-month period ended June 30, 2001 by +$2.44 million. + +The Z-1 Facility and Undisclosed Side Agreement +21. In addition to the circular Inter-Ocean transactions, Zurich Re +management entered into a reinsurance agreement -- known as the Z-1 Facility -- that +appeared to transfer risk, but in fact did not, due to a side agreement that left the risk with +Zurich Re. + +22. In 1999, Zurich Re established the Z-1 Facility with a Barbados insurance +company (Company B). Under the Z-1 Facility, Company B and a Cologne-based +affiliate of Company B (“Company B Cologne”) acted as reinsurers for six finite +reinsurance transactions between external cedents and Zurich Re North America, in +which Zurich Re North America had reinsured losses of unaffiliated insurers. Zurich Re +North America retroceded 100% of its obligations and premiums to Zurich Re Zurich, a +division of ZIC. Zurich Re Zurich then retroceded 100% of its obligations and premiums +to Company B Cologne, which then ceded the business to Company B. Company B, in +turn, retroceded most but not all of the risk it had assumed from Company B Cologne to a +separate Zurich subsidiary, Zurich Re Cologne, pursuant to a “speed of settlement” stop +loss agreement (“SOS”). A SOS is a type of aggregate stop loss agreement that limits the +total losses incurred by the ceding company. Under the SOS, Company B retained the +risk of up to $60 million of losses (including $10 million of losses under Endorsement 1); +Zurich Re Cologne was responsible for aggregate losses above that $60 million. +Zurich Re +Zurich +Company +B Cologne +Zurich Re, +Cologne +Company B +External +Insurers +Zurich Re +North America + +Cover B Negates Risk Transfer +23. Although Company B ceded much of the risk it assumed under the Z-1 +Facility to Zurich Re Cologne, Company B did not want to have any exposure for losses +under the Z-1 Facility. Accordingly, Company B sought a commitment from Zurich Re +management that Company B would not realize any losses under the Z-1 Facility. The + +7 +CEO assured the Company B executive responsible for the transaction that Company B +would not realize any losses under the Z-1 Facility. + +24. The Company B executive insisted on security beyond the CEO’s oral +commitment. At the CEO's instruction, a Zurich Re North America employee prepared a +separate reinsurance agreement between ZIC and Company B to serve as security for the +CEO’s promise. The agreement, which was unrelated to the Z-1 Facility on its face, was +structured as a payback mechanism and was intended to reimburse Company B for any +losses suffered under the Z-1 Facility. In internal correspondence, Zurich Re +management and later Converium referred to the agreement as “Cover B.” Cover B +provided ZIC catastrophic coverage for the years 2000 through 2002 in exchange for a +total of $39 million in non-refundable premiums to Company B. The attachment point +for coverage under Cover B was set intentionally high -- at a level that neither party +expected to be reached. So, although Company B theoretically could have suffered +losses under Cover B, the agreement was structured to allow Company B to receive a +premium with very little risk. The $39 million premium figure represented the present +value of the maximum possible loss that Company B could suffer under the Z-1 Facility +($60 million). Moreover, Cover B was drafted to give Company B the option to trigger +the parties’ obligations and, by doing so, offset losses, if any, sustained under the Z-1 +Facility. In fact, Company B referred to Cover B as the “option contract.” + +25. In the fall of 1999, prior to finalizing the terms of Cover B, the Zurich Re +North America employee who drafted the agreement told the CEO that he believed that +Cover B negated risk transfer under the Z-1 Facility. Notwithstanding this warning, the +CEO approved Cover B, and on November 18, 1999, the CEO executed the agreement. + +26. In December 2000, Cover B was renewed, with the CEO again signing the +agreement. The terms of the 2000 Cover B agreement were substantially the same as the +1999 Cover B agreement, although the premium amount was increased to $15 million per +year, for a total of $45 million. + +Unicover Losses Are Ceded to the Z-1 Facility +27. In September 2000, Zurich Re management became concerned about the +financial statement impact of Zurich Re’s exposure to losses arising out of Zurich Re’s +involvement in the failed Unicover Occupational Accident Reinsurance Pool (“Unicover +Pool”). To address these concerns, Zurich Re management approached Company B +about including Zurich’s Unicover Pool exposure under the Z-1 Facility. Specifically, +Zurich Re proposed ceding a potential exposure of $58.6 million under the Unicover +Pool, as well as assorted other potential exposures, in exchange for a $15 million +premium. + +28. During a December 20, 2000 dinner with the CEO in Zurich, the Company +B executive who negotiated the Z-1 Facility and Cover B agreed to adjust the Z-1 Facility +to permit Zurich Re to cede potential Unicover losses to the Z-1 Facility. The Company +B executive agreed to accept the cessions because he believed that Cover B protected + +8 +Company B from risk of loss under the Z-1 Facility. Cover B was renewed and signed on +December 20, 2000. + +29. By the time Zurich had completed the Converium IPO, significant losses +on the Unicover business had been recorded. Converium ultimately ceded those losses to +the Z-1 Facility. + +Post-IPO Conduct of Converium +30. Converium was prepared to honor Zurich Re’s prior commitment that +Company B would not suffer any losses under the Z-1 Facility, and Converium did not +want Company B to trigger Cover B. To induce Company B not to trigger Cover B, +Converium offered to enter into reinsurance agreements that would be structured in such +a way as to ensure that Company B would realize sufficient profit to offset the Z-1 +Facility losses. The Company B executive described the arrangement and reasoning in an +internal memo following a January 2003 meeting with the CEO: “Converium does not +want us to trigger the option cover (contract 5), since it would make it obvious that this +transaction was a circular transaction. Instead they have offered us [other profitable +business]…Converium and especially [the CEO] have proved to us that Converium will +hold [Company B’s parent] harmless under the [Z-1 Facility]. The option cover (contract +5) [Cover B] was always considered to be a sleep-easy cover in case Converium does not +fulfill it’s [sic] obligation they gave to [Company B] ….” + +Converium Cedes Profitable Business to Company B as Payback for Z-1 +Losses +31. Consistent with these representations, Converium used three purportedly +unrelated agreements with Company B in lieu of the option contract to offset losses ceded +to the Z-1 Facility. First, in 2003, Converium entered into a multiple year third event +industry warranty catastrophe excess of loss reinsurance contract with Company B for the +years 2003 through 2005. Converium purchased coverage for this contract from +Company B. As a result, in exchange for providing coverage for a remote layer of risk, +Converium paid Company B an $8 million premium each year. + +32. Second, in early 2000, before the IPO, Company B replaced another +Bermuda-based reinsurer as the retrocessionaire for risks related to a pre-existing +reinsurance agreement between Zurich and a third party reinsurer. According to internal +Converium and Company B documents, after the IPO, when losses under the Z-1 Facility +emerged, Converium used $2.6 million in excess fees that would have been payable to +the original retrocessionaire but that Company B received in its place to offset a portion +of the losses