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+     SEC.gov | Anika Therapeutics, Inc., J. Melville Engle and Sean F. Moran 
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+              Anika Therapeutics, Inc., J. Melville Engle and Sean F. Moran
+           
+     
+ 
+
+   
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+     
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+      
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+             
+        Anika Therapeutics, Inc., J. Melville Engle and Sean F. Moran
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ RELEASE NO.  47167 / January 13, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO.  1699 / January 13, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-11006
+
+  
+
+      In the Matter of 
+
+ ANIKA THERAPEUTICS, INC., 	 
+ J. MELVILLE ENGLE and   		    
+ SEAN F. MORAN,   			 
+
+  Respondents.  
+
+   
+ : : : : : : : : : 
+ 
+  ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS, AND IMPOSING CEASE-AND-DESIST ORDERS 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 instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Anika Therapeutics, Inc. ("Anika"), J. Melville Engle ("Engle") and Sean F. Moran ("Moran").  
+
+   II. 
+
+  In anticipation of the institution of these proceedings, Respondents Anika, Engle and Moran have submitted Offers of Settlement ("Offers") that the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and over the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Proceedings, Making Findings, and Imposing Cease-and-Desist Orders Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
+
+   III.    
+
+  On the basis of this Order and the Respondents' Offers, the Commission finds  1   that:
+
+   A. RESPONDENTS AND RELATED PARTY 
+
+   1.  Respondents 
+
+  a. Anika is a Massachusetts corporation with its headquarters in Woburn, Massachusetts.  It manufactures and sells therapeutic products and devices intended to treat bone, cartilage and soft tissue.  During all relevant times, Anika's common stock was traded on the NASDAQ national market system and was registered with the Commission pursuant to Section 12(g) of the Exchange Act.
+  b.   Engle, age 52, resides in Napa, California.  He was the president and chief executive officer of Anika from September 1996 to June 2001.  Engle also served as chairman of Anika from February 1999 to June 2001.  He is no longer employed by Anika.
+  c.   Moran, age 44, resides in Norfolk, Massachusetts.  He was employed as Anika's chief financial officer from February 1993 until January 2000.  In that capacity, he was responsible for, among other things, performing financial and accounting functions relating to both public reporting and internal financial recording.  Prior to that, he served as controller of MedChem Products, Inc., Anika's former parent.  Moran is a certified public accountant.  He is no longer employed by Anika.
+
+   2. Related Party 
+  In November 1997, Anika entered into a ten-year exclusive agreement with a distributor (the "Distributor") pursuant to which it received exclusive rights to distribute one of Anika's products, Orthovisc, to end customers in Canada, most of Europe and the United States (the "Agreement").  Pursuant to the Agreement, which was filed with the Commission as an exhibit to Anika's Form SB-2/A on November 10, 1997, the Distributor made up-front payments to Anika of $4 million, was required to purchase at least 30,000 units of Orthovisc annually, and would make future payments of up to $20.5 million provided that Orthovisc received certain regulatory approvals and met enumerated sales milestones ("milestone payments").  
+
+   B. FACTS 
+
+   1.   Summary 
+  This matter involves Anika's improper recognition of approximately $1.5 million in revenue from sales of its product, Orthovisc, to the Distributor in 1998 and 1999.  2    J. Melville Engle, Anika's CEO, and Sean Moran, Anika's CFO, caused Anika to prematurely record on its books and records and report in periodic filings with the Commission revenue from three "bill-and-hold" transactions with the Distributor at the time of invoicing and prior to actual shipment and delivery of the product to the Distributor.  3    Anika also failed to adequately disclose in its filings with the Commission that approximately $1 million in bill-and-hold sales to the Distributor in 1999 were expressly predicated on Anika's agreement with the Distributor, under which the Distributor would purchase $1 million in Orthovisc in exchange for a $1 million reduction in previously disclosed future potential milestone payments from the Distributor. Further, in press releases issued in July and October 1999, Anika improperly characterized the bill-and-hold sales of Orthovisc to the Distributor as "international sales," when in fact they were not being resold by the Distributor internationally, but were being held in storage by Anika.  In March 2000 and again in September 2001, Anika restated its financial statements for the affected periods. 
+
+  As a result, Anika violated the periodic reporting, books and records, and internal accounting control provisions of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and Engle and Moran violated Rule 13b2-1 of the Exchange Act and caused Anika's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+   2.   Anika Improperly Recognized Revenue From Bill-And-Hold Sales In 1998 
+  Pursuant to the Agreement, the Distributor placed orders with Anika for a total of approximately 15,000 units of Orthovisc in April and July 1998.  4    In early September 1998, in light of the different labeling and packaging requirements for Orthovisc in various regulatory jurisdictions, Anika recommended to the Distributor that Anika invoice for the approximately 15,000 unit order under Anika's normal payment terms, but that it hold the Distributor's order atAnika's refrigerated facility.  Under this arrangement, the Distributor would pay for the invoice within 45 days of invoicing, and Anika would hold the units as unlabeled, unpackaged, filled syringes, until the Distributor desired shipment.
+  On September 24, 1998, Anika invoiced the Distributor $545,650 for the 15,590 units ordered in April and July 1998.  The Distributor paid for the units in November 1998, within the 45 day payment period established by the parties under the Agreement.  The 15,590 unit order was not shipped to the Distributor until March 1999, as per the Distributor's request.  Anika, however, recorded revenue for this sale on its books and records for the quarter ended September 30, 1998.  In its quarterly report for the quarter ended September 30, 1998, filed with the Commission on Form 10-Q, Anika recognized $545,650 from this bill-and-hold sale as revenue for that quarter.  5      Anika also recognized this revenue in its annual report for the year ended December 31, 1998, filed with the Commission on Form 10-K.  Moran made, and Engle approved,   the decision to recognize revenue from the transaction during the quarter ended September 30, 1998.  Engle and   Moran both signed the third quarter 1998 Form 10-Q and 1998 Form 10-K.
+
+   a.   Anika's Accounting Treatment of the 1998 Bill-and-Hold Sale Failed to Comply with GAAP 
+
+  As the Commission stated in  Sunbeam Corporation , Exchange Act Rel. No. 44305, Accounting and Auditing Enforcement Rel. No. 1393 (May 15, 2001), 2001 SEC LEXIS 931, "[b]ill and hold sales are unusual transactions subject to stringent accounting criteria."  The Commission has previously articulated these criteria in  Stewart Parness , Exchange Act Rel. No. 23507, Accounting and Auditing Enforcement Rel. No. 108 (August 5, 1986), 1986 SEC LEXIS 1051.  Anika's September 1998 bill-and-hold transaction with the Distributor did not satisfy all of the  Parness  criteria.  As a result, the transaction failed to comply with GAAP and should not have been recorded or recognized as revenue in the quarter ended September 30, 1998.  6    Anika's transaction with the Distributor failed to meet the following criteria necessary for revenue recognition:
+
+      The risks of ownership had not yet passed to the buyer.  Although the Distributor took title to the inventory at the time of invoicing and had no right of return except for defective product, the full risk of ownership had not yet passed to the buyer because Anika agreed that it would bear responsibility for any loss of product during packaging, a process that the Distributor inventory had yet to undergo;
+     At the time of the revenue recognition, Anika and the Distributor had not agreed to a fixed schedule for delivery of the goods;
+     Anika retained specific performance obligations such that the earnings process was not complete.  The labeling, packaging and sterilization process that the Orthovisc still needed to undergo consisted of approximately 20% of the total manufacturing cost of the product;
+     Anika failed to properly segregate the Distributor's Orthovisc units from other stored units of Orthovisc.  Tubs labeled with the Distributor's name, holding the Distributor's 15,590 units, were not consolidated, but rather were located throughout Anika's refrigerated storage facility and commingled with other tubs. In addition, the Orthovisc units that made up the transaction were not used to fill that particular order, but rather were either shipped to another Anika customer or were used to fill other separate orders from the Distributor; and
+     The product was not complete and ready for shipment at the time Anika recognized the revenue.  Anika had not yet labeled, packaged and sterilized the product in its packaging.
+   Another  Parness  factor weighing against Anika's recognition of the revenue from this transaction was under the Agreement, that Anika bore the risk of loss in the event of a decline in the market value of the goods.  Under the Agreement, Anika was required to refund money to the Distributor if the parties' "estimated selling price" to end customers was higher than the actual selling price.  Anika was ultimately required to refund the Distributor nearly $30,000 for the sales initially recorded in 1998.
+
+   b.  Anika Deviated from its Written Revenue Recognition Policy 
+
+  When it recognized revenue from the above bill-and-hold transaction in the third quarter of 1998, Anika contradicted the revenue recognition policy set forth in both its 1997 and 1998 Forms 10-K.  In the 1997 Form 10-K, the policy stated in relevant part that: "[t]he Company recognizes revenue on product sales when the products are shipped and the customer takes ownership."  In the 1998 Form 10-K, the policy stated in relevant part: "Product revenue is recognized upon shipment of commercial product and represents sales of products, Hyvisc and Orthovisc."  Anika did not ship the product from the third quarter of 1998 bill-and-holdtransaction to the Distributor's facility until March 1999, almost six months after it had recognized revenue from the sale.  Nonetheless, the company neither qualified the revenue recognition policy in its 1998 Form 10-K nor included information in its Commission filings about its deviation from its stated revenue recognition policy.  Both Engle and Moran were aware of the written revenue recognition policy at the time of Anika's recognition of revenue from the bill-and-hold transaction.
+   3. Anika Improperly Recognized Revenue from Bill-and-Hold Sales in 1999 
+  Due to delays in launching Orthovisc in Europe in 1998, the Distributor was, in early 1999, still storing approximately 58,000 of the 60,000 units of Orthovisc it had already purchased from Anika.  7    Despite this level of inventory, in late April 1999, the Distributor proposed to Engle that it buy 41,100 additional units of Orthovisc from Anika in the second and third quarters of 1999, or approximately $1 million in inventory, in exchange for a $1 million reduction in potential future milestone payments by the Distributor to Anika.  The additional units were above and beyond the contractually required annual minimum purchase of 30,000 units.  Engle, after consulting with Moran and other Anika officials, agreed to this proposal.  The additional units ordered were divided into two invoices, one on June 30, 1999, which the Distributor paid in August 1999, and the other on September 30, 1999, which the Distributor paid in November 1999.  In a May 20, 1999 letter, the Distributor requested that the 41,100 additional units be treated as bill-and-hold transactions.  
+  In its quarterly report for the period ended June 30, 1999, filed with the Commission on Form 10-Q, Anika prematurely recognized $365,250 from the June 30, 1999 bill-and-hold transaction of 15,000 units as revenue for that quarter.  In its quarterly report for the period ended September 30, 1999, filed with the Commission on Form 10-Q, Anika prematurely recognized $633,100 from the September 30, 1999 bill-and-hold transaction of 26,000 units as revenue for that quarter.  Anika also recorded revenue from those transactions on its books and records for the quarters ended June 30, 1999 and September 30, 1999.  Once again, Moran made, and Engle approved, the decision to recognize the revenue from the bill-and-hold transactions before the product was shipped to the Distributor.  Both Engle and Moran signed the second and third quarter 1999 Forms 10-Q. 
+  Like the third quarter of 1998 bill-and-hold transaction, these 1999 bill-and-hold transactions did not satisfy all of the  Parness  criteria and therefore failed to comply with GAAP. As with the prior transaction, the risk of loss for the product had not yet passed to the customer. In addition, Anika and the Distributor had not agreed to a fixed schedule for delivery of the goods to the Distributor.  Indeed, few of the units ordered were ever delivered to the Distributor. Of the approximately 71,000 units that the Distributor purchased from Anika in 1999, only about 1,100 were ever shipped to the Distributor.  Further, Anika had not completed the "earnings process" for these units.  The remaining manufacturing process constituted approximately 20% of the total cost of the product.  Anika also failed to properly segregate the inventory.  Finally, as with the 1998 transaction, the product sold on a bill-and-hold basis in 1999 was not complete and ready for shipment at the time of revenue recognition because Anika had not yet labeled, packaged and sterilized it in its packaging.
+  By recognizing revenue from the June 1999 bill-and-hold transaction in the second quarter of 1999, Anika again contradicted the revenue recognition policy set forth in its 1998 Form 10-K.  The company again failed to include any information in its Commission filing in the second quarter of 1999 about its deviation from this stated revenue recognition policy. 
+   4.   Anika Failed to Adequately Disclose Its Arrangementwith the Distributor For Additional 1999 Sales 
+
+  In various filings with the Commission through at least 1999, Anika had disclosed that, under the Agreement with the Distributor, Anika "has the potential to receive additional payments aggregating up to $20.5 million upon the achievement of certain regulatory approvals and enumerated sales milestones."  As explained above, in early 1999, Anika and the Distributor entered into an arrangement pursuant to which the Distributor would purchase $1 million in Orthovisc above the minimum amount stipulated in the Agreement in 1999, and in exchange, Anika would provide a $1 million reduction in potential future milestone payments from the Distributor to Anika.  In its Form 10-Q for the second quarter of 1999, Anika disclosed that the amount of the milestone payments it could potentially receive from the Distributor was reduced to $19.5 million.  Nevertheless, Anika failed to adequately disclose in any of its filings with the Commission or in its press releases announcing financial results that the $1 million in additional sales to the Distributor in the second and third quarters of 1999 resulted from giving up the rights to $1 million in potential revenues in the form of future milestone payments.  Both Engle and Moran were aware that this was a key component of the Distributor's agreement to purchase additional Orthovisc during 1999. 
+  The 1999 bill and hold sale of an additional 41,000 units of Orthovisc to the Distributor in exchange for giving up a future milestone payment was also material to Anika's financial results.  The sale of 15,000 units recognized in the second quarter of 1999 totaled $365,250, or approximately 10% of Anika's reported quarterly revenues.  The sale of the 26,000 units recognized in the third quarter of 1999 totaled $633,100, or approximately 18% of Anika's reported quarterly revenues. 
+   5.   Anika Inaccurately Stated that the 1999 Bill-and-Hold Transactions Were International Sales 
+	
+  In Anika's announcement of its second and third quarter 1999 financial results in press releases dated July 22, 1999 and October 21, 1999, the company characterized Orthovisc sales to the Distributor in those quarters as "international sales."  Anika characterized these sales as international despite knowing that the Distributor's sales of Orthovisc in the international market were poor, and that most of the units of Orthovisc that Anika sold to the Distributor during this time were being held in storage at Anika's facilities.  Few of the units were ever sold in the international market.
+   6.   Anika's Restatements on March 31, 2000 and September 5, 2001   8    On March 31, 2000, Anika restated its earnings figures for 1998 and the first three quarters of 1999 in its 1999 Form 10-K.  9    Specifically, Anika restated results by reducing revenues from (1) the $545,650 bill-and-hold transaction Anika entered into with the Distributor during the third quarter of 1998, the $365,250 bill-and-hold transaction in the second quarter of 1999, and the $633,100 bill-and-hold transaction in the third quarter of 1999, and (2) its recognition of the full per unit sale price of Orthovisc to the Distributor, without taking into account the possibility of Anika having to refund some of the sales price to the Distributor.  10    The restatement indicated that Anika would recognize revenue for sales of Orthovisc at the time of shipment to the Distributor and based on the minimum per unit price under the Agreement. According to the restatement, Anika overstated revenues for the three quarters in which it recognized revenue from the bill-and-hold transactions by $587,230, or 22.6% (third quarter of 1998), $216,929, or 6.1% (second quarter of 1999), and $486,287, or 16.2% (third quarter of 1999).  Over 90% of the overstated revenues in those quarters were attributable to the bill-and-hold transactions.  Anika also overstated net income for those quarters by $363,233, or 96.1% (third quarter of 1998), $9,010, or 2.3% (second quarter of 1999), and $97,067, which resulted in a change from net income of $4,186 to a net loss of $92,881 (third quarter of 1999).  
+  Because the first restatement improperly accounted for the September 1998 bill-and-hold transaction, Anika had to restate its earnings from that transaction for a second time, on September 5, 2001.  In its 1999 Form 10-K, which contained the first restatement and was signed by Engle, Anika clarified its revenue recognition policy with respect to sales to the Distributor as follows:  "Anika had also recognized revenue in 1998 and the first three quarters of 1999 for Orthovisc which was held in its refrigerators at [the Distributor's] request.  Under the Company'srevised revenue recognition policy, this revenue will be recorded when the Orthovisc is shipped to [the Distributor]."  However, the restatement improperly moved the revenue from the third quarter of 1998 bill-and-hold transaction into the fourth quarter of 1998.  In fact, under GAAP and pursuant to Anika's clarified revenue recognition policy described in the first restatement, revenue from that bill-and-hold transaction should have been recognized in the first quarter of 1999, when the product was actually shipped and delivered to the Distributor.  Thus, Anika's annual report for the period ended December 31, 1999, filed with the Commission on Form 10-K, contained inaccuracies concerning Anika's revenue for 1998 and 1999.   