suffered by Company B under the Z-1 Facility. + +33. Third, in 2004, in exchange for assuming the risk in connection with a +policy for only the final month of a year-long agreement, Company B received the vast +bulk of the premiums under the contract -- $9.85 million of the $10.2 million annual +premium. + +9 + +34. In connection with the above reinsurance agreements, Converium paid a +total of $35.73 million to Company B as a means of repaying the deficit that had arisen +through losses ceded to Company B via the Z-1 Facility. + +The Net Effect of the Z-1 Transactions +35. The Z-1 transactions did not transfer insurance risk outside of entities +included in Zurich’s, and later Converium’s, consolidated financial statements and should +not have been accounted for as reinsurance. As a result, in its December 2001 Form F-1, +Converium understated its pre-tax loss for the year ended December 31, 2000 by $98.20 +million or 66.19%. + +The Converium IPO +36. On March 22, 2001, in connection with its announcement of disappointing +financial results for 2000, Zurich reported that it intended to exit the assumed reinsurance +business. In a September 6, 2001 press release, Zurich announced that its reinsurance +business would be spun off in an IPO, and that as of October 1, 2001, the business would +operate under the name Converium. + +37. The Registration Statement and Prospectus filed by Converium in +connection with the IPO, which became effective on December 11, 2001, was derived +from data from the Zurich subsidiaries combined to form Converium and failed to +disclose the impact of the circular Inter-Ocean and the Z-1 Facility transactions on +Converium’s business operations, financial results and shareholders’ equity at the time of +the IPO. + +38. Accordingly, the statements in the prospectus regarding Converium’s +financial results for 2000 and the first half of 2001 were materially false and misleading. +As a consequence of the circular Inter-Ocean transactions and the Z-1 Facility +transactions, rather than reporting a loss before taxes of $48.8 million for 2000, +Converium should have reported a loss of at least $148.4 million. Converium also +overstated its $1.09 billion in reported shareholders’ equity as of December 31, 2000 by +at least $72.3 million (approximately 6.6% of the total reported shareholders’ equity), an +amount including the effect of $100 million attributable to the Inter-Ocean and Z-1 +Facility transactions and partially offset by $27.7 million attributable to other reinsurance +transactions not addressed within this Order. + +39. Finally, because Converium’s loss ratio for its non-life reinsurance +business was directly affected by the improperly recorded reinsurance obtained through +the circular Inter- Ocean and the Z-1 Facility transactions, Converium materially +understated its reported loss ratios for its “Global Non-life” and “Converium Zurich” +segments in 2000 and 2001. Had Converium accounted for these transactions as +deposits, Converium would have reported for its “Global Non-life” segment a 92.6% loss +ratio (a 6% increase from the 86.6% it reported) and for its “Converium Zurich” segment + +10 +a 94% loss ratio (a 14.5% increase from the 79.5% it reported) in 2000. In 2001, +Converium should have reported for its “Global Non-life” segment a loss ratio above +100% (up from the 99.7% reported to 100.2%), which indicates an underwriting loss. + +40. On December 11, 2001, Converium conducted its IPO pursuant to the +Registration Statement and Prospectus. The Converium IPO was the largest initial public +offering of a reinsurance company in history. Moreover, it was the largest initial public +offering of a Swiss company in three years. Zurich sold 35 million shares of Converium +stock in the IPO at a price of 82 Swiss Francs per share, or $24.59 per ADS (with each +ADS representing one half of one share of stock). The IPO yielded gross proceeds of +approximately $ 1.7 billion. Zurich received net proceeds of approximately $1.6 billion +from its sale of Converium securities through the IPO. + +41. In addition to the 35 million shares Zurich sold in the December 11, 2001 +IPO, Zurich granted the underwriters an over-allotment of 5 million shares of Converium +stock, representing the remainder of Zurich’s interest in Converium. On January 9, 2002, +Zurich issued a press release in which it announced that the over-allotment had been +exercised, and that it had sold its remaining 5 million shares of Converium. In total, +through the IPO, Zurich sold 40 million shares of Converium - every single share of +Converium that it owned - and reaped proceeds of approximately $1.97 billion. + +42. As a result of the Inter-Ocean transactions (MDU and GAUM) and the Z-1 +Facility, Converium’s financial statements contained in Form F-1 filings for the IPO +materially overstated shareholders’ equity as of October 1, 2001. + +43. Had Zurich and Converium properly accounted for the true nature of the +Inter-Ocean and Z-1 Facility transactions, Zurich would have received materially less +from its proceeds of the offering. + +Violation +44. As a result of the conduct described above, Converium violated Section +10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct +in connection with the purchase or sale of securities. + +45. As a result of the conduct described above, Zurich caused Converium’s +violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which +prohibit fraudulent conduct in connection with the purchase or sale of securities. Among +other things, Zurich entered into finite reinsurance transactions described above for the +purpose of improperly inflating its financial performance and improperly using +reinsurance accounting rules to account for the transactions, with the knowledge that such +accounting was improper. + + + +11 +Zurich’s Remedial Efforts + +In determining to accept the Offer, the Commission considered remedial acts +promptly undertaken by Respondent and cooperation afforded the Commission staff. + +IV. + In view of the foregoing, the Commission deems it appropriate to impose the +relief agreed to in Respondent Zurich’s Offer. + +Accordingly, it is hereby ORDERED that: + +Pursuant to Section 21C of the Exchange Act, Respondent Zurich cease and desist +from committing or causing any violations and any future violations of Section 10(b) of +the Exchange Act and Rule 10b-5 thereunder. + + +. + +By the Commission. + + + F l o r e n c e E . H a r m o n + Acting Secretary + + + + + + +12 \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2909.txt b/raw/aaer/2008/AAER-2909.txt new file mode 100644 index 0000000000000000000000000000000000000000..22104ddf8d72a1107640668b5681b2704f93353d --- /dev/null +++ b/raw/aaer/2008/AAER-2909.txt @@ -0,0 +1,798 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8988 / December 11, 2008 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59084 / December 11, 2008 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2909 / December 11, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-13307 + +In the Matter of + +SCOR Holding (Switzerland) Ltd., +formerly known as Converium Holding AG, + +Respondent. +ORDER INSTITUTING CEASE-AND- +DESIST PROCEEDINGS PURSUANT +TO SECTION 8A OF THE +SECURITIES ACT OF 1933 AND +SECTION 21C OF THE SECURITIES +EXCHANGE ACT OF 1934, MAKING +FINDINGS, AND IMPOSING A +CEASE-AND-DESIST ORDER + + +I. + + The Securities and Exchange Commissi on (“Commission”) deems it appropriate that +cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the +Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of +1934 (“Exchange Act”) against SCOR Holding (Switzerland) Ltd., formerly known as +Converium Holding AG (“Converium” or “Respondent”).1 + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the + +1 All of the conduct that gave rise to this proceeding took place prior to Converium being +acquired by SCOR SE, the parent company of SCOR Holding (Switzerland) Ltd. The conduct +described in this Order occurred prior to October 2005. The tender offer by SCOR SE for all +publicly-held shares of Converium was consummated on August 8, 2007, at which time +Converium became a subsidiary of SCOR SE. In September 2007, Converium was renamed +SCOR Holding (Switzerland) Ltd. + +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 8A of the Securities Act of 1933 and Section +21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist +Order (“Order”), as set forth below. + +III. + + On the basis of this Order and Re spondent’s Offer, the Commission finds2 that: + +SUMMARY +1. Converium engaged in a fraudulent scheme to improperly inflate its financial +performance through the use of finite reinsurance transactions. The scheme began in 1999, when +Converium was a business unit of Zurich Financial Services (“Zurich”), operating under the +name Zurich Re. Zurich developed three reinsurance transactions for the purpose of obtaining +the financial benefits of reinsurance accounting. However, in order for a company to obtain the +benefits of reinsurance accounting, the reinsurance transaction must transfer risk. Here, Zurich +designed the transactions to make it appear that risk was transferred to third-party reinsurers, +when, in fact, no risk had been transferred outside of Zurich-owned entities. For two of the +transactions at issue, Zurich ceded risk to third-party reinsurers, but took it back through +reinsurance agreements – known as retrocessions – with another Zurich entity. For the third +transaction, Zurich ceded the risk to a third-party reinsurer but simultaneously entered into an +undisclosed side agreement with the reinsurer pursuant to which Zurich agreed to hold the +reinsurer harmless for any losses the reinsurer realized under the reinsurance contracts. Because +the ultimate risk under the reinsurance contracts remained with Zurich, these transactions should +not have been accounted for as reinsurance. +2. In March 2001, Zurich announced its intent to spin off its assumed reinsurance +business in an initial public offering. Zurich then created Converium, which assumed the rights +and obligations of Zurich’s assumed reinsurance business. On December 11, 2001, Converium +conducted its IPO. As a result of the fraudulent finite reinsurance transactions and the improper +accounting treatment they received, Converium’s IPO documents, including the Form F-1 it +filed with the Commission, were materially misleading. Among other things, Converium +understated its reported loss before taxes by approximately $100 million (67%) in 2000 and by +approximately $3 million (1%) in 2001. In addition, for certain periods, the transactions had the +effect of artificially decreasing Converium’s reported loss ratios for certain reporting segments – +the ratio between losses paid by an insurer and premiums earned that is frequently cited by +analysts as a key performance metric for insurance companies. +3. Zurich’s and Converium’s fraud had a significant impact on investors who +purchased shares in the IPO. Through the IPO, which was the largest reinsurance IPO in history, + +2 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not +binding on any other person or entity in this or any other proceeding. + + 2 +Zurich raised significantly more than it would have raised had Zurich and Converium not each +engaged in fraud. +4. Following the IPO, Converium continued the fraudulent scheme. Converium +entered into two additional reinsurance agreements for which risk transfer was negated by +undisclosed side agreements. Converium also entered into transactions to reimburse the +reinsurer that Zurich had agreed to indemnify in a pre-IPO side agreement. In 2003, Converium +took affirmative steps to conceal the fraud from the Financial Services Authority of the United +Kingdom. +5. On November 4, 2005, Converium announced its intention to restate prior period +financial statements and, on December 19, 2005, disclosed that it had incorrectly accounted for a +number of transactions as reinsurance. On March 1, 2006, Converium filed with the +Commission an amended Form 20-F which contained restated financial statements for the years +ended December 31, 1998 through December 31, 2004 (the “Restatement”). +6. As a result of the foregoing conduct, Converium violated Section 17(a) of the +Securities Act, and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and +Rules 10b-5, 12b-20, and 13a-1 thereunder. + +RESPONDENT + +7. Converium, now known as SCOR Holding (Switzerland) Ltd., is a corporation +organized under the laws of Switzerland. Converium is a global reinsurance company that offers +property, casualty, life and non-life reinsurance products. Zurich formed Converium in 2001 by +transferring the rights and liabilities of the reinsurance businesses that made up Zurich’s assumed +reinsurance business, which operated under the name Zurich Re. Converium began operations +under the Converium brand name on or around October 1, 2001. From that time, until December +11, 2001, Converium operated as a wholly owned subsidiary of Zurich. In December 2001 and +January 2002, pursuant to the Registration Statement and Prospectus, Zurich sold 40 million +shares of Converium in the form of shares and American Depository Shares (“ADSs”), +representing its entire stake in Converium, for proceeds of approximately $1.9 billion. From +December 11, 2001 until August 8, 2007, Converium was an independent publicly-traded +company. In August 2007, SCOR SE, a French reinsurer acquired Converium. In August 2007 +SCOR held 96.23% of Converium’s shares following the completion of a tender offer, and +Converium became a subsidiary of SCOR. Converium’s name was changed to SCOR Holding +(Switzerland) Ltd. in September 2007. Between December 11, 2001 and January 7, 2008, +Converium’s common stock and ADSs were registered with the Commission pursuant to Section +12(b) of the Exchange Act. On January 7, 2008, Converium shares and ADSs were delisted +from the New York Stock Exchange. On May 23, 2008, SCOR (the parent company) +announced that the remaining publicly held shares of SCOR Holding (Switzerland) Ltd.’s shares +had been cancelled and that the shares would be delisted from the SWX Swiss Exchange on May +30, 2008, with May 29, 2008 as the last day of trading. In 2007, SCOR delisted its own ADSs +from the New York Stock Exchange and terminated the registration of its securities under the +Exchange Act. SCOR’s ADSs currently trade on the pink sheets under the symbol SCRYY and +its common stock trades on the Euronext under the symbol SCR and on the SWX Swiss +Exchange. + 3 +OTHER RELEVANT PERSONS AND ENTITIES + +8. Zurich is a corporation organized under the laws of Switzerland with its principal +place of business in Zurich, Switzerland. Prior to Converium’s IPO, Zurich restructured its +reinsurance operations and transferred substantially all of the reinsurance business operated +under Zurich Re to Converium. + +9. Inter-Ocean Reinsurance Company, Ltd. (“Inter-Ocean”) is a Bermuda +corporation with its principal corporate offices in Bermuda. Inter-Ocean is a wholly-owned +subsidiary of Inter-Ocean Holdings, Inc., which was formed in 1990 as a joint venture between +ten reinsurers. In 1998, Zurich acquired a 9.9% interest in Inter-Ocean effective at the end of +that year. Prior to Converium’s IPO, Zurich transferred its 9.9% interest in Inter-Ocean to +Converium. + +Reinsurance Accounting Principles + +10. In basic terms, reinsurance is insurance for insurers. Reinsurance is the transfer +of the insurance risk by the primary insurer to a second insurance carrier, called the reinsurer, in +exchange for a payment or premium. + +11. Whether a contract is accounted for as reinsurance depends on whether the +contract indemnifies the ceding company – here Zurich and Converium – from loss or liability. +Such indemnification is known as risk transfer. Risk is transferred when (1) the reinsurer +assumes significant insurance risk and (2) it is reasonably possible that the reinsurer will realize +a significant loss in the transaction. A risk transfer analysis for a contract emphasizes substance +over form, and Generally Accepted Accounting Principles (“GAAP”) require “an evaluation of +all contractual features that . . . limit the amount of insurance risk to which the reinsurer is +subject . . . .”3 Accordingly, under GAAP, “if agreements with the reinsurer . . . in the aggregate, +do not transfer risk, the individual contracts that make up those agreements also would not be +considered to transfer risk, regardless of how they are structured.”4 + +12. Where there is insufficient risk transfer, a transaction may not be treated as +reinsurance under GAAP, and must be accounted for using the deposit method, which lacks the +potential accounting benefits of reinsurance accounting. Under reinsurance accounting, when +losses on the ceded business are incurred, the ceding insurer records an offset to the increase in +its gross loss reserves in an amount equal to the reinsurance it expects to recover from the +reinsurer, thus increasing its net income by that amount. Deposit accounting has no comparable +income statement benefit. + + +3 FASB, Statement of Financial Accounting Standards No. 113, Accounting and Reporting +for Reinsurance of Short-Duration and Long-Duration Contracts (December 1992), para. 8. + +4 FASB, Emerging Issues Task Force Topic D-34, Accounting for Reinsurance: Questions +and Answers about FASB Statement No. 113 (July 22, 1993), Question 13. + + 4 +13. From 1999 through 2004, Zurich, and later Converium, designed five reinsurance +transactions that created the appearance of risk transfer in order to benefit from reinsurance +accounting. Three of the five transactions were entered into prior to the December 2001 IPO and +affected the financial statements Converium included in the IPO prospectus. In two of the three +pre-IPO transactions, Zurich purchased reinsurance from Inter-Ocean, which, in turn, ceded +these liabilities to a Zurich entity (the “Inter-Ocean transactions”). Zurich’s use of Inter-Ocean +as an intermediary in the transaction helped obscure the transactions’ circular structure and the +fact that Zurich had merely moved the risk from one Zurich entity to another. In the remaining +transactions, including one pre-IPO transaction, Zurich and later Converium entered into +reinsurance transactions for which the contract terms were all undone through undisclosed side +agreements or purportedly unrelated contracts. Effectively, these side agreements or unrelated +contracts protected the reinsurer against losses suffered under the reinsurance contract and placed +all risk of loss on a Zurich or Converium entity. Zurich and later Converium improperly +accounted for these transactions using reinsurance accounting. + +The Circular Inter-Ocean Transactions + +The Medical Defence Union Transactions + +14. In 2000, Zurich sought reinsurance for medical malpractice coverage it provided +to British doctors who were members of the Medical Defence Union (“MDU”). In an April 25, +2000 e-mail concerning expected losses related to the MDU contract, the Chief Executive +Officer of certain Zurich Re entities and later Converium (the “CEO”) informed Zurich Re’s +(and later Converium’s) Chief Underwriting Officer (the “CUO”) that “we need to begin +working on the actual placement of the [MDU] stop loss to relieve the GAAP hit” for Zurich.5 +Internally, Zurich personnel used the term "GAAP hit" to mean the expense and increased +reserve requirements associated with the medical defense coverage. The expense would +decrease or "hit" reported income. The CEO warned that, in obtaining the reinsurance, “we +need to be conscious of the issue of circularity.”6 + +15. Between April and December 2000, Zurich attempted to negotiate reinsurance +contracts for its MDU business that contained genuine risk transfer. However, by December 2, +2000, Zurich had not found any reinsurer willing to take on such a contract. In December +2000, the CUO emailed the CEO and suggested that Zurich utilize Inter-Ocean or a similar +non-controlled foreign corporation. The CEO responded “we need to get something in the +books now! We close our books this week.” + +16. Soon thereafter Zurich entered into the following agreements: ZIC UK entered +into a reinsurance agreement with Zurich Insurance Bermuda (“ZIB”) and ceded 80% of the +MDU claims made on business written on or after July 1, 2000. At the same time, ZIB entered + +5 A stop loss policy is a form of reinsuran ce that covers all losses above a specified +amount. + +6 Both the CEO and the CUO ceased to be associated with Converium before it announced +it would restate its financial statements. Neither was ever associated with SCOR. + 5 +into a reinsurance agreement with Inter-Ocean to cover a portion of ZIB’s MDU liabilities for +the 2000 policy year. This agreement provided for Inter-Ocean to cover ultimate net losses in +excess of 85% of gross premiums written for the 2000 policy year. Inter-Ocean then ceded all +the liabilities it had assumed under the ZIB/Inter-Ocean agreement to an unaffiliated reinsurer +(Company A). Company A, in turn, ceded all the liabilities to a Zurich affiliate, ZIC Bermuda. + + + + + + +IO Company +A +ZIC +Bermuda +ZIB ZIC +UK + + + + +MDU + +17. Although Zurich accounted for the transactions with Inter-Ocean and Company A +as reinsurance, in reality, Zurich had re-circulated the risk from one Zurich entity to another, +while interposing intermediaries (Inter-Ocean and Company A) that obscured the transaction’s +circular structure. Because this transaction was circular, there was no risk transfer and Zurich +and later Converium should not have accounted for the contract as reinsurance. As a result, +and as reported in Converium’s December 2001 Form F-1, Converium understated its pre-tax +losses for the year ended December 31, 2000 by $1.36 million. + +18. Zurich and Company A renewed the ZIB/Inter-Ocean agreement in 2001 to +include MDU business written from January 1, 2001 through March 31, 2002. At the time the +parties negotiated the agreement, Zurich had already announced its intention to spin-off its +reinsurance operations. Due to the increased scrutiny of Zurich’s contracts occasioned by the +due diligence for the IPO, the CUO requested that the 2001 MDU reinsurance contracts not +include specific cross references that might have revealed that the reinsurance structure was +circular. The contracts ultimately executed by the parties did not specifically reference the +other related agreements. + +19. As a result of the MDU transaction, in its Form 20-F filings for the years ended +December 31, 2001, 2002 and 2003, Converium understated its pre-tax losses for 2001 by +$10.04 million (1.86%) and overstated its pre-tax income for 2002 by $6.52 million (9.49%) +and by $14.47 million (7.39%) for 2003. + + The GAUM Transaction + +20. Just as it had done with MDU, in 2001, Zurich negotiated a circular reinsurance +transaction aimed at managing losses related to reinsurance coverage it provided to Global +Aerospace Underwriting Managers Ltd. (“GAUM”), an aerospace underwriting pool. + +21. In July 2001, Zurich estimated that losses under its reinsurance