+
+   C. LEGAL ANALYSIS 
+
+   1.   Anika Violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 Thereunder 
+	
+  Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 require issuers of registered securities to file annual and quarterly reports with the Commission.  It is implicit in this requirement that the information provided be accurate.   See SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975) (filing misleading periodic 13(a) reports violates the federal securities laws);  SEC v. IMC International, Inc. , 384 F. Supp. 889, 893 (N.D. Tex. 1974) (Exchange Act reporting provisions are satisfied only by filing complete, accurate reports). Similarly, Regulation S-X requires that financial statements filed with the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with GAAP.   See Peritus Software Services, Inc. , Exchange Act Rel. No. 42673 (April 13, 2000), 2000 SEC LEXIS 724. Otherwise, such statements will be presumed to be misleading or inaccurate.  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that statements made in them are not materially misleading.  Finally, pursuant to Regulation S-K, the MD&A section in quarterly reports filed with the Commission must disclose "any material changes in the registrant's results of operations . . . with respect to that fiscal quarter and the corresponding fiscal quarter in the preceding fiscal year."  Regulation S-K, Item 303(b)(2).  11    No showing of scienter is necessary to establish a violation of Section 13(a) or Rule 12b-20.   See SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979);  SEC v. Wills , 472 F. Supp.1250, 1268 (D.D.C. 1978).
+  Anika's recognition of revenue from the three bill-and-hold transactions prior to shipment and delivery of the product violated GAAP and contradicted the plain language of its revenue recognition policy as disclosed in filings with the Commission.  As a result of Anika's premature recognition of revenue, its Forms 10-K for the years ended December 31, 1998 and December 31, 1999 and its Forms 10-Q for the quarters ended September 30, 1998, July 31, 1999, andSeptember 30, 1999 materially overstated the company's revenues.  Anika also failed to adequately disclose in its MD&A or elsewhere in its Commission filings that the additional sale of $1 million of Orthovisc it made to the Distributor in 1999 only resulted from its agreement to give up $1 million in potential future milestone revenues, and inaccurately stated that certain sales of Orthovisc to the Distributor in 1999 were international sales.  Accordingly, the annual and quarterly reports discussed above were inaccurate, and Anika violated Section 13(a) of the Exchange Act and Rules12b-20, 13a-1, and 13a-13 thereunder.
+   2.   Anika Violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act 
+  Section 13(b)(2)(A) of the Exchange Act states in pertinent part that every reporting company must make and keep books, records and accounts that accurately and fairly reflect the issuer's transactions.  Section 13(b)(2)(B) requires the issuer to establish and maintain a system of internal controls that provides reasonable assurances that its transactions are recorded and financial statements are prepared in conformity with GAAP.  Sections 13(b)(2)(A) and 13(b)(2)(B) do not require a showing of scienter.  SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 751 (N.D. Ga. 1983).  
+  Anika violated Section 13(b)(2)(A) by failing to maintain accurate records of its revenues and net income.  The company's books and records reflected Anika's premature recording of revenues from the bill-and-hold transactions that occurred in 1998 and 1999.  In addition, Anika violated Section 13(b)(2)(B) by failing to implement procedures reasonably designed to prevent its premature recognition of revenue from the bill-and-hold transactions.  Anika's internal controls failed to provide reasonable assurances that its transactions would be recorded and its financial statements prepared in conformity with GAAP.  Its internal controls also failed to prevent Anika from recognizing revenue in contravention of its revenue recognition policy. 
+   3.   Moran Violated Rule 13b2-1 of the Exchange Act and Caused Anika's Violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 Thereunder 
+	
+  Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing the falsification of any books, records, or accounts subject to Section 13(b)(2)(A).  This provision permits the Commission to address conduct that undermines the integrity of the books, records and internal controls of an issuer that are integral to the issuer's ability to state accurately its financial results in public filings.   See SEC v. Larry Biggs, Jr., et al. , Litigation Rel. No. 17084 (August 1, 2001), 2001 SEC LEXIS 1535(officers of company who knew that revenue reported in filings did not conform with GAAP violated,  inter alia , Rule 13b2-1).  Moran violated Rule 13b2-1 by causing Anika to prematurely recognize revenue with respect to the bill-and-hold transactions in the quarters ended September 30, 1998, June 30, 1999, and September 30, 1999, and the year ended December 31, 1998, when he knew or should have known that the recognition of revenue from the transactions failed to satisfy GAAP.  He also knew or should have known that Anika's recognition of revenue in the third quarter of 1998 and the secondquarter of 1999 was contrary to Anika's revenue recognition policy. 
+  Moran also caused Anika's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  Moran made the decision to record and recognize revenue from the bill-and-hold transactions in the third quarter of 1998 and the second and third quarters of 1999 on Anika's books and records and in Anika's periodic reports filed with the Commission.  Because recording and recognizing revenue from those transactions did not comply with GAAP, Moran caused Anika to keep inaccurate books and records and file misleading periodic reports with the Commission.  Moran also approved the recognition and recording of the bill-and-hold revenue despite the plain language of Anika's revenue recognition policy, which stated that such revenue would not be recognized until shipment of the product.  As CFO, Moran was responsible for ensuring that Anika's internal controls were reasonably designed to prevent improper recognition of revenue.  Moran failed to ensure that proper internal controls were in place to prevent Anika from prematurely recognizing revenue from the bill-and-hold transactions.  Moran also failed to ensure that Anika adequately disclosed in its Commission filings that the additional $1 million sale of Orthovisc to the Distributor in 1999 was a direct result of Anika's agreement to give up $1 million in potential future revenues. 
+   4.     Engle Violated Rule 13b2-1 of the Exchange Act and Caused Anika's Violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 Thereunder 
+	
+  As discussed above, Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing the falsification of any books, records, or accounts subject to Section 13(b)(2)(A).  Engle violated Rule 13b2-1 by causing Anika to prematurely recognize revenue with respect to the bill-and-hold transactions in the quarters ended September 30, 1998, June 30, 1999, and September 30, 1999, and the year ended December 31, 1998, when he knew or should have known that the recognition of revenue from the transactions failed to satisfy GAAP.  He also knew or should have known that Anika's recognition of revenue in the third quarter of 1998, the second quarter of 1999 and in its restatement was contrary to Anika's revenue recognition policy. 
+  Engle also caused Anika's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  Engle approved Moran's decision to record and recognize revenue from the bill-and-hold transactions in the third quarter of 1998 and the second and third quarters of 1999 on Anika's books and records and in Anika's periodic Commission filings.  Engle also approved Anika's subsequent improper recognition of revenue from the September 1998 bill-and-hold transaction in its March 2000 restatement and in its books and records.  Recording and recognizing revenue from those transactions did not comply with GAAP, and with respect to the third quarter of 1998, second quarter of 1999 and the March 2000 restatement, directly contradicted Anika's revenue recognition policy.  Engle's involvement in approving Anika's improper accounting treatment demonstrates that he retainedresponsibility for Anika's accounting and financial functions.  Engle's failure to ensure that proper internal controls were in place to prevent the improper recognition of revenue from bill-and-hold transactions resulted in Anika's premature recognition of revenue and its failure to comply with its own revenue recognition policy.  Moreover, despite his personal involvement in the negotiation of the agreement that led to the additional $1 million sale of Orthovisc to the Distributor in 1999, Engle failed to ensure that Anika adequately disclosed in its Commission filings that the $1 million sale was a direct result of Anika's agreement to give up $1 million in potential revenues in the form of future milestone payments. 
+
+   IV. 
+
+  In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in the Respondents' Offers.  
+   Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that: 
+  A.   Respondent Anika shall cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+  B.   Respondent Engle shall cease and desist from causing any violations and any future violations of  Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder and from committing or causing any Exchange Act violations and any future violations of Rule 13b2-1 thereunder.
+  C.   Respondent Moran shall cease and desist from causing any violations and any future violations of  Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder and from committing or causing any Exchange Act violations and any future violations of Rule 13b2-1 thereunder.
+  By the Commission.
+	
+  Jonathan G. Katz
+ Secretary
+
+  
+  Footnotes 
+
+   1    The findings herein are not binding on anyone other than Respondents Anika, Engle and Moran.
+    2     Orthovisc is a treatment for osteoarthritis that is manufactured in a liquid form and placed into syringes for injection into the knee.  The product must be refrigerated during and after the manufacturing process.
+    3    Generally, a bill-and-hold transaction is a practice whereby a customer agrees to purchase goods and the seller invoices the customer, but the seller retains physical possession until a later delivery date.  There are very limited circumstances under generally accepted accounting principles ("GAAP") that permit a seller to recognize revenue from a bill-and-hold transaction prior to shipping the goods, as discussed in Section 2(a), and Anika did not satisfy all of the necessary criteria for revenue recognition for its bill-and-hold transactions.
+    4    The Distributor began selling Orthovisc in Canada in February 1998 and in parts of western Europe in February 1999.  Orthovisc has yet to receive Food and Drug Administration approval for sale in the United States. As a result, the Distributor never sold Orthovisc in the United States.  In November 2000, the Distributor terminated the Agreement.
+    5    In addition, this $545,650 revenue figure for the bill-and-hold transaction in the third quarter of 1998 inappropriately assumed a purchase price of $35.00 per unit of Orthovisc, which did not reflect the possibility that Anika might have had to refund a portion of the purchase price if the actual selling price to end customers was lower than expected.  The Agreement called for the Distributor to pay Anika 35% of Orthovisc's "estimated selling price" to end customers.  Anika and the Distributor agreed that the initial "estimated selling price" to end customers would be $100 per unit, which required the Distributor to pay Anika $35 per unit in 1998.  The Agreement also stated that the minimum per unit price that the Distributor would pay Anika was $22.00 or, if both parties agreed, as low as $18.00 per unit.  If the Distributor sold Orthovisc to end customers at a price lower than the parties' "estimated selling price," Anika was required to refund the difference to the Distributor at the end of the year.  Indeed, Anika was later required to refund nearly $30,000 to the Distributor based on a purchase price of $24.35 per unit.
+    6   See  Statement of Financial Accounting Concepts No. 5, paragraphs 83 and 84.
+    7     The Distributor's sales to end customers in 1998 and 1999 were extremely low.  Of the approximately 130,000 units of Orthovisc it purchased from Anika during this period, the Distributor sold only approximately 17,000 units to end customers.  The remaining units were destroyed, and Anika retained the purchase price paid by the Distributor for such units.
+    8    Moran left Anika in early 2000 to take other employment and was not involved in the two restatements.
+    9    Along with the restatement, Anika changed its method for recognizing nonrefundable up-front payments to conform with the guidance issued in December 1999 in SEC Staff Accounting Bulletin 101.  Anika had previously recognized $4 million in such payments upon receipt.  When the company filed its restated numbers in its 1999 Form 10-K, Anika began recording the revenue on a pro-rata basis over the life of the Agreement and recorded a $3.6 million charge in the first quarter of 1999 to reflect the cumulative effect of the change.
+    10    The revenue that was restated was subsequently recognized as revenue by Anika after the Distributor terminated the Agreement.
+    11    Regulation S-K also provides that the discussion of material changes in results of operations during the quarter "shall identify any significant elements of the registrant's income or loss from continuing operations which do not arise from or are not necessarily representative of the registrant's ongoing business."  Regulation S-K, Instruction No. 4 to Paragraph 303(b).
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diff --git a/raw/aaer/2003/AAER-1706.txt b/raw/aaer/2003/AAER-1706.txt
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+     SEC.gov | Phillip E. Harlow, CPA 
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+              Phillip E. Harlow, CPA
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+        Phillip E. Harlow, CPA
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+Securities Exchange Act of 1934 
+Release No.  47261 / January 27, 2003 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1706 / January 27, 2003 
+ 
+Administrative Proceeding 
+File No.  3-11020 
+        
+In the Matter of 
+  
+PHILLIP E. HARLOW, CPA 
+  
+Respondent.   
+     
+    : : : : : : : : :   
+   ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION'S RULES OF PRACTICE, 
+MAKING FINDINGS AND IMPOSING 
+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 Phillip E. Harlow, certified public accountant ("Harlow" or "Respondent"), pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.    1   
+
+ II. 
+ 
+In anticipation of the institution of the administrative proceedings, the Respondent has sub-mitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the pur-poses of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's find-ings con-tained herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions (the "Order").  
+
+ III. 
+ 
+On the basis of this Order and the Respondent's Offer, the Commission makes the following findings:    2   
+
+ A.   Summary 
+ 
+Harlow, a former partner at Arthur Andersen, LLP ("Andersen"), Sunbeam Corporation's ("Sunbeam" or "the Company") out-side auditing firm, failed to comply with Generally Accepted Auditing Standards ("GAAS") in auditing Sunbeam's 1996 and 1997 financial statements.  Harlow proposed certain adjustments that management rejected, and Harlow passed on the adjustments after quantitative materiality analysis.  This resulted in Andersen's audit reports on those financial statements being inac-curate in that the reports stated incorrectly that Sunbeam's financial statements conformed to GAAP and that the Andersen audits were conducted in accordance with GAAS. 
+
+ B.   The Respondent 
+ 
+ Phillip E. Harlow , a certified public accountant in the State of Florida, was a partner at Arthur Andersen from 1983 to 2002.  From 1994 until the summer of 1998, Harlow was the engagement partner on the Arthur Andersen audits of Sunbeam's financial statements.  Harlow has represented that he does not intend to appear or practice before the Commission as an accountant. 
+
+ C.   The Issuer 
+ 
+ Sunbeam  is a Delaware corporation headquartered in Boca Raton, Florida, that manufactures household appliances and outdoor products.  An investigation by Sunbeam in June 1998 resulted in a restatement of Sunbeam's financial statements from the fourth quarter of 1996 through the first quarter of 1998. 
+
+ D.   Sunbeam's False Financial Statements 
+ 1.   Sunbeam Recorded Reserves That Did Not Comport with GAAP and Recognized 1997 Expenses at Year-end 1996. 
+ 
+Sunbeam recorded total restructuring charges of $337.6 million at year-end 1996.  Included in these charges were certain reserves and accruals, and prematurely recog-nized expenses that were improper under GAAP.  These reserves included approximately $18.7 million of items that bene-fited future activities, and hence were not properly part of the restruc-turing reserve.  Some of these reserves reduced expenses in fiscal 1997.  These items included costs of redesigning product packaging, costs of relocating employees and equipment, and certain consulting fees.  Under GAAP, these restructuring costs should not have been recorded in 1996 because they benefited Sunbeam's future operations. 
+ 
+In connection with Andersen's audit of Sunbeam's 1996 year-end financial statements, Harlow identified these components of Sunbeam's restruct-uring reserves as not in compliance with GAAP and proposed that the Company reverse the improper accounting entries.  Harlow proposed adjustments for these entries, which management rejected, and Harlow passed on the proposed adjustments after incorrectly applying a materiality analysis. 
+ 
+Also at year-end 1996, members of Sunbeam management recorded a $12 million reserve for a lawsuit that alleged Sunbeam's potential obligation to cover a portion of the cleanup costs for a hazardous waste site.  Harlow, as the engagement partner on the Andersen audit of Sunbeam's 1996 financial statements, relied on statements from Sunbeam's General Counsel, and failed to take additional steps to determine that the litigation reserve level was sup-portable under GAAP.  In fact, at year-end 1996, it was improbable that Sunbeam would incur liability for the reserved amount. 
+ 
+Harlow caused Andersen to render an unqualified audit report on the 1996 financial statements included in Sunbeam's annual report on Form 10-K for fiscal year 1996.  The report represented that Andersen conducted its audits "in accordance with generally accepted auditing standards " and that: "[i]n our opinion, the financial statements … present fairly, in all material respects, the financial position of Sunbeam Corporation and subsidiaries as of December 29, 1996…and the results of its operations and its cashflows… in conformity with generally accepted accounting principles…". 
+ 
+As described in this Order, however, Andersen's audit of the Company's 1996 year-end financial statements was not conducted in accordance with GAAS, and Sunbeam's 1996 financial statements were not prepared in conformity with GAAP. 
+
+ 2.   Sunbeam Manipulated Its Results of Operations in 1997. 