agreement with +GAUM would negatively impact Zurich Re’s earnings for the year ended December 31, 2001. + 6 +In a July 12, 2001 memo to the CEO and other senior executives, the CUO suggested the +“possibility to buy a GAAP cover” for the GAUM business. In an August 31, 2001 email to +the CEO and others, the CUO provided the following description of the reinsurance structure, +reflecting that Zurich intended it to be circular from early on: “Zurich Re retroceeds a 100% +[quota share] of its Stop Loss Reinsurance covering GAUM's net retention for the underwriting +year 2001 . . . to Interocean . . . Interocean enters into a Speed of Settlement (SOS) excess of +loss reinsurance with Zurich Insurance Bermuda . . ." + +22. In 2001, Zurich entered into the following transactions: On September 25, 2001, +ZIC entered into an excess of loss reinsurance agreement with GAUM covering GAUM’s +losses for risks attaching during 2001 in excess of a certain attachment point. On December 5, +2001, ZIC ceded 100% of its risks under the GAUM excess of loss reinsurance agreement to +Inter-Ocean, which in turn, ceded all of its liabilities to ZIB. + + + ZIB IO ZIC + + + + + +GAUM + + + +23. Similar to the MDU transaction, Zurich and later Converium improperly +accounted for the GAUM contracts as reinsurance. Specifically, because Zurich reassumed +100% of the risk from Inter-Ocean, it should not have accounted for the contracts as +reinsurance. By improperly accounting for the transaction as reinsurance in its Form 20-F +filings for 2001 and 2002, Converium understated its pre-tax loss for 2001 by $4.88 million +(0.9%) and overstated its pre-tax income for 2002 by $4.24 million (6.18%). + +Transactions Involving Undisclosed Side Agreements + +24. In addition to the Inter-Ocean transactions, Zurich and later Converium entered +into three reinsurance transactions that appeared to transfer risk, but in fact did not due to side +agreements that left the risk with Zurich and Converium. The first of these transactions began +before the IPO and involved a reinsurance facility known as the Z-1 Facility. The other two +transactions, which are addressed separately below, occurred after Converium’s IPO. + +The Z-1 Facility + +25. In 1999, Zurich established the Z-1 Facility with a Barbados insurance company +(Company B). + +26. Under the Z-1 Facility, Company B and a Cologne-based affiliate of Company B +(“Company B Cologne”) acted as reinsurers for six finite reinsurance transactions between +external cedents and ZIC, in which ZIC had reinsured losses of unaffiliated insurers. ZIC + 7 +retroceded 100% of its obligations and premiums to another Zurich division, which then +retroceded 100% of its obligations and premiums to Company B Cologne, which then ceded +the business to Company B. Company B, in turn, retroceded most but not all of the risk it had +assumed from Company B Cologne to a separate Zurich subsidiary, Zurich Re Cologne +pursuant to a “speed of settlement” stop loss agreement (“SOS”). A SOS is a type of aggregate +stop loss agreement that limits the total losses incurred by the ceding company. Under the +SOS, Company B retained the risk of up to $60 million of losses (including $10 million of +losses under Endorsement 1); Zurich Re Cologne was responsible for aggregate losses above +that $60 million. + + +Zurich Re +Zurich +Company +B Cologne +Zurich Re, +Cologne +Company B +External +Insurers +Zurich Re +North America + + +Cover B Negates Risk Transfer + +27. Although Company B ceded much of the risk it assumed under the Z-1 Facility to +Zurich Re Cologne, Company B did not want to have any exposure for losses under the Z-1 +Facility. Accordingly, Company B sought a commitment from Zurich that Company B would +not realize any losses under the Z-1 Facility. The CEO assured the Company B executive +responsible for the transaction that Company B would not realize any losses under the Z-1 +Facility. + +28. The Company B executive insisted on security beyond the CEO’s oral +commitment. At the CEO’s instruction, a Zurich employee prepared a separate reinsurance +agreement between ZIC and Company B to serve as security for the CEO’s promise. The +agreement, which was unrelated to the Z-1 Facility on its face, was structured as a payback +mechanism and was intended to reimburse Company B for any losses suffered under the Z-1 +Facility. In internal correspondence, Zurich and later Converium referred to the agreement as +“Cover B.” Cover B provided ZIC catastrophic coverage for the years 2000 through 2002 in +exchange for a total of $39 million in non-refundable premiums to Company B. The +attachment point for coverage under Cover B was set intentionally high -- at a level that neither +party expected to be reached. So, although Company B theoretically could have suffered +losses under Cover B, the agreement was structured to allow Company B to receive a premium +with very little risk. The $39 million premium figure represented the present value of the +maximum possible loss that Company B could suffer under the Z-1 Facility ($60 million). +Moreover, Cover B was drafted to give Company B the option to trigger the parties’ + 8 +obligations and, by doing so, offset losses, if any, sustained under the Z-1 Facility. In fact, +Company B referred to Cover B as the “option contract.” + +29. In the fall of 1999, prior to finalizing the terms of Cover B, the Zurich employee +who drafted the agreement told the CEO that he believed that Cover B negated risk transfer +under the Z-1 Facility. Notwithstanding this warning, the CEO approved Cover B, and on +November 18, 1999, the CEO executed it on behalf of ZIC. + +30. In December 2000, Cover B was renewed, with the CEO again signing on behalf +of ZIC. The terms of the 2000 Cover B agreement were substantially the same as the 1999 +Cover B agreement, although the premium amount was increased to $15 million per year, for a +total of $45 million. + +Unicover Losses Are Ceded to the Z-1 Facility + +31. In September 2000, Zurich became concerned about the financial statement +impact of Zurich’s exposure to losses arising out of Zurich’s involvement in the failed +Unicover Occupational Accident Reinsurance Pool (“Unicover Pool”). To address these +concerns, Zurich approached Company B about including Zurich’s Unicover Pool exposure +under the Z-1 Facility. Specifically, Zurich proposed ceding a potential exposure of $58.6 +million under the Unicover Pool, as well as assorted other potential exposures, in exchange for +a $15 million premium. + +32. During a December 20, 2000 dinner with the CEO in Zurich, the Company B +executive who negotiated the Z-1 Facility and Cover B agreed to adjust the Z-1 Facility to +permit Zurich to cede potential Unicover losses to the Z-1 Facility. The Company B executive +agreed to accept the cessions because he believed that Cover B protected Company B from risk +of loss under the Z-1 Facility. Cover B was renewed and signed on December 20, 2000. + +33. By the time Zurich had completed the Converium IPO, significant losses on the +Unicover business had been recorded. Converium ultimately ceded those losses to the Z-1 +Facility. Converium was prepared to honor Zurich’s prior commitment that Company B would +not suffer any losses under the Z-1 Facility, and Converium did not want Company B to trigger +Cover B. To induce Company B not to trigger Cover B, Converium offered to enter into +reinsurance agreements that would be structured in such a way as to ensure that Company B +would realize sufficient profit to offset the Z-1 Facility losses. The Company B executive +described the arrangement and reasoning in an internal memo following a January 2003 +meeting with the CEO: “Converium does not want us to trigger the option cover (contract 5), +since it would make it obvious that this transaction was a circular transaction. Instead they +have offered us [other profitable business] . . . . Converium and especially [the CEO] have +proved to us that Converium will hold [Company B’s parent] harmless under the [Z-1 Facility]. +The option cover (contract 5) [Cover B] was always considered to be a sleep-easy cover in case +Converium does not fulfill it’s [sic] obligation they gave to [Company B] ….” + + + + 9 +Converium Cedes Profitable Business to Company B as Payback for Z-1 Losses + +34. Consistent with the CEO’s representations, Converium entered into three +purportedly unrelated agreements with Company B in lieu of the option contract to offset +losses ceded to the Z-1 Facility. First, in 2003, Converium entered into a multiple year third +event industry warranty catastrophe excess of loss reinsurance contract with Company B for +the years 2003 through 2005. Converium purchased coverage for this contract from Company +B. As a result, in exchange for providing coverage for a remote layer of risk, Converium paid +Company B an $8 million premium each year. + +35. Second, in early 2000, pursuant to a novation agreement, Company B replaced +another Bermuda-based reinsurer, as the retrocessionaire for risks related to a pre-existing +reinsurance agreement between Zurich and a third-party reinsurer. According to internal +Converium and Company B documents, Converium used $2.6 million in excess fees that +would have been payable to the original retrocessionaire but that Company B received in its +place to offset a portion of the losses suffered by Company B under the Z-1 Facility. + +36. Third, in 2004, in exchange for assuming the risk in connection with a policy for +only the final month of a year-long agreement, Company B received the vast bulk of the +premiums under the contract - - $9.85 million of the $10.2 million annual premium. + +37. In connection with the above reinsurance agreements, Converium paid a total of +$35.73 million to Company B as a means of repaying the deficit that had arisen through losses +ceded to Company B via the Z-1 Facility. + + +The Net Effect of the Z-1 Transactions + +38. The Z-1 transactions did not transfer insurance risk outside of entities included in +Zurich’s, and later Converium’s, consolidated financial statements and should not have been +accounted for as reinsurance. As a result, in its December 2001 Form F-1, Converium +understated its pre-tax loss for the year ended December 31, 2000 by $98.20 million or +66.19%. + +The Converium IPO + +39. On March 22, 2001, in connection with its announcement of disappointing +financial results for 2000, Zurich reported that it intended to exit the assumed reinsurance +business. In a September 6, 2001 press release, Zurich announced that its reinsurance business +would be spun off in an IPO, and that as of October 1, 2001, the business would operate under +the name Converium. + +40. As a result of the misrepresentations described above, the IPO offering documents +were materially misleading. The Registration Statement and Prospectus filed by Converium in +connection with the IPO, which became effective on December 11, 2001, failed to disclose the + 10 +impact of the circular Inter-Ocean and the Z-1 Facility transactions on Converium’s business +operations, financial results and shareholders’ equity at the time of the IPO. + +41. Converium’s historical financial data reported in its prospectus was derived from +data from the Zurich subsidiaries combined to form Converium. + +42. The statements in the prospectus regarding Converium’s financial results for 2000 +and the first half of 2001 were materially false and misleading. As a consequence of the pre- +IPO circular Inter-Ocean transactions and the Z-1 Facility transactions, rather than reporting a +loss before taxes of $48.8 million for 2000, Converium should have reported a loss of at least +$148.4 million. Also according to Converium’s restatement filed on March 1, 2006, as the +result of reinsurance transactions, Converium overstated its $1.09 billion in reported +shareholders’ equity as of December 31, 2000 by at least $72.3 million (approximately 6.6% of +the total reported shareholders’ equity), an amount including the effect of $100 million +attributable to the Inter-Ocean and Z-1 Facility transactions and partially offset by $27.7 +million attributable to other reinsurance transactions not addressed within this Order. Finally, +because Converium’s loss ratio for its non-life reinsurance business was directly affected by +the improperly recorded reinsurance obtained through the circular Inter-Ocean and the Z-1 +Facility transactions, Converium materially understated its reported loss ratios for its “Global +Non-life” and “Converium Zurich” segments in 2000 and 2001. Had Converium accounted for +these transactions as deposits, Converium would have reported for its “Global Non-life” +segment a 92.6% loss ratio (a 6% increase from the 86.6% it reported) and for its “Converium +Zurich” segment a 94% loss ratio (a 14.5% increase from the 79.5% it reported) in 2000. In +2001, Converium should have reported for its “Global Non-life” segment a loss ratio above +100% (up from the 99.7% reported to 100.2%), which indicates an underwriting loss. + +43. On December 11, 2001, Converium conducted its IPO pursuant to the +Registration Statement and Prospectus. The Converium IPO was the largest initial public +offering of a reinsurance company in history. Moreover, it was the largest initial public +offering of a Swiss company in three years. Zurich sold 35 million shares of Converium stock +in the IPO at a price of 82 Swiss Francs per share, or $24.59 per ADS (with each ADS +representing one half of one share of stock). The IPO yielded gross proceeds of approximately +$1.7 billion. Zurich received net proceeds of approximately $1.6 billion from its sale of +Converium securities through the IPO. + +44. In addition to the 35 million shares Zurich sold in the December 11, 2001 IPO, +Zurich granted the underwriters an over-allotment of 5 million shares of Converium stock, +representing the remainder of Zurich’s interest in Converium. On January 9, 2002, Zurich +issued a press release in which it announced that the over-allotment had been exercised, and +that it had sold its remaining 5 million shares of Converium. In total, through the IPO, Zurich +sold 40 million shares of Converium – every single share of Converium that it owned – and +reaped proceeds of approximately $1.97 billion. + +45. As a result of the Inter-Ocean transactions (MDU and GAUM) and the Z-1 +Facility, Converium’s financial statements contained in Form F-1 filings for the IPO materially +overstated shareholders equity as of October 1, 2001. Had Converium properly accounted for + 11 +the true nature of the Inter-Ocean and Z-1 Facility transactions, Zurich would have received +materially less from its proceeds of the offering. + +False Statements in Press Releases + +46. Converium also made false and misleading statements in press releases. On +March 18, 2002, Converium issued a press release reporting its financial results for the year +ending December 31, 2001. Converium reported a net loss of $367 million for fiscal 2001, +which Converium downplayed as endemic of the industry-wide impact of the September 11 +attacks and the Enron collapse – one-time catastrophic events. In the press release, Converium +touted the material improvement in its adjusted non-life combined ratio, excluding the impact +of September 11 and Enron: + +Converium has a very solid balance sheet and is strongly capitalized at +$1.6 billion to benefit in the hardening markets. ... We substantially +improved