+ 
+Throughout 1997, Sunbeam reported year-to-year and quarter-by-quarter trend improve-ments in sales and profits.  The impression of successful financial performance, however, rested in part on the improper use of excess reserves, the failure to recognize period expenses and the recognition of revenue from sales that did not meet revenue recognition requirements under GAAP. 
+ 
+First, the restructuring charges and excessive litigation reserves improperly recognized at year-end 1996 increased Sunbeam's reported income and earnings in fiscal year 1997.    3   These accounting errors, alone and together with the additional errors described below, resulted in the material misstatement of Sunbeam's reported results of operations. 
+ 
+During 1997, the Company offered financial incentives to various customers to provide purchase orders substantially in advance of their actual need for the product.  Further, Sunbeam offered to hold the merchandise in its warehouses until the normal time for delivery.  For revenue recognition purposes, Sunbeam treated these trans-actions as "bill and hold" sales.  The criteria for recognition of revenue on bill and hold sales, however, require, among other things, that the buyer, not the seller, have requested a sale on a bill and hold basis and that the buyer, not the seller, have a substantial business purpose for doing so.  Sunbeam's bill and hold sales did not meet these and other relevant criteria for revenue recognition.  In particular, Sunbeam's customers had not requested sales on a bill and hold basis and, moreover, had no substantial business purpose for doing so. 
+ 
+In the course of Andersen's audit of Sunbeam's 1997 year-end financial statements, Harlow failed to ensure that the Andersen audit team performed procedures adequate to verify that the Company's bill and hold sales complied with GAAP requirements for revenue recog-nition. 
+ 
+At year-end 1997, Sunbeam recorded $11 million in revenue and $5 million in income from a purported sale of spare parts inventory to its warranty and spare parts fulfillment house.  This "sale" did not comport with GAAP requirements for revenue recognition because, inter alia, critical terms of the transaction had not been agreed upon and Sunbeam had guaranteed a speci-fied profit margin to the customer.  In connection with Andersen's audit of Sunbeam's year-end 1997 financial statements, Harlow proposed a $3 million adjustment to reverse the accounting entries reflecting the revenue and income recognition for this transaction.  Management declined to make the adjustment and Harlow passed on the adjustment after quantitative materiality analysis. 
+ 
+In connection with Andersen's audit of Sunbeam's year-end 1997 financial statements, Harlow proposed adjustments to reverse $2.9 million related to inventory over-valuation in Mexico and $563,000 related to various miscellaneous items.  Management refused to make the adjustments and Harlow passed on the adjustments after quantitative materiality analysis. 
+ 
+Harlow caused Andersen to render an unqualified audit report on the financial statements included in Sunbeam's annual report on Form 10-K for fiscal year 1997.  The report represented that Anderson conducted its audits "in accordance with generally accepted auditing standards" and that: "[i]n our opinion, the financial statements … present fairly, in all material respects, the financial position of Sunbeam Corporation and subsidiaries in the period ended December 29, 1997… in conformity with generally accepted accounting principles…". 
+ 
+As described in this Order, however, Andersen's audit of the Company's 1997 year-end financial statements was not conducted in accordance with GAAS.  Moreover, Harlow, in the exercise of reasonable diligence, should have known that Sunbeam's financial statements had not been prepared in conformity with GAAP.  Indeed, at year-end 1997, approximately 16% of Sunbeam's reported 1997 income came from the aggregation of items that Harlow had proposed as adjustments in 1996 and 1997 and had passed after quantitative materiality analysis. 
+
+ E.   Improper Professional Conduct 
+ 
+In connection with Andersen's audits of Sunbeam's 1996 and 1997 year end financial statements, Harlow failed to exercise professional skepticism when performing audit procedures and gathering and analyzing audit evidence.  Codification of Statements on Auditing Standards ("AU") § 230.07.  In some instances, moreover, Harlow accepted uncorroborated representations of Sunbeam's management in lieu of performing appropriate audit procedures, in contravention of AU section 333. 
+ 
+Harlow failed to exercise due professional care in performing the audit and preparing the audit report as required by AU § 230.01.  Harlow failed to plan and perform audit proce-dures necessary to have a reasonable basis for its opinion.  Although Harlow identified a number of audit risks and accounting issues associated with the Sunbeam engagement and should have known these items could have a material impact on the financial statements, he failed to perform sufficient audit procedures to determine whether the financial statements were in confor-mity with GAAP.  Specifically, Harlow did not adequately address the Company's excessive restruc-turing and litigation reserves at year-end 1996, which resulted in the overstatement of the Com-pany's income in 1997.  Similarly, his lack of care in conducting the 1997 year-end audit allowed management to recognize revenue on sales that did not comport with applicable accounting standards. 
+ 
+In addition, Harlow failed to obtain sufficient competent evidential matter through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an audit opinion regarding the financial statements under audit.  (AU Section 326.01).    4   For example, Harlow failed to obtain sufficient evidentiary material to support management's treatment of Sunbeam's 1997 bill and hold sales. 
+ 
+In conducting an audit, an auditor is required to state in the auditor's report whether the financial statements are presented in conformity with GAAP.  (AU §§ 410 and 411).  An auditor may express that the financial statements are presented in conformity with GAAP only when the audit has been performed in accordance with GAAS.  (AU Section 508.07).  Based on the above, in connection with the audit of Sunbeam's year-end 1996 and 1997 financial statements, Harlow failed to render an accurate audit report.  To the contrary of the representations made by Harlow, the financial statements were not in conformity with GAAP, and the audit was not performed in accordance with GAAS.  Harlow, therefore, engaged in "improper professional conduct" for purposes of Rule 102(e) of the Commission's Rules of Practice. 
+
+ F.   Findings 
+ 
+Based upon the foregoing, the Commission finds that: 
+  Harlow practiced before the Commission within the meaning of Rule 102(f) of the Commission's Rules of Practice (17 C.F.R. § 201.102); and    
+ In connection with the audit of financial statements of Sunbeam, Harlow engaged in improper professional conduct for purposes of Rule 102(e) of the Commission's Rules of Practice. 
+  IV. 
+ 
+Accordingly, the Commission hereby accepts Harlow's Offer and hereby ORDERS, effective immediately, that: 
+  Respondent is denied the privilege of appearing or practicing before the Commission as an accountant.   
+ 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:   
+  a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or    
+ an independent accountant. Such an application must satisfy the Commission that:   
+   (a) 
+ Respondent, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");    (b) 
+ Respondent, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and     (c) 
+ As long as Respondent appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.     The Commission will consider an application by Respondent to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy. However, if state licensure is dependent on the reinstatement by the Commission, the Commission will consider an application on its merits.  The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.  
+  
+By the Commission. 
+   
+ 
+Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+ 
+        1   
+ Rule 102(e) (1) of the Commission's Rules of Practice provides, in pertinent part, that the Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission: "... (ii) . . . to have engaged in …improper professional conduct…."        2   
+ The findings herein are made pursuant to the Respondent's Offer of Settlement and are not binding on any other person or entity in this or in any other proceeding.        3   
+ In connection with the year-end audit of Sunbeam's 1997 financial statements, Harlow learned of the use of restructuring reserves to reduce fourth quarter 1997 period expenses, and proposed appropriate audit adjustments.  Management, however, refused to make the proposed adjustments.  Harlow passed on the proposed adjustments 
+after quantitative materiality analysis.        4   
+ AU § 326.01 states that the third standard of field work is that "sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit."    
+ 
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diff --git a/raw/aaer/2003/AAER-1715.txt b/raw/aaer/2003/AAER-1715.txt
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@@ -0,0 +1,1371 @@
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+              Christopher F. Crawford and Todd F. Katz;   Richard C. Tyrer;Donald F. Marcus;  Harry P. Adler
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+        Christopher F. Crawford and Todd F. Katz;   Richard C. Tyrer;Donald F. Marcus;  Harry P. Adler
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+ LITIGATION RELEASE NO.  17978 / February 10, 2003      
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1715 / February 10, 2003      
+   Securities and Exchange Commission v. Christopher F. Crawford and Todd F. Katz , Case No.  C-03-561 JL (February 10, 2003)
+   In the Matter of Richard C. Tyrer , Admin. Proc. No. 3-11039 (February 10, 2003)
+   In the Matter of Donald F. Marcus , Admin. Proc. No. 3-11038 (February 10, 2003)
+   In the Matter of Harry P. Adler , Admin. Proc. No. 3-11040 (February 10, 2003)
+  SEC SUES THE NORTH FACE, INC. FORMER CHIEF FINANCIAL OFFICER AND FORMER VICE PRESIDENT OF SALES FOR FRAUD AND INSTITUTES RELATED ADMINISTRATIVE PROCEEDINGS AGAINST FORMER VP OF WESTERN REGION SALES AND TWO FORMER CUSTOMERS
+  The Securities and Exchange Commission today filed a civil enforcement action against Christopher F. Crawford ("Crawford"), the former CFO, and Todd F. Katz ("Katz"), the former VP of Sales of The North Face, Inc., alleging they violated, or aided and abetted violations of, the antifraud, reporting, record keeping, and lying-to-auditors provisions of the federal securities laws [Sections 10(b), 13(b)(5), 13(a), and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, 13a-1 and 13a-13].  In addition, the Commission instituted and settled administrative proceedings against (a) Richard C. Tyrer ("Tyrer"), former VP of Western Region Sales, finding that he violated, or caused violations of, the antifraud, reporting, record keeping, and lying-to-auditors provisions of the securities laws [Exchange Act Sections 10(b), 13(b)(5), 13(a), and 13(b)(2)(A) and (B), and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, 13a-1, and 13a-13]; (b) Donald F. Marcus ("Marcus"), a former customer of the company, finding that he caused violations of the lying-to-auditors provision of the securities laws [Exchange Act Rule 13b2-2]; and (c) Harry P. Adler ("Adler"), another of the company's former customers, finding that he caused violations of the lying-to-auditors provision of the securities laws [Exchange Act Rule 13b2-2]. 
+  Without admitting or denying the allegations in the civil complaint, Crawford and Katz consented to the entry of final judgments against them that will (a) enjoin both from future violations of the antifraud, reporting, record keeping, and lying-to-auditors provisions of the securities laws; (b) bar both from serving as an officer or director of a public company for five years; (c) order Crawford to disgorge $28,981.77, plus interest; and (d) order Crawford to pay a civil penalty of $30,000 and Katz to pay a civil penalty of $40,000.  Crawford also consented to the issuance of an administrative order suspending him from appearing or practicing before the Commission as an accountant and providing that he may request reinstatement after five years.
+  Without admitting or denying the findings in the administrative orders, Tyrer consented to the issuance of an order that he cease and desist from committing or causing any violation of the antifraud, reporting, record keeping provisions, and lying-to-auditors of the securities laws, and Marcus and Adler consented to the issuance of orders that they cease and desist from committing or causing any violation of the lying-to-auditors provision of the securities laws.
+  The Commission's complaint alleges, and the orders find, the following:  During 1997 through 1998, Crawford and Katz, engaged in a series of schemes to artificially inflate The North Face's financial results.  As a result, The North Face overstated its revenue and gross margin recognition by fraudulently recognizing revenue on barter transactions and by fraudulently recording consignment sales as completed, regular sales.  Crawford, Katz, and Tyrer tried to conceal the true nature of the improperly reported transactions from The North Face's auditors and from a special audit committee investigation.  Crawford made material misrepresentations and omissions to the auditors in an attempt to hide his misconduct.  Katz and Tyrer also conspired to keep their fraud from being discovered.  They persuaded a customer of the company, Marcus, to lie to the internal investigators and senior management, and to sign false documents, knowing that the information would be relied upon by the auditors.  Tyrer and Katz persuaded a second customer, Adler, to sign a false confirmation letter, which also was relied upon by the auditors.
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diff --git a/raw/aaer/2003/AAER-1720.txt b/raw/aaer/2003/AAER-1720.txt
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+              Enio A. Montini, Jr. and Joseph A. Hofmeister
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+        Enio A. Montini, Jr. and Joseph A. Hofmeister
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+  Securities and Exchange Commission v. Enio A. Montini, Jr. and Joseph A. Hofmeister , Civil Action No. 03-70808 (Borman, J.; Capel, M.J.) (E.D. Michigan, filed February 26, 2003) 
+ 
+The Securities and Exchange Commission ("SEC") today filed a civil action against two former officers of Kmart, Enio A. Montini, Jr. and Joseph A. Hofmeister.  Montini and Hofmeister were also indicted today by the United States Attorney's Office for the Eastern District of Michigan on related criminal charges. 
+ 
+The SEC's civil complaint, filed in the United States District Court for the Eastern District of Michigan, alleges that: 
+  Enio A. Montini, Jr. was Senior Vice President and General Merchandise Manager of Kmart's Drug Store Division.  Joseph A. Hofmeister was Divisional Vice President of Merchandising within the Drug Store Division.   
+ Montini and Hofmeister negotiated a multi-year contract with one of Kmart's vendors, American Greetings Corporation, pursuant to which American Greetings paid Kmart an "allowance" of $42,350,000 on June 20, 2001.  Generally accepted accounting principles, as well as the company's own accounting policies and practices, required that the $42 million be recognized over the term of the agreement.   
+ Montini and Hofmeister lied to Kmart accounting personnel and concealed a side letter relating to the $42 million payment from American Greetings in order to improperly recognize the entire amount in the quarter ended August 1, 2001.  Those deceptions caused Kmart to understate losses by $0.06 per share. 
+  
+The SEC charges Montini and Hofmeister with violations of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, the reporting and bookkeeping provisions of Rules 13b2-1 and 13b2-2 of the Exchange Act, and the reporting, bookkeeping, and internal control provisions of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.  The SEC seeks as relief permanent injunctions, disgorgement of ill-gotten gains (including a $750,000 forgivable cash loan Montini received from the company) with prejudgment interest, civil money penalties, and officer and director bars.  
+ 
+The SEC's investigation is continuing. 
+ 
+  SEC Complaint in this matter  
+ 
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diff --git a/raw/aaer/2003/AAER-1724.txt b/raw/aaer/2003/AAER-1724.txt
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index 0000000000000000000000000000000000000000..66901274a5b44b1747cf5ab679f1e83437df2971
--- /dev/null
+++ b/raw/aaer/2003/AAER-1724.txt
@@ -0,0 +1,1536 @@
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+        Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47416 / February 27, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1724 / February 27, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No. 3-9793  
+
+
+
+  
+       In the Matter of  
+J.P. Bolduc, Brian J. Smith, C.P.A., 	
+Richard N. Sukenik, C.P.A., Philip J.	
+Ryan III, Constantine L. Hampers, 	
+A. Miles Nogelo, and Robert W. 		  	
+Armstrong III, C.P.A., 
+ Respondents. 
+  
+ : : : : : : : : : : : : : : : 
+ 
+  
+ORDER MAKING FINDINGS AND 
+IMPOSING CEASE-AND-DESIST
+ORDER AGAINST J. P. BOLDUC
+
+
+     
+ I.     
+  
+The Securities and Exchange Commission ("Commission") deems it appropriate to accept the Offer of Settlement ("Offer") submitted by J.P. Bolduc ("Bolduc" or "Respondent") pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a), for the purpose of settlement of this public administrative and cease-and-desist proceeding instituted by the Commission against him on December 22, 1998, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+  
+ II.     
+  
+Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying any of the findings contained herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which is admitted, Bolduc consents to the entry by the Commission of this Order.
+  
+ III.     
+  
+On the basis of this Order and the Respondent's Offer, the Commission finds that:  1    
+  BACKGROUND  
+  
+1. Respondent Bolduc was the president and chief operating officer of W.R. Grace & Co. ("Grace") from 1990 through 1992 and was the president and chief executive officer of Grace from 1993 until his resignation in March 1995.  Bolduc was also a member of Grace's board of directors during at least 1991 through 1995.  During this period, Bolduc sold none of the substantial number of Grace shares that he owned.
+  
+2. Grace was a New York corporation with its principal executive offices in Boca Raton, Florida during at least 1991 through 1996.  Grace's primary businesses were packaging, specialty chemicals and health care services.  During the relevant time period, Grace had a December 31 fiscal year end.
+  
+3. Between at least 1991 and 1995, National Medical Care Inc. ("NMC") was Grace's main health care subsidiary, with its headquarters in Waltham, Massachusetts.  NMC provided kidney dialysis and home health services and manufactured specialized medical products.  During the relevant period, NMC comprised the bulk of Grace's Health Care Group, which group was, until the first quarter of 1995, one of Grace's core businesses and was reported as a segment in Grace's consolidated financial statements.  The Health Care Group contributed a significant portion of the consolidated pretax earnings of Grace during the majority of the period 1991-1995.