our underlying adjusted non-life combined ratio in 2001 by 7.8 +points to 105.4%. ... Our objective for 2002 is to generate a non-life +combined ratio of close to 100% and to target an ROE of more than 12.5% + +47. On May 23, 2002, Converium filed its Form 20-F for the year ended December +31, 2001 (the “2001 20-F”) in which it repeated the results first announced in Converium’s +March 18, 2002 press release, and represented that those results were prepared in accordance +with GAAP. In addition, the 2001 20-F reported that, as of December 31, 2001, Converium +had shareholders’ equity of $1.6 billion. + +48. The financial results reported in Converium’s March 18, 2002 press release and +its 2001 20-F were materially false and misleading. Specifically, as a result of the fraudulent +reinsurance transactions described above, Converium overstated its shareholders’ equity as of +December 31, 2001 by $103.1 million or 7.02%. + +Converium Modifies the MDU Transaction to Deceive the FSA + +49. After the IPO, Converium continued to use circular transactions to manipulate its +financial statements. However, because of regulatory concerns in Europe, Converium engaged +in further subterfuge to hide the circular nature of certain reinsurance transactions. + +50. In January 2003, Converium submitted an application to license Converium +Insurance Company UK (“Converium UK”) to write insurance within the United Kingdom. In +April and May 2003, the Financial Services Authority (“FSA”) requested, among other things, +that Converium provide additional information regarding: (a) the ownership structure of Inter- +Ocean; and (b) whether any member of the Converium group provided retrocessional +protection to Inter-Ocean related to the MDU business. Prior to the FSA seeking information +about Converium’s transactions with Inter-Ocean, Converium had agreed with Company A +that Company A would continue to participate in the MDU business for 2002 and 2003. +Specifically, the parties had agreed that the transactions would utilize the same circular + 12 +structure that had been used prior to the IPO: Converium to Inter-Ocean to Company A and +back to Converium. + +51. On May 7, 2003, the CUO contacted a senior Company A executive by e-mail +regarding the FSA’s inquiry about whether Converium acts as a reinsurer for Inter-Ocean. The +CUO wrote: “If we answer this question with yes this would have implications on the capital +charges for [Converium] and some reputational issues we would like to avoid.” Instead, the +CUO asked whether, in order to avoid the issue of circularity, Company A would replace +Converium on the back end of the transactions for years 2002 and 2003. + +52. In order to provide written security that Company A would not incur losses under +the restructured MDU transaction, Converium gave Company A a “put option,” under which +Company A could “put” the business back to Converium if the MDU business began to incur +losses. Because the put option placed all risk of loss with Converium, the put option had the +effect of recreating circularity. Although the put option was never exercised (because +economic losses under the agreement never materialized), Converium, as had Zurich before it, +continued to account improperly for the agreements as reinsurance. + +53. On May 9, 2003, after Company A agreed to restructure the transaction, +Converium responded to the FSA’s request for information. The letter stated that Converium +owns a minority interest (9.9%) of Inter-Ocean Holding, Ltd., which wholly owns Inter-Ocean +Reinsurance Co. Ltd. Converium also stated that it did not provide any retrocession to Inter- +Ocean concerning the MDU business. + +Converium’s Post-IPO Fraudulent Transactions + +54. Following the IPO, Converium entered into two additional reinsurance +transactions involving side agreements. The first transaction included an undisclosed “profit +sharing agreement” that served as a vehicle to protect the reinsurer from any loss. The second +transaction involved an undisclosed side agreement that also served to make the reinsurer +whole. Converium improperly accounted for these transactions as reinsurance since these side +agreements sought to reimburse the reinsurers for any losses and therefore negated any risk +transfer. + +The Transaction with Company C + +55. Just prior to the IPO, Converium became concerned about the effect a +catastrophic event loss might have on its balance sheet. As a result, in late 2001, Converium +began soliciting quotes for excess of loss reinsurance from a number of reinsurers, including +Company C, an unaffiliated reinsurer. However, before writing any reinsurance policy to +Converium, Company C wanted comfort at the back end that it would not lose money on any +reinsurance policy it might write, which ultimately led the parties to enter into an undisclosed +side agreement that ensured Company C that it would not experience any losses. This side +agreement negated Converium’s transfer of any reinsurance risk to Company C in any of the +contracts. + + 13 +56. From early March 2002 through late fall 2003, Converium entered into three +excess of loss reinsurance policies with Company C. In October 2001, prior to entering into +any of the reinsurance agreements, Company C forwarded to the CUO a proposed agreement +captioned “side-letter” that ensured that Company C would experience no losses on the +reinsurance contracts. Specifically, the “side letter” obligated Converium “to specifically hold +[Company C] harmless at the end in all respects under said reinsurance contracts. [Company +C] acts purely as an enabler.” + +57. On October 20, 2001, the CUO sent a revised “side letter” to the CEO, along with +an e-mail written entirely in German – except for the word “FRAUD.” The English translation +of the e-mail is as follows: + +Enclosed is the draft side agreement as well as the [Company C] images. We must +first work hard on these. Do you want to involve someone from legal? If yes, +who? They have not liked these things and I fear that our actions would turn into +a difficult situation (compliance etc). One alternative would be to handle it in the +market ourselves and apply common sense. Actually, there should be no +contractual document otherwise according to [Converium’s Senior Legal +Counsel] the reinsurance agreement is void and all “FRAUD.” Let me know! + + +58. The next day, the CEO informed the CUO via e-mail that the side letter was “too +restrictive” and that he “would prefer a letter of comfort and some additional protections built +in for Company C in the contract which do not cause us problems from an accounting +perspective.” + +59. On December 7, 2001, Company C sent the CUO a “corrected side letter” that +included a “pay-back clause.” The “pay-back clause” stated that, should Company C +experience an economic loss on any of the three contracts, Converium would pay Company C +additional premiums to make up for the loss. In addition, the “corrected side letter” did not +alter that “Converium confirms specifically to hold [Company C] harmless at the end in all +respects under said reinsurance contracts. Company C acts purely as an enabler.” + +60. Converium improperly accounted for the transactions with Company C as +reinsurance. As a result of the “side-letter,” Company C assumed no reinsurance risk, and +Converium should have accounted for the transaction using deposit accounting. As a result, +Converium, in its December 31, 2003 Form 20-F, overstated its pre-tax income for 2003 by +$21.67 million or 11.06%. + +The Transactions with Company D + +61. Zurich, and later Converium, maintained a book of business related to reinsurance +for Guaranteed Minimum Death Benefit (“GMDB”) liabilities it maintained through