+  
+  EXCESS RESERVES AT NMC  
+  
+4. As described in greater detail below, during the fiscal years 1991 through 1995 ("relevant period"), both while Bolduc was an officer and continuing after his resignation, Grace engaged in fraudulent conduct by deferring income earned by NMC primarily to smooth the earnings of the Health Care Group.  Grace deferred reporting income by increasing or establishing "excess reserves" that were not in conformity with generally accepted accounting principles ("GAAP").  Grace used the reserves to manipulate the reported quarterly and annual earnings of the Health Care Group and Grace.  2    
+5. Bolduc, first as the president and chief operating officer of Grace and later as the president and chief executive officer of Grace and a member of Grace's board of directors, through his actions or omissions, was a cause of (i) this fraudulent conduct, which resulted in Grace's filing false and misleading periodic reports with the Commission and making false and misleading statements in press releases and at analyst teleconferences; (ii) Grace's failure to make and keep books and records which accurately reflected its transactions; and (iii) Grace's failure to maintain a system of internal accounting controls sufficient to provide assurances that transactions were recorded as necessary to permit the proper preparation of financial statements in conformity with GAAP.          
+  
+  Creation of the Excess Reserves  
+  
+6. Beginning in 1990 or 1991, NMC experienced a significant and unanticipated increase in revenues and earnings, in excess of Grace's internal forecasts, due to changes in Medicare reimbursement procedures.  During the first half of 1991, members of NMC senior management deferred some of the unanticipated income by increasing or establishing reserves (an expense), often referred to as "excess reserves."  Thus, rather than report its actual earnings, NMC, at the direction of at least one of Grace's senior officers, and with the knowledge of Bolduc and other senior officers of Grace, underreported its earnings for 1991 and 1992. 
+  
+7. At some point in mid-1991, as the reserves reached a level of between $10 and $20 million, certain members of NMC senior management realized that the reserves were going to be significant by year end and contacted Grace's chief financial officer to determine how Grace wanted NMC to account for the excess reserves.  Grace's chief financial officer, with the knowledge and approval of Bolduc, directed that NMC keep the excess reserves and report Health Care Group earnings consistent with Grace's targeted levels (specifically a 24% growth rate for 1991) because Grace would not be credited by the investing public for growth rates beyond the targeted levels.  Bolduc, after discussions with and advice from Grace's financial officers, approved the direction to keep the excess reserves.
+  
+8. The final reported 1991 growth rate for the Health Care Group was 24%.  Grace directed NMC to report a 27-28% growth rate for the Health Care Group's net income for 1992.  The final reported 1992 growth rate was 27.5%.        
+  
+  Use of the Excess Reserves  
+  
+9. During the relevant period, the excess reserves were primarily used for profit planning purposes, i.e., to bring the Health Care Group's quarterly reported results of operations in line with Grace's targets for the Health Care Group.  In general, from 1991 through the first quarter of 1995, the reported Health Care Group growth rates remained relatively steady - from about 23% to 37% -- whereas the actual growth rates fluctuated from about an 8% decline in growth to a 61% increase.  
+  
+10. However, at various times, Grace also directed NMC to release some of the excess reserves to increase Grace's earnings per share.  For example, Grace requested NMC to report an additional $1.5 million in income for the fourth quarter of 1994 because Grace needed the additional income for its consolidated results of operations.
+  
+11. During the relevant period, Grace also discussed the creation and use of the excess reserves with Price Waterhouse LLP ("PW"), Grace's independent auditors (PW merged with Coopers & Lybrand L.L.P. on July 1, 1998 to form PricewaterhouseCoopers LLP).  Also during the relevant time period, PW performed audits of Grace's consolidated financial statements.  Although PW proposed adjustments to eliminate the excess reserves, Grace management declined to make the adjustments.  Nonetheless, PW issued audit reports containing unqualified opinions on Grace's consolidated financial statements.  3    
+12. Grace's chief financial officer, with the knowledge and approval of other members of Grace's management, including Bolduc, directed NMC to use the excess reserves to control Grace's consolidated earnings.  Bolduc knew or should have known that the use of the excess reserves to control Grace's consolidated earnings was improper. 
+  
+  FALSE AND MISLEADING FILINGS AND STATEMENTS  
+  
+13. During the relevant period, Grace issued a press release and conducted an analyst teleconference at or about the same time it filed each of its Forms 10-Q and 10-K.  Throughout the relevant period, the Health Care Group and Grace income amounts discussed in the teleconferences and reported in the press releases and filings included the effects of the excess reserves.  Therefore, every filing, press release and teleconference was false and misleading because it included manipulated earnings amounts for the Health Care Group and Grace.  Moreover, the earnings figures were materially misstated in one or more of Grace's Forms 10-K, Forms 10-Q, press releases and teleconferences.
+  
+14. Another aspect of the false and misleading nature of Grace's filings and press releases resulted from the failure to disclose the excess reserves.  During the relevant period, the Management Discussion & Analysis section of Forms 10-Q and 10-K and the press releases included discussions of the results of operations for the Health Care Group and Grace.  These discussions were misleading because they did not provide complete and accurate disclosure of all factors relevant to an assessment of the Health Care Group's and Grace's results of operations.
+  
+15. A third facet of the false and misleading nature of Grace's filings and press releases related to the distortion of the Health Care Group's earnings trends during the relevant period.  The Health Care Group growth rates reported by Grace from 1991 through the first quarter of 1995 fluctuated less than the actual growth rates.  In addition, over the 1991 through 1993 period, Grace reported steadily increasing growth in annual pretax earnings for the Health Care Group.  However, the actual trend was a steady decline in the growth rate for the Health Care Group.
+  
+16. Bolduc knew, or should have known, that Grace's filings, press releases and analyst teleconferences during the relevant time period contained the misstatements and omissions described above.  Moreover, as the president and chief operating officer or chief executive officer of Grace, Bolduc, through his actions or omissions, was a cause of Grace's failure to make and keep books and records which accurately reflected its transactions, and its failure to maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP.
+  
+  VIOLATIONS  
+  
+17. Based upon the aforesaid conduct, Respondent Bolduc was a cause of Grace's violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.
+  
+ IV.     
+  
+>Respondent Bolduc has submitted an Offer of Settlement in which, without admitting or denying the findings herein, he consents to the Commission's entry of this Order, which: (1) makes findings, as set forth above; and (2) orders Bolduc to cease and desist from committing or causing any violations, or future violations, of certain provisions of the federal securities laws, as set forth below.  As set forth in Bolduc's Offer of Settlement, Bolduc undertakes to cooperate with the Commission staff in preparing for and presenting any civil litigation or administrative proceedings concerning any transaction that is the subject of the Order.    
+  
+ V.     
+  
+On the basis of the foregoing, the Commission deems in appropriate to accept Respondent's Offer.    
+  
+ Accordingly, IT IS ORDERED  that:    
+  
+Respondent Bolduc cease and desist from committing or causing any violation and any future violation of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from causing any violation and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.    
+  
+By the Commission.                     
+  
+Jonathan G. Katz  
+Secretary
+
+  
+  Footnotes 
+  1     The findings herein are made pursuant to Respondent Bolduc's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+ 
+  2     On June 30, 1999, Grace consented to the entry of an Order by the Commission (the "Grace Order") requiring Grace to cease-and-desist from committing or causing any violation and any future violation of Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   See   In the Matter of W. R. Grace & Co. , Securities Exchange Act Release No. 41578; Accounting and Auditing Enforcement Release No. 1140 (June 30, 1999).  Pursuant to the Grace Order, Grace also undertook to establish a fund of $1 million for program(s) to further awareness and education relating to financial statements and generally accepted accounting principles.
+  
+  3     On June 30, 1999, the Commission, on consent, ordered two PW partners who were involved in the audits of Grace's consolidated financial statements during the relevant period to cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.   See   In the Matter of Eugene Gaughan, C.P.A. , Securities Exchange Act Release No. 41580; Accounting and Auditing Enforcement Release No. 1141 (June 30, 1999);  In the Matter of Thomas Scanlon, C.P.A. , Securities Exchange Act Release No. 41581; Accounting and Auditing Enforcement Release No. 1142 (June 30, 1999).  
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diff --git a/raw/aaer/2003/AAER-1732.txt b/raw/aaer/2003/AAER-1732.txt
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+              A. Robert Mancuso, Ronald R. Lanchoney, and Shamir A. Ally
+           
+     
+ 
+
+   
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+      
+             
+        A. Robert Mancuso, Ronald R. Lanchoney, and Shamir A. Ally
+       
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+ 
+LITIGATION RELEASE NO.  18017 / March 6, 2003
+  
+ACCOUNTING AND AUDITING ENFORCEMENT 
+RELEASE NO.  1732 / March 6, 2003
+  
+ SECURITIES AND EXCHANGE COMMISSION v. A. ROBERT MANCUSO, RONALD R. LANCHONEY, AND SHAMIR A. ALLY , Case No. 03-1220 (E.D. Pa.)  
+  
+The Securities and Exchange Commission ("Commission") announced that it filed a complaint seeking injunctive and other relief against A. Robert Mancuso, Ronald R. Lanchoney and Shamir A. Ally, all Pennsylvania residents.  Simultaneously with the filing of the complaint, the Commission filed the defendants' consents to the entry of permanent injunctions and other relief as detailed below.  The Commission's complaint alleged that Mancuso, Lanchoney and Ally, former officers or employees of Acrodyne Communications, Inc. ("Acrodyne"), were involved in Acrodyne's dissemination of false financial information in press releases and Commission filings in 1998, 1999 and 2000.  The Commission alleged that Mancuso (Acrodyne's former CEO and president), Lanchoney (Acrodyne's former CFO), and Ally (Acrodyne's former controller) were aware of numerous and significant problems with Acrodyne's accounting controls, but failed to assure that Acrodyne's financial transactions were accurately recorded.  The Commission claimed that, as a result of the actions of Mancuso, Lanchoney and Ally, Acrodyne engaged in inaccurate and improper cost accounting and revenue recognition.  The Commission also alleged that, starting in the second quarter of 1999 and continuing through the first quarter of 2000, Ally directed that unsupported journal entries be made to the cost of sales and inventory accounts to bring Acrodyne's financial statements in line with the gross margin percentage he had estimated for period.   The Commission claimed that Mancuso approved these fraudulent adjustments for the first quarter of 2000.  Finally, the Commission claimed that Mancuso recklessly provided false information to Acrodyne's auditors relating to Acrodyne's guarantee of a customer's debt.   
+  
+Each defendant consented to the entry of a permanent injunction prohibiting future violations of Sections 10(b) and 13(b)(5) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and future aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.  The injunction to which Mancuso consented would also prohibit him from committing future violations of Rule 13b2-2 under the Exchange Act.  Mancuso and Lanchoney also consented to a bar prohibiting them 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.  Mancuso, Lanchoney and Ally further agreed to pay civil penalties of $50,000, $10,000 and $10,000, respectively.  In making his offer of settlement, Lanchoney submitted sworn financial statements to the Commission demonstrating that he could not pay a larger penalty.  
+  
+In a related matter, the Commission ordered Acrodyne to cease-and-desist from future violations of the antifraud, periodic reporting and books and records provisions of the Exchange Act. 
+
+
+
+ 
+    SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2003/AAER-1736.txt b/raw/aaer/2003/AAER-1736.txt
new file mode 100644
index 0000000000000000000000000000000000000000..07d7c226b186c42b13f2e57ef592569dd7a62c1d
--- /dev/null
+++ b/raw/aaer/2003/AAER-1736.txt
@@ -0,0 +1,1379 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
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+     
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+     SEC.gov | Robert Mancuso, Ronald R. Lanchoney, and Shamir A. Ally 
+     
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+              Robert Mancuso, Ronald R. Lanchoney, and Shamir A. Ally
+           
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+        Robert Mancuso, Ronald R. Lanchoney, and Shamir A. Ally
+       
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+ LITIGATION RELEASE NO.  18025 / March 10, 2003   
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+ RELEASE NO. 1736 / March 10, 2003           
+
+SECURITIES AND EXCHANGE COMMISSION v. A. ROBERT MANCUSO, RONALD R. LANCHONEY, AND SHAMIR A. ALLY, Case No. 03-1220 (E.D. Pa.)
+  
+
+On March 4, 2003, United States District Court Judge Michael M. Baylson entered final judgments against A. Robert Mancuso, Ronald R. Lanchoney, and Shamir A. Ally, enjoining them from future violations of the antifraud and recordkeeping provisions set forth in 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 future aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  The final judgment against Mancuso also enjoined him from future violations of Rule 13b2-2 under the Exchange Act.  In addition, the final judgments prohibited Mancuso and Lanchoney from acting as an officer or director of a public company, and imposed civil penalties of $50,000 against Mancuso, $10,000 against Lanchoney, and $10,000 against Ally.  The defendants consented to the entry of the orders without admitting or denying the Commission's allegations in the action. 
+  
+The Commission's complaint alleged that the defendants were involved in the dissemination of false financial information by Acrodyne Communications, Inc. ("Acrodyne") in press releases and Commission filings in 1998, 1999 and 2000.  The Commission alleged that Mancuso (Acrodyne's former CEO and president), Lanchoney (Acrodyne's former CFO), and Ally (Acrodyne's former controller) were aware of numerous and significant problems with Acrodyne's accounting controls, but failed to assure that Acrodyne's financial transactions were accurately recorded.  The Commission claimed that, as a result of the actions of Mancuso, Lanchoney and Ally, Acrodyne engaged in inaccurate and improper cost accounting and revenue recognition.  The Commission also alleged that, starting in the second quarter of 1999 and continuing through the first quarter of 2000, Ally directed that unsupported journal entries be made to the cost of sales and inventory accounts to bring Acrodyne's financial statements in line with the gross margin percentage he had estimated for period.   The Commission claimed that Mancuso approved these fraudulent adjustments for the first quarter of 2000.  Finally, the Commission claimed that Mancuso recklessly provided false information to Acrodyne's auditors relating to Acrodyne's guarantee of a customer's debt.  In a related matter, on March 6, 2003, the Commission ordered Acrodyne to cease-and-desist from future violations of the antifraud, periodic reporting, and books and records provisions of the Exchange Act.
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diff --git a/raw/aaer/2003/AAER-1739.txt b/raw/aaer/2003/AAER-1739.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a2535348bba11a62d781b80f62e7ba27c4d6ae60
--- /dev/null
+++ b/raw/aaer/2003/AAER-1739.txt
@@ -0,0 +1,1378 @@
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+              U.S. Technologies, Inc. and C. Gregory Earls
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+        U.S. Technologies, Inc. and C. Gregory Earls
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+ Litigation Release No.  18031 / March 12, 2003  
+Accounting and Auditing Enforcement  Release No. 1739  / March 12, 2003
+   
+SECURITIES AND EXCHANGE COMMISSION v. U.S. TECHNOLOGIES, INC. and C. GREGORY EARLS, No. 1:02CV02495 (Robertson, J.) (D.D.C.)
+  
+
+SEC OBTAINS TEMPORARY RESTRAINING ORDER FREEZING ASSETS OF U.S TECHNOLOGIES, INC. AND C. GREGORY EARLS 
+  
+On March 11, 2003, the United States District Court for the District of Columbia granted the Commission's ex parte application to freeze the assets of U.S. Technologies, Inc. ("UST") and C. Gregory Earls, the two defendants in a securities fraud case the Commission filed on December 19, 2002.  The Court's order, among other things, prohibits UST and Earls from disposing or transferring their assets pending further order of the Court, orders them to provide accountings of their assets and liabilities, prohibits them from destroying relevant documents, and orders them to appear before the Court on March 25, 2003 to show cause why these safeguards should not be extended until final adjudication of the case on the merits and why the Court should not appoint a corporate monitor to review and approve UST's future disbursements and corporate actions.    
+  
+The Commission's complaint in the case alleges that from June 1998 through August 2002, Earls misappropriated approximately $13.8 million from investors who believed they were giving Earls money to purchase preferred stock and warrants from UST.  According to the complaint, Earls carried out this scam through a limited liability company he created called USV Partners LLC.  The complaint charges that Earls falsely told investors in USV Partners that the entity was created solely to purchase and hold UST stock and warrants, and that he would not take any management fees.  According to the complaint, Earls lured more than one hundred investors into giving him more than $20 million to purchase UST stock and warrants through USV Partners.  Although UST badly needed the capital infusion, according to the complaint, Earls bought only a small portion of the stock he promised investors.  He then allegedly misappropriated $13.8 million of their money by paying himself $4.7 million in management fees and $9.1 million that he falsely classified as "Legal and Accounting" expenses.  As alleged in the complaint, neither UST nor Earls has ever publicly disclosed Earls' diversion of these investor funds. 