treaties +with third-party cedents. In early 2003, analysts criticized Converium for being under-reserved +with respect to its risks related to its GMDB business and, in response, Converium sought +reinsurance from an unaffiliated reinsurer (Company D) through two reinsurance agreements. + 14 +However, in order to protect Company D from suffering any combined losses under both +reinsurance agreements, Converium and Company D entered a “Master Profit Sharing +Agreement” that linked the two reinsurance agreements and negated Converium’s transfer of +reinsurance risk to Company D. + +62. In 2003, Converium and Company D entered into a GMDB Stop Loss +Reinsurance Agreement (the “GMDB agreement”) effective October 1, 2003. The GMDB +agreement covered Converium’s risks related to its GMDB business up to $75 million in +excess of ultimate net loss of $93.2 million. In exchange, Company D received $10 million in +premium, and Converium was required to pay an additional premium of 85% of the risk +between $55 million and $75 million. The net exposure to Company D in the transaction was +$50 million. + +63. At the same time they entered into the GMDB agreement, Converium and +Company D entered into a Property Catastrophe Excess of Loss Agreement that covered losses +from European windstorms over a five year period (January 1, 2004 through December 31, +2008) (the “windstorm agreement”). In exchange, Company D received an $11.2 million +annual premium. Company D then retroceded the windstorm agreement to Inter-Ocean, which +then retroceded the risks to Converium. After taking into account each leg of the transaction, +Company D would receive an annual net premium of $10.2 million or a total of $51 million +over the five years, which fully covered its net exposure under the GMDB agreement. + +64. While there was real risk that Company D would incur losses under the GMDB +agreement, there was a low probability that Company D would incur losses under the +windstorm agreement. In order to protect Company D from suffering any combined losses +under both the GMDB and windstorm transactions, Converium and Company D entered into a +Master Profit Sharing Agreement (“the profit sharing agreement”) that linked the two +reinsurance agreements. Taking the GMDB and windstorm agreements together, Company D +would receive approximately $75 million in premiums under both agreements, thereby pre- +funding or reimbursing Company D for any losses it could have experienced under the GMDB +Stop Loss agreement. + +65. Converium improperly accounted for the Company D transaction as reinsurance. +As a result of the profit sharing agreement linking the GMDB and windstorm agreements, +Company D assumed no (or very little) reinsurance risk under both reinsurance agreements and +should have accounted for the transactions using deposit accounting. + +Converium’s Restatement + +66. On November 4, 2005, following an internal review of certain finite insurance and +reinsurance transactions, including the transactions described above, Converium announced +that it planned to restate prior period financial statements. Converium’s closing stock price +declined 4.7%, from $4.91 per ADS on November 3, 2005 to $4.68 per ADS on November 4, +2005. + + 15 +67. On March 1, 2006, Converium restated its financial statements as of and for the +years ended December 31, 1998 through December 31, 2004 and disclosed that it had +improperly accounted for the Inter-Ocean, the Z-1 Facility, Company C and Company D +transactions. + +68. By accounting for these transactions as reinsurance, Converium overstated its pre- +tax income and shareholder’s equity. The financial statements for 2000 were included in +Converium’s F-1 filings made in connection with its IPO in December 2001. The financial +statements for 2000 and 2001 were included in Converium’s F-1 filings made in connection +with a debt offering in December 2002. The financial statements for 2001 through 2004 were +included in Converium’s annual reports on Form 20-F filed with the Commission on May 23, +2002, April 18, 2003, April 9, 2004, and June 30, 2005, respectively. + +VIOLATIONS + +69. As a result of the conduct described above, Converium violated Section 17(a) of +the Securities Act, which prohibits fraudulent conduct in the offer and sale of securities. +Converium made material misrepresentations and omitted material facts in its (a) Registration +Statement on Form F-1 and Prospectus for its December 2001 IPO; and (b) Registration +Statement on Form F-1 and Prospectus for its December 2002 offering of guaranteed +subordinated notes. + +70. As a result of the conduct described above, Converium violated Section 10(b) of +the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection +with the purchase or sale of securities. Converium improperly accounted for five finite +reinsurance transactions and made material misrepresentations regarding its true financial +condition in its (a) Registration Statement on Form F-1 and Prospectus for its December 2001 +IPO; (b) March 18, 2002 press release; (c) 2001 Annual Report on Form 20-F; (d) 2002 Annual +Report on Form 20-F; (e) Registration Statement on Form F-1 and Prospectus for its December +2002 offering of guaranteed subordinated notes; (f) 2003 Annual Report on Form 20-F; and (g) +2004 Annual Report on Form 20-F. + +71. As a result of the conduct described above, Converium violated Section 13(a) of +the Exchange Act and Rules 12b-20 and 13a-1 thereunder, which require issuers to file true, +accurate and complete periodic reports with the Commission. Converium filed false periodic +reports with the Commission by misstating material facts concerning its financial performance +due to Converium’s improper accounting treatment of the finite transactions at issue. + +72. As a result of the conduct described above, Converium violated Section +13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and keep books, +records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions +and dispositions of their assets. Because Converium improperly accounted for and recorded +the five finite reinsurance transactions at issue, its books, records and accounts did not, in +reasonable detail, accurately reflect its transactions and dispositions of assets. + + 16 +73. As a result of the conduct described above, Converium violated Section +13(b)(2)(B) of the Exchange Act, which require all reporting companies to maintain a system +of internal accounting controls sufficient to provide reasonable assurances that transactions are +recorded as necessary to permit preparation of financial statements in conformity with +generally accepted accounting principles and prohibit them from, directly or indirectly, +falsifying or causing to be falsified, any book, record, or account. Converium’s internal +controls were not sufficient to prevent numerous false accounting entries related to the finite +reinsurance transactions at issue to be recorded and to account for the transactions in +conformity with generally accepted accounting principles. + +Converium’s Remedial Efforts + +In determining to accept the Offer, the Commission considered remedial acts promptly +undertaken by Respondent and cooperation afforded the Commission staff. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the relief +agreed to in Respondent Converium’s Offer. + + Accordingly, it is hereby ORDERED that: + + Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, +Respondent Converium shall cease and desist from committing or causing any violations and any +future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, and 13a-1 thereunder. + + +By the Commission. + + + F l o r e n c e E . H a r m o n + Acting Secretary + + + + + 17 \ No newline at end of file