+  
+The complaint further charges that Earls and UST made numerous materially misleading statements and omissions to cover up Earls' misdeeds.  For example, the complaint alleges that while touting Earls' supposed business experience and acumen, Earls and UST failed to disclose that he had previously been accused of misappropriating investor funds in connection with several other companies.  Earls and UST are also charged with failing to reveal the material weaknesses noted by its independent auditor concerning its internal accounting controls.   Most recently, according to the complaint, Earls and UST failed to disclose that half of its board of directors resigned in or about April 2002.
+  
+	The Commission's complaint charges UST with violating Section 17(a) of the Securities Act of 1933 (the "Securities Act"), Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13.  It charges Earls with violating Securities Act Section 17(a), Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5 and 13b2-1.  The complaint also charges Earls with aiding and abetting UST's violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(b), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13.  The Commission is asking the Court to enjoin both defendants from violating the relevant provisions of the federal securities laws, to order Earls to disgorge his ill-gotten gains and pay a civil penalty, and to bar Earls from serving as an officer or director of any public company.
+  
+	In a related criminal proceeding, Earls has been charged with securities fraud, mail fraud, and wire fraud. United States v. C. Gregory Earls, No. 02-MAG-531 (S.D.N.Y.)  That case is being prosecuted by the United States Attorney's Office for the Southern District of New York.  At the request of the U.S. Attorney's office, the Court has ordered a limited stay of discovery in the SEC's case.
+  
+	For further information regarding this case, see Litigation Release No.  17904  (December 19, 2002).
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diff --git a/raw/aaer/2003/AAER-1742.txt b/raw/aaer/2003/AAER-1742.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9d0b4e0040a4b573735ff7f786d419a84655c6ba
--- /dev/null
+++ b/raw/aaer/2003/AAER-1742.txt
@@ -0,0 +1,1396 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
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+     
+     
+     SEC.gov | Merrill Lynch & Co., Inc., Daniel H. Bayly, Thomas W. Davis, Robert S. Furst, Schuyler M. Tilney 
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Merrill Lynch & Co., Inc., Daniel H. Bayly, Thomas W. Davis, Robert S. Furst, Schuyler M. Tilney
+           
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+        Merrill Lynch & Co., Inc., Daniel H. Bayly, Thomas W. Davis, Robert S. Furst, Schuyler M. Tilney
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+ Litigation Release No. 18038 / March 17, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1742 / March 17, 2003 
+
+  Securities and Exchange Commission v. Merrill Lynch & Co., Inc., Daniel H. Bayly, Thomas W. Davis, Robert S. Furst, Schuyler M. Tilney , Case No. H-03-0946 (Hoyt) (S.D. Tx) 
+
+ SEC Charges Merrill Lynch, Four Merrill Lynch Executives with Aiding and Abetting Enron Accounting Fraud  
+
+ Merrill Lynch Simultaneously Settles Charges for Permanent Anti-Fraud Injunction and Payment of $80 Million in Disgorgement, Penalties and Interest  
+
+ The Securities and Exchange Commission today charged Merrill Lynch & Co., Inc. and four of its former senior executives with aiding and abetting Enron Corp.'s securities fraud.  The Commission's complaint, filed in U.S. District Court in Houston, alleges that Merrill Lynch and its former executives aided and abetted Enron Corp.'s earnings manipulation by engaging in two fraudulent year-end transactions in 1999.  The transactions had the purpose and effect of overstating Enron's reported financial results.  Specifically, Enron used these transactions to add approximately $60 million to its fourth quarter of 1999 income (improving net income from $199 million to $259 million or 33 percent) and to increase its full year 1999 earnings per share from $1.09 to $1.17. 
+
+ Simultaneous with the filing of this action, the Commission has agreed to accept Merrill Lynch's offer to settle this matter.  Merrill Lynch, without admitting or denying the allegations in the complaint, has agreed to pay $80 million dollars in disgorgement, penalties and interest and has agreed to the entry of a permanent anti-fraud injunction prohibiting future violations of the federal securities laws.  The Commission intends to have these funds paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 for ultimate distribution to victims of the fraud.  The four former Merrill Lynch executives named in the complaint, Robert S. Furst, Schuyler M. Tilney, Daniel H. Bayly, and Thomas W. Davis, are contesting the matter. 
+
+ The Commission's complaint alleges that, in late December 1999, senior Enron executives approached Merrill Lynch with the two transactions it had designed.  As alleged, the first transaction was an asset-parking arrangement whereby on December 29, 1999, Merrill Lynch bought an interest in certain Nigerian barges from Enron with an express understanding that Enron would arrange for the sale of this interest by Merrill Lynch within six months at a specified rate of return.  In substance, this transaction was, at best, a bridge loan because the risks and rewards of ownership of the interest in the barges did not pass to Merrill Lynch.  
+
+ As further alleged in the complaint, Merrill Lynch and the named executives knew that Enron would record $28 million in revenue and $12 million in pre-tax income in connection with this transaction.  The Commission alleges that Merrill Lynch and the named executives entered into this transaction solely to accommodate Enron, despite express concerns that Merrill Lynch could appear to be aiding and abetting Enron's earnings manipulation.  In 2000, Enron arranged to take Merrill Lynch out of the barge deal on the agreed time frame at the agreed rate of return.   
+
+ In the second transaction, also closed in the last days of December 1999, Merrill Lynch and Enron entered into two energy options - one physical and one financial - that Merrill Lynch knew had the purpose and effect of inflating Enron's income by approximately $50 million.  The complaint details that, at year-end 1999, the trading under these options was not scheduled to begin for approximately nine months.  Before the transaction was closed, the complaint alleges, Enron told Merrill Lynch that, despite a nominal term of four years, it might want to unwind this transaction early.   
+
+ Merrill Lynch believed that the two trades were essentially a wash and knew that the transaction would have a significant impact on Enron's reported results, bonuses, and stock price.  Merrill Lynch demanded a multi-million dollar fee for entering into this transaction; Enron ultimately agreed to pay Merrill Lynch a structured fee to be paid over four years with a net present value of $17 million.  In 2000, Enron approached Merrill Lynch seeking to unwind the transaction before trading under the energy options was scheduled to begin.  The deal was unwound in June 2000 after Merrill Lynch agreed to reduce its fee to $8.5 million to terminate the transaction. 
+
+ The complaint alleges that Merrill Lynch and the named executives aided and abetted Enron's violations of the anti-fraud, reporting, books and records, and internal controls provisions of the federal securities laws.  For these violations, the Commission seeks in its complaint a permanent injunction, disgorgement, and civil penalties with respect to Merrill Lynch and, with respect to the individual defendants, permanent injunctions, civil penalties, and permanent officer and director bars. 
+
+ Simultaneous with the filing of the complaint, Merrill Lynch agreed to file a consent and final judgment settling the Commission's action against it.  In the consent, Merrill Lynch has agreed, without admitting or denying the allegations of the complaint, to the entry of a final judgment permanently enjoining it from future violations of Sections 10(b), 13(a), 13(b)(2), and 13(b)(5) and of the Securities Exchange Act of 1934  and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.   
+
+ Merrill Lynch also has agreed to pay disgorgement, penalties and interest in the amount of $80 million.  Specifically, Merrill Lynch will pay $37.5 million in disgorgement, $5 million in prejudgment interest, and a civil penalty of $37.5 million.  As noted above, the Commission intends to have these funds paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 for ultimate distribution to victims of the fraud.  
+
+ In agreeing to resolve this matter on the terms described above, the Commission took into account certain affirmative conduct by Merrill Lynch.  Merrill Lynch terminated Messrs. Davis and Tilney after they refused to testify before the staff and instead asserted their Fifth Amendment rights.  In addition, Merrill Lynch brought the energy trade transaction to the staff's attention at a time when it believed the staff was unaware of its existence. 
+
+ The Commission acknowledges the assistance provided by the staff of the Federal Energy Regulatory Commission in this investigation.   
+
+ The Commission also acknowledges the continuing coordination among the Division of Enforcement, the Justice Department Enron Task Force and the Federal Bureau of Investigation in the Enron investigation. 
+
+ The Commission's investigation is continuing. For additional information see 
+
+  SEC v. Andrew S. Fastow -  Litigation Release 17762  (Oct. 2, 2002)   
+
+ SEC v. Michael J. Kopper -  Litigation Release 17692  (Aug. 21, 2002)   
+
+ SEC v. Kevin A. Howard and Michael W. Krautz -  Litigation Release 18030  (March 12, 2003)     SEC Complaint in this matter  
+
+ 
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diff --git a/raw/aaer/2003/AAER-1743.txt b/raw/aaer/2003/AAER-1743.txt
new file mode 100644
index 0000000000000000000000000000000000000000..063ed74197881218c71023063c85062c0c6a69b4
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@@ -0,0 +1,1373 @@
+
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+     SEC.gov | John R. Boyd and Christopher Curbello 
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+              John R. Boyd and Christopher Curbello
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+ 
+  LITIGATION RELEASE NO.  18042  / March 19, 2003
+
+  ACCOUNTING AND AUDITING ENFORCEMENT  RELEASE NO.  1743 / March 19, 2003
+
+   Securities and Exchange Commission v. John R. Boyd, and Christopher Curbello , Case No. 02-80726-CIV-Judge Hurley (S.D.Fla.).  (filed August 1, 2002)
+
+
+  FORMER GOLDEN BEAR EXECUTIVES ARRESTED ON FEDERAL SECURITIES FRAUD CHARGES
+
+  On March 18th, 2003, the United States Attorney for the Southern District of Florida announced the indictment and arrest of John R. Boyd and Christopher Curbello, for securities fraud and conspiracy to commit securities fraud. Previously, on August 1, 2002, the Commission filed fraud charges against Curbello and Boyd in the United States District Court for the Southern District of Florida.  Boyd is the former president of Paragon Construction International, Inc., which was a wholly owned subsidiary of Golden Bear Golf, Inc.  Curbello was Paragon's vice president for operations.  The Indictment and the Commission's civil complaint allege that Boyd and Curbello artificially inflated and accelerated Paragon's revenue and gross margin recognition by misrepresenting the true status of its construction contracts, causing Golden Bear to file false and misleading financial statements for its 1997 fiscal year and for the first quarter of 1998.
+
+  Curbello was arrested on March 14, 2003 in San Antonio, Texas, and has a pre-trial detention hearing in San Antonio on Thursday, March 20, 2003.  Boyd was apprehended on March 18, 2003 in Bogot¡, Colombia, by the FBI and the Secret Service, and is scheduled to appear in United States Magistrate's Court today in West Palm Beach. 
+
+  See also Litigation Release No.  17648  (August 1, 2002).
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diff --git a/raw/aaer/2003/AAER-1747.txt b/raw/aaer/2003/AAER-1747.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7cc2c10f73166890ca344e86fc5a796407ce5e16
--- /dev/null
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@@ -0,0 +1,1378 @@
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+              On April 1, 2003, the Commission filed a settled accounting case in the United States District Court for the District of Columbia against Thomas & Betts Corporation ("T&B"), a publicly-traded electrical components manufacturer headquartered in Memphis, Tennessee, and three individuals.   The individual defendants are Neil W. Parker, former President of T&B's Electrical Components Group, Robin B. Gregersen, former Vice President and Controller of T&B's Electrical Components Group, and Robert C. Calhoun, former Vice President of T&B's National Accounts Sales Group and current Vice President of T&B's Distributor Marketing.  The Commission charged Parker and Gregersen with violating the anti-fraud provisions of the Securities Exchange Act of 1934 (the "Exchange Act") and the Commission's rules thereunder, and charged all of the defendants with violating, or aiding and abetting violations of, the reporting, books-and-records, and internal controls provisions of the Exchange Act and the Commission's rules thereunder.  
+
+ The Commission's complaint alleges that, from late 1998 through early 2000, officers at T&B's Electrical Components Group - specifically defendants Parker, Gregersen, and Calhoun - knowingly engaged in conduct that circumvented T&B's internal controls and falsified T&B's books, records, and accounts.  As a result, the complaint further alleges, T&B materially overstated its pre-tax income in earnings releases and in public filings with the Commission.  In March 2001, according to the complaint, T&B restated its 1999 fiscal year financial statements, including the interim quarters, to materially reduce its previously reported pre-tax income.   
+
+ In particular, the Commission's complaint alleges that:   
+
+  In 1998, T&B's Electrical Components Group began a new sales initiative involving large transactions called "Power Buys," which all featured some combination of the following characteristics:  abnormally large volume of product; abnormally large price discounts; extended payment terms; negotiated near fiscal quarter-end; shipment of product to third-party warehouses, storage of product at these warehouses, and insurance for product stored at these warehouses, all at T&B's expense; T&B's customer having an unqualified right to return product or, in some instances, automatic reversion of unsold inventory to T&B on a date certain; and assistance by T&B in bringing about resale of the product by the customer to the end user.  According to the complaint, T&B's accounting for these Power Buys did not comply with generally accepted accounting principles ("GAAP") because, in several instances during its 1999 fiscal year, T&B immediately recognized revenue from Power Buys that were subject to side agreements that excused the buyer from paying for product until it was resold to end users.  The complaint alleges that Parker, Gregersen and Calhoun approved or were aware of many of these side agreements.   
+
+ After unsuccessfully attempting to convince Power Buy customers to pay for products not yet resold to end users, Parker and Gregersen directed Calhoun to solicit "prepayments" from customers which were, in essence, loans to T&B to be applied toward the customers' future purchases of product outside the Power Buy program.  According to the complaint, Parker, Gregersen, and Calhoun knew that T&B agreed to pay these customers interest on the prepayments, and Parker and Gregersen failed to take appropriate action to prevent T&B from improperly allocating the prepayments to reduce outstanding accounts receivable balances on prior Power Buys.   
+
+ On at least two occasions during 1999, T&B improperly recorded revenue on Power Buys after Parker and Calhoun knowingly shipped Power Buy products to a third-party warehouse that they knew were not reflective of the customer's actual orders.   
+
+ During February 2000, while T&B's outside auditors were auditing the company's financial statements for the fiscal year ended January 2, 2000, representatives of T&B made materially false and misleading statements to the auditors about certain Power Buy transactions.  According to the complaint, Parker, Gregersen and Calhoun were aware that incorrect information was being provided to the auditors but made no effort to correct it, and Gregersen prepared a memorandum for T&B's auditors that contained inaccurate information.   
+
+ During the relevant period, T&B failed to devise and maintain adequate internal accounting controls, and failed to make and keep accurate books, records, and accounts.     
+
+ In March 2001, T&B restated its financial statements for the first and second quarters of its 2000 fiscal year, for the interim quarters of its 1999 fiscal year, and for its 1996 through 1999 fiscal years.  The total amount of the restatements for all periods reduced T&B's previously reported pre-tax income by $114.1 million, of which approximately $18.9 million resulted from the reversal of Power Buys that had originally been recorded as sales during T&B's 1999 fiscal year.   Without admitting or denying the Commission's allegations, all of the defendants consented to the entry of final judgments against them.  T&B agreed to be enjoined from violating 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.   
+
+ Parker agreed to be enjoined from violating Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting 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.  Parker also agreed to be prohibited from acting as an officer or director of any public company, to pay a total of $62,384, comprised of $9,741 in disgorgement, $2,643 in prejudgment interest, and a $50,000 civil penalty. 
+
+ Gregersen agreed to be enjoined from violating Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-2.  Gregersen also agreed to pay a total of $31,535, comprised of $13,769 in disgorgement, $2,766 in prejudgment interest, and a $15,000 civil penalty, the amount of which was based, in part, on Gregersen's demonstrated inability to pay more than that. 
+
+ Calhoun agreed to be enjoined from violating Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1, and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-2.  Calhoun also agreed to pay a $25,000 civil penalty. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1763.txt b/raw/aaer/2003/AAER-1763.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ab004673587fefbd4fd7d57d3721cdfebb9e8393
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@@ -0,0 +1,1384 @@
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+     SEC.gov | Brian Adley et al. 
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+ Litigation Release No. 18104 / April 24, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1763 / April 24, 2003 
+
+ SEC Sues Former Top Officers, Directors and Auditors of Chancellor Corporation for Financial Fraud 
+
+  Securities and Exchange Commission v. Brian Adley et al.  (United States District Court for the District of Massachusetts C.A. No. 03-10762 MEL)    
+
+   The Securities and Exchange Commission today charged Chancellor Corporation, a Boston MA transportation equipment company, four of the company's former senior officers, a former outside director, the company's audit firm and the audit firm's engagement partner with securities fraud.  The action, filed in federal court in Boston, alleges that from 1998 through 2001, Brian Adley, Chancellor's former Chairman, CEO and controlling shareholder, orchestrated a scheme to inflate Chancellor's reported assets, revenue and profits using fabricated documents and fraudulent accounting.  Former officers of the company named as defendants in the civil suit were Chancellor's former President and Chief Operating Officer, Franklyn E. Churchill, its former acting Chief Financial Officer and consultant, David C. Volpe, and Jonathan Ezrin, who variously served as the company's Principal Accounting Officer, Corporate Treasurer and Controller.  Also named as defendants were a former director of the company, Rudolph Peselman, BKR Metcalf Davis, an Atlanta GA accounting firm that served as Chancellor's auditors from 1999 to 2001, and Gregory Davis, a partner and CPA at the firm. Simultaneously with the filing of the Commission's civil action, Chancellor Corporation, Volpe and Ezrin entered settlements with the Commission.  The Commission also instituted and simultaneously settled administrative cease and desist proceedings against Michael Marchese, a second outside director of Chancellor, and against David Decker, a member of the audit team who performed the year-end audit for Chancellor's 1998 results, and Theodore Fricke, who served as the concurring partner for the audit.  
+
+    The Commission charges 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.  Former officers Churchill, Volpe and Ezrin allegedly participated in the scheme by assisting with the preparation of, and in some instances signing, false, fabricated or misleading financial documents.  According to the suit, Peselman, a member of the Board of Director's Audit Committee from June 1999 to October 2001, violated antifraud provisions of the securities laws by signing a number of false financial statements and, as an outside director with fiduciary responsibilities, by ignoring clear warning signs that financial improprieties were ongoing at the company and by failing to ensure that the company's public filings were accurate.  
+
+    The Commission further charges that Gregory Davis and his firm, BKR Metcalf Davis, which became Chancellor's auditors when Adley and Churchill fired an initial audit firm after the firm refused to report suspect financial results and information proposed by Adley, enabled the fraudulent scheme to proceed by conducting deficient audits of the company's financial statements, by falsely representing in public filings that Chancellor's financial statements were presented in conformity with generally accepted accounting principles (GAAP) and by failing to detect and report likely violations of the anti-fraud provisions of the securities laws by Chancellor.  Gregory Davis, the concurring partner on the Chancellor audits performed by his firm, oversaw and signed the deficient, misleading audit reports.
+
+      Relief Sought    
+
+
+
+    With respect to the relief being sought, the Commission seeks final judgments of permanent injunction and other relief enjoining each of the defendants from violating or aiding and abetting violations of the anti-fraud and periodic reporting provisions of the federal securities laws, Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13a-13, and additionally as to Chancellor, Adley, Churchill and Volpe, Rule 13a-11, which requires prompt and accurate disclosure of material events in Commission filings.  Additionally as to the Chancellor defendants, the Commission seeks injunctions from violations of the record-keeping and internal controls provisions, Sections 13(b)(2)(A), 13(b)(2)(B) and, as to the individuals, 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 13b2-1, and additionally as to Adley, Churchill, Volpe and Ezrin, Rule 13b2-2, which prohibits officers of a company from lying to auditors.  The Commission also seeks to enjoin Metcalf Davis and Davis from violating Section 10A of the Exchange Act, which requires auditors to take adequate steps to detect and report suspected fraud by management of companies they audit. In addition, the Commission seeks an order requiring Adley to disgorge at least $1.1 million in improper payments he caused Chancellor to make to an entity he controlled, and the value of a $3.71 million interest-free loan he improperly obtained by diverting proceeds of a business loan to Chancellor to his own account.  The Commission also seeks disgorgement by Churchill of his compensation from Chancellor, and by Davis and BKR Metcalf Davis of the $120,000 in fees they received for their services to Chancellor.   The Commission seeks civil monetary penalties from each of those individual defendants and from Metcalf Davis.  It also seeks an order permanently barring Adley, Churchill and Peselman from acting as officers or directors of any public company.  
+
+      Settled Actions  
+
+    Chancellor Corporation, Volpe and Ezrin entered settlements with the Commission in which, without admitting or denying the allegations of the Commission's Complaint, they consented to entry of permanent injunctions against violations of the anti-fraud, reporting, record-keeping and internal controls provision of the federal securities laws.  Volpe and Ezrin each agreed to pay a $25,000 civil monetary penalty, with the amount of Volpe's penalty  based on Volpe's sworn representations in financial statements submitted to the Commission.
+
+    Marchese, without admitting or denying the Commission's findings, consented to anorder requiring him to cease and desist from committing or causing any violation, and any future violation, of the anti-fraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20 and 13a-1.  Marchese was a director of Chancellor from 1996 to June 1999.  The Commission found that Marchese acted recklessly in signing Chancellor's Form 10-K for 1998, which contained materially misleading financial statements, and did not fulfill his responsibility as a director to ensure that Chancellor maintained accurate books and records and adequate internal controls.
+
+    In addition, Decker and Fricke consented to an order pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending them from appearing or practicing before the Commission as accountants and providing that Decker may apply for reinstatement after three years and Fricke after two years.  The order also  requires them to cease and desist from committing or causing any violation, and any future violation, of  Sections 10A and 13(a) of the Exchange Act and Rules 12b-20 and 13a-1. 
+
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diff --git a/raw/aaer/2003/AAER-1767.txt b/raw/aaer/2003/AAER-1767.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9d7efafb5341a41eb900bf6ac3b42f7a348a5c33
--- /dev/null
+++ b/raw/aaer/2003/AAER-1767.txt
@@ -0,0 +1,1532 @@
+
+
+ 
+ 
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+     SEC.gov | Neil R. Cole 
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+ Securities Exchange Act of 1934
+ Release No.  47769 / April 30, 2003
+  Accounting and Auditing Enforcement
+ Release No.  1767 / April 30, 2003
+  Administrative Proceeding 
+ File No.   3-11098
+
+         In the Matter of   
+   Neil R. Cole,     
+   Respondent.     
+     
+    : : : : : :   
+   ORDER INSTITUTING
+        PROCEEDINGS PURSUANT TO
+ SECTION 21C OF THE 
+       SECURITIES EXCHANGE ACT OF
+       1934, MAKING FINDINGS, AND IMPOSING
+ A CEASE-AND-DESIST ORDER      I. 
+
+
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that  cease-and-desist proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") be, and hereby are, instituted against Neil R. Cole ("Cole" or "Respondent").
+
+   II. 
+
+              In anticipation of the institution of these proceedings, Cole has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings, except as to the Commission's jurisdiction over the Respondent and the subject matter of this proceeding, which Respondent admits, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 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 Cole's Offer, the Commission finds  1   that: 
+
+   Respondent and Relevant Entity 
+
+  1.  Candie's is a Delaware corporation with headquarters in Valhalla, NY.  Candie's primary business is designing, marketing, and distributing moderately priced women's shoes, handbags and other accessories.  During the period from 1997 to 1999, Candie's filed periodic reports with the Commission pursuant to Section 12(g) of the Exchange Act and its stock was traded on the Nasdaq National Market.
+
+  2.  Cole, age 46, resides in New York, NY.  Since 1993, Cole has served as Candie's Chief Executive Officer, president and chairman of the board.    
+
+   Background 
+
+  3.  This matter involves accounting fraud at Candie's.  From August 1997 until the Spring of 1999, former members of Candie's senior management employed fraudulent accounting practices designed to improve Candie's publicly reported financial condition.  As will be discussed below, among other practices, Candie's prematurely recognized revenue through the use of improper bill and holds.  Candie's also artificially inflated revenue by entering into illusory sales transactions with a barter company.  During the course of the fraud, Candie's had inadequate internal accounting controls, and the company failed to maintain accurate books and records.  Moreover, to cover-up its fraudulent accounting practices, Candie's former Chief Operating Officer ("COO"), its former Chief Financial Officer ("CFO"), and others, provided false information to Candie's auditors.  
+
+   Candie's Engaged in an Improper Bill and Hold Practice 
+
+  4.  Candie's former COO directed employees to engage in a practice known as bill and hold.  At the end of certain quarters, Candie's prematurely recorded revenue from various purchase orders calling for future delivery of shoes, by recording these orders as final sales prior to shipping the shoes to customers.  Generally Accepted Accounting Principles ("GAAP") do not permit revenue recognition for sales unless risk and title has passed to the customer, which was typically when Candie's shipped shoes to the customer.  Candie's revenue recognition policy, as disclosed in its Commission filings, calls for recognition of revenue upon shipment of goods with risk and title passing.  
+
+  5.  Despite the prohibitions of GAAP and its own policy, from at least January 1998 through July 1998, Candie's prematurely recognized over $4.4 million in revenue through the improper use of bill and hold and other irregular shipping procedures.  Specifically, Candie's Form 10-K for fiscal year 1998 dated May 1, 1998 ,  contained financial statements that reflected $1.8 million in improper revenue, and $775,000 in improper income, from the bill and hold practice and other irregular shipping procedures that violated GAAP.  The improper income from bill and hold and these other irregular shipping procedures that violated GAAP allowed Candie's to convert a fourth quarter loss to a gain.  Candie's Form 10-Q for the first quarter of fiscal year 1999 dated June 11, 1998, contained financial statements reflecting $991,000 in improper revenue solely from the bill and hold practice.  Candie's Form 10-Q for the second quarter of fiscal year 1999 dated September 14, 1998, contained financial statements reflecting $1.7 million in improper revenue solely from the bill and hold practice. These overstatements of revenue and income were material.   
+
+  6.  Cole received indications that Candie's was improperly recognizing revenue from the use of improper bill and holds.   For instance, Candie's former CFO expressed concerns about the bill and hold practice to Cole before Candie's finalized and released its first quarter of fiscal year 1999 results.  In August 1998, a schedule titled "Special Bill and Hold" reflecting Candie's use of bill and holds for the second quarter of fiscal year 1999 was distributed to Cole.  The schedule indicates that shoes were invoiced prior to the end of the quarter and shipped after the end of the quarter.  Finally, in late summer or early fall, Candie's former CFO again raised his concerns with Cole about Candie's shipping practices.  Cole signed Candie's Forms 10-Q for the first and second quarters of fiscal year 1999 without  investigating, or otherwise determining, whether Candie's was improperly recognizing revenue from the bill and hold practice.   
+
+   Candie's Entered Into Fraudulent Barter Transactions 
+
+  7.  Candie's improperly recognized revenue from two transactions with a barter company.  Specifically, in August 1997, Candie's former vice president of finance negotiated and signed an agreement with the barter company that provided Candie's would sell 160,000 pairs of shoes to the barter company for $10 per pair to be paid in a combination of cash and advertising credits.  Candie's then purportedly shipped 133,000 pairs of the shoes to the barter company and recorded $1.3 million in revenue from the sale of these shoes on its books and records on October 31, 1997, the last day of the fiscal quarter.  Candie's, however, should not have recognized this revenue because, among other reasons, it did not ship the shoes to the barter company until July 1999, and it was only then that Candie's was permitted under GAAP to recognize any revenue generated by the transaction.  Candie's Form 10-Q for the third quarter of fiscal year 1998, dated November 24, 1997, contained financial statements that materially overstated revenue by $1.3 million (a six percent overstatement) and income by $335,000 (a forty-one percent overstatement) from this transaction.  
+
+  8.  Similarly, in October 1998, Candie's former COO negotiated and signed an agreement with the barter company that increased the value of shoes that Candie's had purportedly already sold to the barter company as part of the August 1997 agreement by $600,000.  The October 1998 agreement also described the purported sale of an additional 62,000 pairs of shoes to the barter company.  Candie's then recorded $1.8 million in revenue from this transaction on its books and records on October 31, 1998, the last day of the fiscal quarter.   Once again, Candie's should not have recognized this revenue because, among other reasons, the 62,000 pairs of shoes described in the agreement were not shipped to the barter company.  Candie's Form 10-Q for the third quarter of fiscal year 1999 dated December 15, 1998, contained financial statements that materially overstated revenue by $1.8 million from this transaction (a six percent overstatement)   and income by $1.2 million.  The improper revenue allowed Candie's to convert a loss for the third quarter to a gain.  The overstatements of revenue and income from the August 1997 and October 1998 agreements with the barter company were material.
+
+  9.  Cole failed to investigate, or otherwise determine, if Candie's improperly recognized revenue from the October 1998 barter agreement after learning about the suspicious agreement.  Specifically, Cole reviewed the October 1998 barter agreement by at least January 1999 and realized that the agreement should immediately be cancelled because it purported to revalue, at a higher price, shoes that Candie's had purportedly already sold to the barter company.  At that time, Cole also learned that Candie's had never, in fact, shipped the shoes to the barter company.  Cole ordered that the October 1998 agreement be reversed.  Despite Cole's questions and concerns about the agreement, he took no further steps to investigate why Candie's was party to such an agreement.  Nor did Cole raise any question about the August 1997 barter transaction, the validity of which was called into question by the terms of the October 1998 agreement.  As a result of the foregoing conduct, Candie's was able to continue to recognize improper revenue and income from the barter transactions on its books and records and in its public filings with the Commission.
+
+   Documents Inaccurately Reflected Credits with Candie's Buying Agent 
+
+  10.  Candie's purchased a large quantity of shoes from a buying agent located in Taiwan.  On occasion, Candie's would negotiate credits with its buying agent that Candie's would then use to offset the amounts it owed the buying agent.  These credits took various forms, such as chargebacks when Candie's received defective shoes, as well as volume incentive and business interruption credits.  (These credits would offset Candie's amounts owed to the buying agent and have the effect of reducing Candie's expenses and increasing Candie's net income.)   In April 1999, at Candie's former CFO's request, Cole signed two memoranda reflecting a $650,000 volume incentive credit and a $1 million business interruption credit, and backdated the memoranda as of May 1998 and October 1998 respectively.  Candie's former CFO then used these memoranda to convince Candie's auditors that the two credits totaling $1.65 million from Candie's buying agent were valid, and that Candie's properly recorded these credits in its financial statements for the fourth quarter of fiscal year 1999.
+
+   Candie's Improperly Recorded Revenue and Income Generated By These Schemes 
+
+  11.  As a result of these fraudulent accounting practices, and as discussed above, Candie's materially inflated its reported financial results for the quarter ended October 31, 1997, the fiscal year ended January 31, 1998, and for the quarters ended April 30, 1998, July 31, 1998, and October 31, 1998.  Candie's reported these false results in a Form 10-Q filed in connection with the third quarter of fiscal year 1998, which Cole signed, and Forms 10-Q for the first three quarters of fiscal year 1999, and in its Form 10-K for fiscal year 1998, which Cole signed.  Candie's also reported these false results in press releases issued in connection with each of these reporting periods.  These press releases were dated November 24, 1997, April 21, 1998, May 28, 1998, August 25, 1998 and December 2, 1998. 
+
+   Candie's Issued a Materially Misleading Press Release on April 30, 1999 
+
+  12.  On April 30, 1999 Cole authorized, and Candie's issued, a press release that preannounced Candie's revenue and earnings for fiscal year 1999, and further announced Candie's intention to file for a 15-day extension for its Form 10-K filing.  Among other things, the release reported Candie's anticipated pre-tax income to be $750,000 and indicated that revenue for fiscal year 1999 would be up 24% over fiscal year 1998.  The press release was misleading because it omitted certain material information.  The press release omitted information about the need to reverse the recognition of revenue from the October 1998 barter transaction, and to adjust the quarters in which Candie's recognized revenue from the bill and hold practice.  By April 30, 1999, Cole had reversed the October 1998 agreement with the barter company, and he had reason to investigate the bill and hold practice.  Additionally, by April 30, 1999, Candie's auditors had raised questions with Cole about the barter company agreement and the credits with Candie's buying agent.  Moreover, the auditors had indicated that because of these concerns and Candie's inability to resolve questions they had raised, they would be unable to complete their audit of the financial statements by the time Candie's Form 10-K had to be filed.  In the press release, however, Candie's simply disclosed that it intended to file for a 15-day extension for its Form 10-K filing, and omitted to disclose that Candie's auditors were unable to complete their audit because of pending issues.  On May 12, 1999, Candie's announced that it may have to restate results for fiscal years 1998 and the first three quarters of 1999.   
+
+  13.  As noted above, in April 1999, Candie's auditors began to question certain transactions while auditing Candie's January 31, 1999 financial statements.  Before the audit was completed, the auditors advised Candie's that prior results might need to be restated, and recommended that Candie's conduct an internal investigation.  Candie's formed a Special Committee of the Board of Directors, which then conducted an investigation.  On September 22, 1999, Candie's filed an amended Form 10-K with the Commission containing its January 31, 1999 financial statements, and reporting material restatements of results for fiscal year 1998 and the first three quarters of fiscal year 1999.
+
+   Cole Recklessly Caused Violations of Section 10(b) of the Exchange Act and Rule 10b-5 
+
+  14.  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraud in connection with the purchase or sale of securities.  To establish a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the evidence must show: (1) misrepresentations or omissions of material fact or other fraudulent conduct; (2) "in connection with" the purchase or sale of securities; and (3) that the defendant acted with scienter.   See   SEC v. Chester Holdings, Ltd. , 41 F. Supp.2d 505, 519 (D.N.J. 1999).  The scienter element may be satisfied by knowing or reckless conduct.   See   e.g.   SEC v. U.S. Environmental, Inc. , 155 F.3d 107, 111 (2d Cir. 1998).
+
+  15.  Candie's committed violations of Section 10(b) of Exchange Act and Rule 10b-5 thereunder because, among other things, the company knew, or was reckless in not knowing, that the press release dated April 30, 1999 described above was materially misleading.
+
+    16.  Cole caused Candie's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder when he recklessly authorized Candie's to issue the April 30, 1999 press release described above which was materially misleading.
+
+   Cole Caused Violations of  Section 13(a) of  
+  the Exchange Act and Rules 12b-20 and 13a-13 Thereunder 
+
+  17.  Issuers of securities registered under Section 12 of the Exchange Act must file accurate quarterly reports with the Commission pursuant to Section 13(a) of the Exchange Act and Rule 13a-13 thereunder.  Rule 12b-20 requires that statements and reports contain all information necessary to ensure that statements made in them are not materially misleading.  Implicit in these provisions is the requirement that the information reported be true, correct, and complete.  No showing of scienter is necessary to establish an issuer's violation of the corporate reporting provisions.   See   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978).
+
+    18.  Candie's committed violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder by, among other things, filing the materially false Forms 10-Q dated September 14, 1998 and December 15, 1998 described above.
+
+    19.  Cole caused Candie's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder by signing and authorizing the filing of the materially false Forms 10-Q dated September 14, 1998 and December 15, 1998 described above.
+
+   Cole Caused Violations of Section 13(b) of the Exchange Act 
+   and Rule 13b2-1 Thereunder                    
+
+  20.  Section 13(b)(2)(A) of the Exchange Act requires companies whose securities are registered pursuant to Section 12 of the Exchange Act to make and keep books, records, and accounts that accurately reflect the transactions and dispositions of their assets.  Rule 13b2-1 prohibits any person from falsifying or causing the falsification of any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act.  
+
+  21.  Candie's committed violations of Section 13(b)(2)(A) of the Exchange Act as a result of the actions described above.  Candie's failed to maintain books and records that accurately reflected its  transactions.  For instance, Candie's books and records failed to describe accurately the $1.65 million volume incentive and business interruption credits with Candie's buying agent.
+
+  22.   Cole caused Candie's violations of Section 13(b)(2)(A) of the Exchange Act, and committed violations of Rule 13b2-1 thereunder, by backdating the memoranda reflecting the $1.65 million volume incentive and business interruption credits with Candie's buying agent described above.
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Cole's Offer.  
+
+    Accordingly, IT IS HEREBY ORDERED, that Cole, pursuant to  Section 21C of the Exchange Act, cease and desist from committing or causing any violations and any future violations of  Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1, and from causing any violations or any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13.
+
+      By the Commission.
+
+  Jonathan G. Katz
+  Secretary
+  _______________________
+      1        The findings herein are made pursuant to Cole's Offer and are not binding on any other person or entity in this or any other proceeding.
+    
+ 
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+ Securities Exchange Act of 1934
+ Release No.  47803 / May 6, 2003
+  Accounting and Auditing Enforcement
+ Release No.  1773 / May 6, 2003
+  Administrative Proceeding
+ File No.  3-11107
+
+  
+       In the Matter of 
+   ANDRX CORPORATION and  
+SCOTT LODIN, 
+   Respondents. 
+     
+   : 
+  : 
+  : 
+  : 
+  : 
+  : 
+  : 
+  : 
+   
+ 
+  ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER 
+      I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings against Andrx Corporation ("Andrx") and Scott Lodin (collectively "Respondents") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") be, and hereby are, instituted.    
+
+   II. 
+
+  In anticipation of the institution of these proceedings, each Respondent has submitted an Offer of Settlement ("Respondents' Offers"), that the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100  et.   seq. , and without admitting or denying the findings contained herein, except that Respondents each admit that the Commission has jurisdiction over them and over the subject matter of this proceeding, the Respondents each consent to the issuance of this Order Instituting Cease-And-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order ("Order").
+
+   III. 
+
+    On the basis of this Order and Respondents' Offers, the Commission finds the following:
+
+    INTRODUCTION  
+
+  1. During the first two quarters of 2000 (the "relevant time period"), Cybear, Inc. ("Cybear"), which at that time was more than 70% owned by Andrx, accounted for revenues derived from a joint venture between Andrx  1   and Cybear in a manner that did not conform with generally accepted accounting principles ("GAAP").  Pursuant to that joint venture, Cybearclub LC ("Cybearclub"), Cybear sought to sell products over its Internet website that were distributed by Andrx.  Cybear generated nearly all of its revenues during the relevant time period from the joint venture, and in its periodic filings with the Commission, described those revenues as "e-commerce revenues" or revenues derived from "orders placed through the Internet."  
+
+  2. During the relevant time period, however, Cybear employees routed telephone orders generated by Andrx's telemarketing department onto Cybear's Internet website.  These orders, which should have been recognized by Andrx, accounted for a majority of Cybear's reported revenues.  In July 2000, senior management of Cybear and Andrx, including Respondent Scott Lodin, learned that telemarketing orders were being entered onto Cybear's website and investigated the matter.  However, Cybear continued to describe these sales as revenues derived from "orders placed through the Internet" in its Form 10-Q for the quarter ended June 30, 2000.  Cybear also did not include this information in a proxy solicitation sent to shareholders in connection with a corporate reorganization and tracking stock plan.  These actions resulted in Cybear's violations of the books and records, financial reporting and proxy solicitation provisions of the Exchange Act. 
+
+  3. In addition, between 1999 and the quarter ended March 31, 2002, Andrx filed financial statements with the Commission that overstated Andrx's net accounts receivable, and understated the related provision for doubtful accounts, by an aggregate of approximately $5.4 million.  This conduct resulted from the unauthorized actions of an Andrx employee, but led to violations by Andrx of the books and records and internal controls provisions of the Exchange Act.
+
+    RESPONDENTS  
+
+  4. Andrx, based in Fort Lauderdale, Florida, owns multiple subsidiaries that distribute and manufacture generic and brand name pharmaceuticals.  On September 5, 2000, pursuant to a corporate reorganization ("Reorganization"), Andrx became a Delaware holding company and acquired all of the outstanding shares of Cybear.  Andrx's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act.  Between September 7, 2000 and May 17, 2002, Andrx maintained two classes of common stock, both of which were listed on the NASDAQ National Market System ("NASDAQ"):  Andrx Group Common Stock, which tracked the performance of all Andrx divisions except Cybear, and Cybear Group Common Stock, which tracked the performance of Cybear and several other related entities.  Effective May 17, 2002, Andrx converted all of the outstanding shares of Cybear Group Common Stock into shares of Andrx Group Common Stock, which currently is listed for trading on NASDAQ and is the only outstanding class of common stock of Andrx.
+
+  5.  Scott Lodin, age 46, resides in Aventura, Florida.  Lodin has been the vice-president, general counsel and secretary of Andrx since 1994.  Before the Reorganization, Lodin was the secretary and a director of Cybear.
+
+    RELATED ENTITY  
+
+  6. Cybear, located in Boca Raton, Florida, is an information technology company providing Internet products and services to the healthcare industry.  Before the Reorganization, Cybear was 73% owned by Andrx, and it filed periodic reports with the Commission pursuant to Section 13(a) of the Exchange Act.   In September 2000, Cybear became a wholly-owned subsidiary of Andrx and no longer files separate periodic reports with the Commission.  Andrx continues to file consolidated financial statements with the Commission that include Cybear's results.
+
+    FACTS  
+
+   The Cybearclub Joint Venture 
+
+  7. In August 1999, Andrx and Cybear formed Cybearclub for the purpose of selling vaccines and injectibles distributed by Andrx through Cybear's Internet website.  In September 1999, Cybearclub began using Andrx's in-house telemarketing staff, who solicit physicians and pharmacies by telephone to buy generic pharmaceuticals from Andrx, to solicit existing Cybear and Andrx physician customers, as well as new customers, to purchase injectibles and vaccines through Cybear's website.  The parties intended that, through the introductory efforts of telemarketers, and lower pricing of Internet-ordered products, physician customers would purchase goods over the Internet, rather than through telemarketers.
+
+  8. At the time the parties established the joint venture, Andrx and Cybear intended that Cybear would recognize the revenue from purchases made through Cybear's website, while Andrx would continue to recognize the revenue from orders that customers placed over the telephone.  2    9. Cybear disclosed the joint venture for the first time in its Form 10-Q for the quarter ended September 30, 1999, which described the joint venture as "an arrangement with Andrx for the sale of products to physician offices on orders placed through Cybear's Physician Practice Portal product."  The Form 10-Q separately classified the joint venture's revenue as "e-commerce revenues."   
+
+  10. During 1999 and early 2000, Andrx telemarketers encountered numerous problems in convincing potential customers to order products through Cybear's website.  Among other things, Cybear's website experienced frequent technical problems, the on-line registration process was lengthy and complicated, and many of the physician offices did not have the time, desire, or proper computer equipment to access Cybear's website.  As a result, Cybear recognized less than $81,000 in revenues from Cybearclub during all of 1999.   
+
+   Internally-Entered Cybearclub Orders 
+
+  11. In an effort to overcome the technical problems and to increase Cybearclub sales, in approximately March 2000, Cybear employees began a practice of entering onto Cybear's website all first-time physician customer orders for any Andrx-distributed product available through Cybearclub, even though the customer placed his or her order over the telephone instead of through the Internet.  The Andrx telemarketers accepted such orders from customers over the telephone and then handed the order tickets to a Cybear employee, who then entered the order onto Cybear's website.      
+
+  12. This practice, however, was not limited to first orders and evolved into telemarketers accepting subsequent orders over the telephone and routing those orders to Cybear employees for entry onto Cybear's website.  In some instances, Cybear employees input orders onto Cybear's website for customers who did not have Internet access or the required computer equipment to input the order themselves.  The internally-entered Internet orders occurred without the knowledge or approval of senior management of either Cybear or Andrx.
+
+  13. Cybear failed to implement internal controls to prevent it from recognizing revenues from the internally-placed orders, which should have been recognized by Andrx according to the joint venture agreement.      
+
+  14. At least partly because of Cybear employees inputting Internet orders for physicians, the revenues that Cybear recognized from Cybearclub increased to approximately $215,000 in the first quarter of 2000, and to more than $1.1 million in the second quarter of 2000.  Cybearclub revenues constituted more than 80% of Cybear's total revenues in each of these quarters.    
+
+  15. In late July 2000, senior management of Andrx and Cybear were informed for the first time that a majority of Cybearclub's sales resulted from orders that were entered internally through Cybear's website.  Upon learning this information, senior management of Cybear and Andrx engaged in internal discussions to determine whether Cybear could recognize the revenues from internally-entered Cybearclub orders.  In addition, Andrx and Cybear consulted with their outside auditor.  Based on these discussions, Andrx and Cybear determined that Cybear could record revenues from internally-entered Cybearclub orders in its Form 10-Q for the quarter ended June 30, 2000.  However, Andrx and Cybear agreed to evaluate whether Cybear could continue recognizing revenues from internally-entered Cybearclub sales in future quarters.  
+
+  16. Although telephone orders had been routed to Cybear's website and recorded by Cybear as revenue, Cybear's Form 10-Q for the period ended June 30, 2000, which was filed with the Commission on August 14, 2000, did not sufficiently disclose these facts.  Prior to the second quarter of 2000, the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") portion of Cybear's periodic filings categorized the revenues from the Cybearclub joint venture as "e-commerce transactions."  The notes to Cybear's financial statements further described the joint venture as "an arrangement with Andrx for the sale by Cybear of products to physicians offices on orders placed through Cybear's Physician Practice Portal."   After learning of the internal orders, and after further discussions with members of Cybear management, Lodin made changes in Cybear's Form 10-Q for the quarter ended June 30, 2000, including changing the description of the joint venture's revenues from "e-commerce" revenues to "Cybearclub" revenues.  However, these changes did not sufficiently disclose the facts described in paragraphs 11 through 15, above.  
+
+  17. Cybear's financial statements included in its Forms 10-Q for the first and second quarters of 2000 were not in conformity with GAAP because they did not  properly recognize revenues from internally-entered orders.  Under GAAP, Andrx should have recognized these revenues.   See  Statements of Financial Accounting Concepts, Concept 6, par. 78 (stating a company can recognize revenues only from those activities that constitute its ongoing major or central operations);  see   also  Statements of Financial Accounting Concepts, Concept 2, par. 160 (noting that "the quality of reliability and, in particular, of representational faithfulness leaves no room for accounting representations that subordinate substance to form.").   
+
+  18. At the end of the third quarter of 2000, Andrx and Cybear decided that Cybearclub could no longer recognize revenues from internally-entered sales.  By that time, Andrx had acquired Cybear, and Cybear's financial results were included in Andrx's periodic filings with the Commission.   Andrx's Form 10-Q for the period ended September 30, 2000, disclosed that Cybearclub used Andrx telemarketers to solicit potential customers, and disclosed that a majority of Cybearclub revenues resulted from telephone orders entered internally over Cybear's website.  
+
+   Inadequate Proxy Statement Disclosures 
+
+  19. On July 31, 2000, Cybear and Andrx sent their shareholders a joint proxy statement in connection with the proposed Reorganization, pursuant to which Andrx would acquire all of Cybear's outstanding common stock and create a separate class of common stock, Cybear Group Common Stock, to track the performance of Cybear and several other related entities.       
+
+  20. The "risks" section of the proxy statement warned that the market and price for the newly trading Cybear Group Common Stock could be influenced by any quarterly changes in Cybear's results of operations or changes in financial estimates.  The proxy emphasized that Cybear's success would be dependent upon, among other things,  Cybear's ability to generate e-commerce revenues.  However, the proxy statement did not disclose that the majority of Cybear's "e-commerce" revenues resulted from internally-placed orders that should have been recognized by Andrx, and that Andrx and Cybear were evaluating whether Cybear could recognize those revenues in the future.  On September 5, 2000, shareholders for Andrx and Cybear voted to approve the Reorganization.
+
+   Andrx's Overstatement of its Net Accounts Receivable Between 1999 and 2002 
+
+  21. Between 1999 and 2002, an Andrx employee, acting without the knowledge or approval of Andrx's senior management, made numerous improper entries related to the aging of Andrx's accounts receivable and certain of Andrx's customer balances.  For example, the Andrx employee improperly extended due dates on aged accounts receivable in order to show those accounts as current.  The Andrx employee also improperly used authorized credits intended for certain Andrx customers to reduce balances owed by other Andrx customers.  In August 2002, after learning of these improper entries, Andrx promptly reported them to the Commission staff and disclosed them in a press release and Commission filing.
+
+  22. These improper entries resulted in Andrx overstating its net accounts receivable, and understating the related provision for doubtful accounts, by an aggregate of $5.43 million for the fiscal years 1999, 2000 and 2001, the intervening quarters and the first quarter of 2002.  In particular, Andrx overstated its net accounts receivable by $764,000 in the first quarter of 2002, by $3.79 million in fiscal year 2001, and by a total of $533,000 for the fiscal years 2000 and 1999.  During that same time period, Andrx also failed to devise and maintain internal accounting controls sufficient to provide reasonable assurances that it properly accounted for its accounts receivable and allowance for doubtful accounts in its financial statements in conformity with GAAP.  
+
+    LEGAL DISCUSSION  
+
+  Cybear's Violations of Section 13(a) of the Exchange Act 
+  and Rules 13a-13 and 12b-20 Thereunder 
+
+    23. Section 13(a) of the Exchange Act requires issuers that have securities registered pursuant to Section 12 of the Exchange Act to file periodic reports containing information prescribed by specific Commission rules.  Such reports must be complete and accurate.  Rule 13a-13 requires the filing of quarterly reports on Form 10-Q.  Rule 12b-20 requires that periodic reports filed with the Commission contain all such further material information as is necessary to make the required statements, not misleading.  An issuer violates these provisions if it files a periodic report that contains false or misleading information.   See   Laser Photonics, Inc. , Securities Act Release No. 7463 (Sept. 30, 1997);  Spectrum Information Technologies, Inc. , Securities Act Release No. 7426 (June 25, 1997).  No showing of scienter is required to establish a violation of Section 13(a) of the Exchange Act.   SEC v. Savoy , 587 F.2d 1149, 1167 (D.C. Cir. 1978).  
+
+    24. Moreover, Item 303 of Regulation S-K requires a MD&A disclosure as part of periodic reports filed pursuant to Section 13(a).  The MD&A is intended to give the investor an opportunity to look at the company through the eyes of management and better evaluate the quality of earnings and the likelihood that past performance is indicative of future performance.   See   In the Matter of Caterpillar Inc. , Admin. Proc. File No. 3-7692 (March 31, 1992).  Item 303 specifies that, for interim periods, the MD&A include a discussion and analysis of the results of operations "to enable the reader to assess material changes in financial condition and results of operations" that have occurred since the end of the preceding fiscal year.  The discussion should include a description of any known trends or uncertainties that have had or that the registrant reasonably expects will have a material impact on net sales, revenues or income from continuing operations.   See  Regulation S-K, Item 303(b).  
+
+    25. During the relevant time period, Cybear was subject to the reporting requirements of Section 13(a) of the Exchange Act and the rules thereunder.  Cybear violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder because the financial statements included in its quarterly reports filed with the Commission on Forms 10-Q for the quarters ended March 31, 2000 and June 30, 2000, did not accurately report Cybear's revenues.  
+
+    26. In addition, Cybear's MD&A disclosure for the period ended June 30, 2000, did not discuss known uncertainties relating to its future revenue stream and financial condition.  Specifically, the MD&A did not sufficiently disclose that a majority of Cybear's revenues for the quarter ended June 30, 2000 included orders entered onto the Internet by Cybear employees.  Moreover, Cybear did not sufficiently disclose that senior management of both Cybear and Andrx were evaluating whether Cybear would continue to recognize revenues from internally-placed orders in future quarters and the potential impact this could have on Cybear's financial statements.  
+
+    27. Lodin, who revised a portion of the relevant section of Cybear's MD&A, was a cause of Cybear's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.    
+
+                Violations of Section 13(b) of the Exchange Act   by Andrx and Cybear  
+
+    28. Section 13(b)(2)(A) of the Exchange Act requires issuers that file periodic reports with the Commission 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."   SEC v. Worldwide Coin Investments Ltd. , 567 F. Supp. 724, 747 (N.D. Ga. 1983).  Section 13(b)(2)(B) of the Exchange Act requires an issuer to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded accurately to permit preparation of financial statements in conformity with GAAP.    
+
+    29. During the first two quarters of 2000, Cybear improperly recognized revenues from telemarketing orders that were internally-entered onto Cybear's website and that, according to GAAP, should have been recognized by Andrx.  Cybear also failed to devise and maintain internal accounting controls sufficient to provide reasonable assurances that it properly accounted for revenues in its financial statements in conformity with GAAP.  As a result, Cybear violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  
+
+    30. As a result of the improper entries to its accounts receivable balances between 1999 and 2002, and its lack of internal accounting controls, Andrx violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
+
+    Cybear's Violations of Section 14(a) of the Exchange Act 
+    and Rule 14a-9 thereunder 
+
+    31. Section 14(a) of the Exchange Act makes it unlawful to solicit proxies in contravention of any rule or regulation promulgated by the Commission.  Rule 14a-9 thereunder prohibits the inclusion in a proxy statement of "any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading."  No showing of scienter is required to establish a violation of Section 14(a) of the Exchange Act or Rule 14a-9 thereunder.   See   In the Matter of W.R. Grace & Co.,  1997 WL 600685 (S.E.C. Release No. 34-39156)(September 30, 1997)(citing  Gerstle v. Gamble-Skogmo, Inc. , 478 F.2d 1281, 1299-1300 (2d Cir. 1973).   
+
+
+
+  32. Cybear violated Section 14(a) of the Exchange Act because the proxy solicitation did not sufficiently disclose that for the first and second quarters of 2000, a majority of Cybear's Internet sales, which represented nearly all of Cybear's total revenues, were the result of employees inputting customer orders through the Cybear website, rather than customers placing orders over the Internet.     
+
+    VIOLATIONS    
+
+    33. Based upon the foregoing, the Commission finds that:
+      Cybear violated Sections 13(a), 13(b)(2), and 14(a) of the Exchange Act and Rules 13a-13, 12b-20, and 14a-9 thereunder;
+
+         Andrx violated Section 13(b)(2) of the Exchange Act;
+
+         Lodin was a cause of Cybear's violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.
+    IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to accept the Offers of Settlement submitted by Andrx and Lodin.
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that:
+       Andrx cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2), and 14(a) of the Exchange Act and Rules 13a-13, 12b-20, and 14a-9 thereunder;
+
+       Lodin cease and desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.
+   By the Commission.
+
+                Jonathan G. Katz
+               Secretary 
+  _______________________
+      1    The joint venture involved one of Andrx's subsidiaries, Anda, Inc., which distributes generic pharmaceuticals, vaccines, and injectibles manufactured by third parties.  Anda employs telemarketers to solicit pharmacies and physicians to purchase the products that it distributes.
+
+      2     Cybearclub was structured as a joint venture, and Cybear consolidated 100% of Cybearclub's operating results.
+    
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diff --git a/raw/aaer/2003/AAER-1786.txt b/raw/aaer/2003/AAER-1786.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b8884464f08365cbf2a0a2a19d7d618490749a45
--- /dev/null
+++ b/raw/aaer/2003/AAER-1786.txt
@@ -0,0 +1,1771 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
+ 
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+     
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+     SEC.gov | Minuteman International, Inc., Gregory J. Rau, Thomas J. Nolan, and David L. Markison 
+     
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+         
+           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 
+           
+       
+               Administrative Proceedings 
+           
+       
+              Minuteman International, Inc., Gregory J. Rau, Thomas J. Nolan, and David L. Markison
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Minuteman International, Inc., Gregory J. Rau, Thomas J. Nolan, and David L. Markison
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+              Securities Exchange Act of 1934 
+Release No. 47894 / May 21, 2003 
+ 
+Accounting and Auditing Enforcement 
+Release No. 1786 / May 21, 2003 
+ 
+Administrative Proceedings 
+File No. 3-11131 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of 
+
+			 MINUTEMAN INTERNATIONAL, INC., 
+			GREGORY J. RAU, 
+			THOMAS J. NOLAN, 
+			AND DAVID L. MARKISON, 
+
+			 Respondents. 
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			 ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING CEASE-AND-DESIST ORDERS 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 Minuteman International, Inc. (Minuteman or the Company), Gregory J. Rau (G. Rau), Thomas J. Nolan (Nolan), and David L. Markison (Markison) (collectively, Respondents). 
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the Offers) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing Cease-and-Desist Orders Pursuant to Section 21C of the Securities Exchange Act of 1934 (Order), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondents' Offers, the Commission finds that: 
+
+ 1. Minuteman International, Inc. is an Illinois corporation based in Addison, Illinois. Minuteman's primary business is the manufacture and distribution of commercial and industrial vacuums, hard surface floor care equipment, carpet care products, sweepers, scrubbers and chemical cleaning products. Minuteman's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and has been traded on the NASDAQ National Market since March 1987. During the relevant period, Minuteman filed periodic and other informational reports with the Commission pursuant to Section 13(a) of the Exchange Act. 
+
+ 2. Gregory J. Rau, age 43, is a resident of Sleepy Hollow, Illinois. G. Rau has served as President of Minuteman since January 15, 2000 and CEO since September 22, 2000. Since September 2000, G. Rau has signed all Forms 10-K and 10-Q filings with the Commission. He has also been a director of the Company since April 1999. Since joining Minuteman in 1983, G. Rau has served as Division Manager, Senior Division Manager and Vice President of Sales. 
+
+ 3. Thomas J. Nolan, age 47, is a resident of Palatine, Illinois. Nolan has been the Chief Financial Officer and Treasurer of Minuteman since 1989, and Secretary since 1991. Nolan has also been a director of Minuteman since November 2000. During his employment with Minuteman, Nolan was in charge of Minuteman's accounting practices, responsible for Minuteman's financial statements and has signed all Forms 10-K and 10-Q filings with the Commission. 
+
+ 4. David L. Markison, age 36, is a resident of Brookfield, Illinois. From 1990 to 1998, Markison was accounting manager and then senior accountant for Minuteman. Since 1998, Markison has been the Controller of Minuteman. As Minuteman's Controller, Markison has been responsible for assuring that Minuteman's accounting practices are followed and comply with Generally Accepted Accounting Principles (GAAP), and has had overall responsibility for preparing Minuteman's financial statements, which were filed with the Commission after review and approval by Minuteman's CFO. 
+
+ Summary 
+
+ 5. Minuteman engaged in improper accounting practices that misstated reported quarterly sales, revenue and income in Minuteman's periodic filings with the Commission from at least 1989 through May 2001. The Company's former CEO, aided by CFO Nolan and Controller Markison, held Minuteman's books open in the first three quarters of a fiscal year in order to record sales that properly should have been recorded in the subsequent quarter. After the death of the former CEO in September 2000, G. Rau, Minuteman's current President and CEO, was aware of the practice and permitted holding the Company's books open for the third quarter of 2000 and the first quarter of 2001. The Company thereby inflated revenues for the first three quarters of each year. The improper accounting did not affect the Company's annual revenue or income. 
+
+ Minuteman's Improper Revenue Recognition 
+
+ 6. From at least 1989 through May 2001, Minuteman intentionally recognized quarterly revenue from sales occurring in a new quarter in the prior quarter's financial statements. The Company left its sales registers open for several days after a quarter ended and improperly recorded post-period sales in that quarter. For these post-period sales, the sales invoices were falsely dated with the last date of the prior quarter. The date of shipment and invoice processing, however, was after quarter-end. The practice was not followed at year-end. 
+
+ 7. Until his death in late September 2000, Minuteman's former CEO made the decision that quarterly sales for the first three quarters of the year were to be held open. He received daily sales reports, which reflected sales-to-date for the quarter and the year and also reflected the prior year's sales for the same periods. The former CEO then instructed Markison when the quarter's sales registers should be closed and to inform the customer service department. In turn, Markison informed the customer service department when the sales should be cut-off for that quarter. 
+
+ 8. During the days that quarters were held open, sales that were shipped after the quarter-end were backdated with an invoice date of the last business day of the prior quarter so that they would be included in the prior quarter's sales. For each additional day of sales that were improperly dated with the last business day of the quarter, a new daily sales register was generated, which was also backdated. 
+
+ 9. Nolan learned of Minuteman's practice of holding quarterly sales open shortly after he joined the Company in 1989. Before the former CEO's death in September 2000, Nolan did not take part in the decision to hold the quarters open and didn't instruct others to hold the quarters open. Nolan did, however, know that this improper practice was happening and allowed it to continue until June 2001, when it was stopped after an inquiry from the Commission's staff. Similarly, after joining Minuteman in 1990, Markison also learned that Minuteman's quarterly sales were being held open and had been held open since before he joined the Company. 
+
+ 10. Nolan and Markison prepared financial statements that included the additional days of sales that occurred after quarter end for the first three quarters of the year. Markison knew that the additional sales registers he received for the last day of the quarter were backdated because he informed the customer service department how long to continue using the last day of the quarter for the invoice date. Both Nolan and Markison were responsible for ensuring the financial statements they prepared were in conformity with GAAP, however, neither sought to determine the effect of holding the books open on the results reported in Minuteman's financial statements. Nolan signed Minuteman's quarterly and annual filings with the Commission that improperly included the post-period sales for the first three quarters of the year, materially misstating net sales and net income. G. Rau signed Minuteman's quarterly filings for the third quarter of 2000 and first quarter of 2001, and Minuteman's annual filing for 2000, which included materially misstated net sales and net income due to inclusion of post-period sales in the quarterly results. 
+
+ 11. After the death of Minuteman's former CEO, G. Rau was aware of the practice and permitted Minuteman to continue holding the quarterly books open. Nolan followed the practice of holding the sales registers open for a few days after the end of third quarter 2000 and first quarter 2001. At the end of each quarter, Nolan discussed keeping the books open with G. Rau. 
+
+ 12. Nolan believed the books were held open for several days in a new quarter to allow additional sales to be recorded so that salesmen could be paid commissions sooner. Commissions to salesmen were paid on a monthly basis at the end of the following month. In addition, bonuses to salesmen were paid quarterly and annually based on achieving quarterly and annual sales goals. According to Minuteman, the Company allowed some salesmen to achieve their goals and receive bonuses by keeping sales open at the quarter-end. 
+
+ 13. Because of this improper revenue recognition, Minuteman's quarterly and annual filings with the Commission overstated net sales and net income for the first three quarters of the year and understated net sales and income for the fourth quarter of the year. The Company also misstated its sales in press releases discussing quarterly results. Minuteman's overstatements of net sales and net income are summarized in the table below. 
+
+ Minuteman's Overstatements of Net Sales and Net Income 
+
+  
+
+ 
+	 
+		 
+			 
+			 Three months ended 
+			 
+			 
+			 Overstatement of Net Sales 
+			 
+			 
+			 %Overstatement of Net Sales 
+			 
+			 
+			 Overstatement of Net Income 
+			 
+			 
+			 %Overstatement of Net Income 
+			 
+		 
+		 
+			 
+			 03/31/2001 
+			 
+			 
+			 $1,356,000 
+			 
+			 
+			 5.9% 
+			 
+			 
+			 $245,000 
+			 
+			 
+			 23.8% 
+			 
+		 
+		 
+			 
+			 09/30/2000 
+			 
+			 
+			 $1,218,000 
+			 
+			 
+			 5.4% 
+			 
+			 
+			 $268,000 
+			 
+			 
+			 20.6% 
+			 
+		 
+		 
+			 
+			 06/30/2000 
+			 
+			 
+			 $748,000 
+			 
+			 
+			 3.3% 
+			 
+			 
+			 $137,000 
+			 
+			 
+			 12.3% 
+			 
+		 
+		 
+			 
+			 03/31/2000 
+			 
+			 
+			 $352,000 
+			 
+			 
+			 1.5% 
+			 
+			 
+			 $84,000 
+			 
+			 
+			 7.9% 
+			 
+		 
+		 
+			 
+			 09/30/1999 
+			 
+			 
+			 $534,000 
+			 
+			 
+			 2.4% 
+			 
+			 
+			 $136,000 
+			 
+			 
+			 10.4% 
+			 
+		 
+		 
+			 
+			 06/30/1999 
+			 
+			 
+			 $977,000 
+			 
+			 
+			 4.9% 
+			 
+			 
+			 $171,000 
+			 
+			 
+			 17.7% 
+			 
+		 
+		 
+			 
+			 03/31/1999 
+			 
+			 
+			 $438,000 
+			 
+			 
+			 2.2% 
+			 
+			 
+			 $93,000 
+			 
+			 
+			 12.0% 
+			 
+		 
+		 
+			 
+			 09/30/1998 
+			 
+			 
+			 $631,000 
+			 
+			 
+			 2.8% 
+			 
+			 
+			 $151,000 
+			 
+			 
+			 11.6% 
+			 
+		 
+		 
+			 
+			 06/30/1998 
+			 
+			 
+			 $195,000 
+			 
+			 
+			 1.3% 
+			 
+			 
+			 $43,000 
+			 
+			 
+			 4.6% 
+			 
+		 
+		 
+			 
+			 03/31/1998 
+			 
+			 
+			 $783,000 
+			 
+			 
+			 5.1% 
+			 
+			 
+			 $174,000 
+			 
+			 
+			 19.3% 
+			 
+		 
+	 
+ 
+
+ 14. In Minuteman's filings and press releases, management's discussion and analysis of financial condition and results of operations (MD&A) was misleading. First, Minuteman misstated its actual financial results. The Company inflated sales and earnings of the first three quarters at the expense of subsequent quarters. Also, Minuteman made misleading comparisons between quarters. For example, in its Form 10-Q for the first quarter of 2001, the Company originally reported that earnings decreased $0.01 per share as compared to the first quarter of 2000, from $0.30 to $0.29 per share. In fact, Minuteman's earnings decreased $0.05 per share as compared to the same quarter in the prior year, from $0.27 in first quarter 2000 to $0.22 per share in first quarter 2001. In addition, Minuteman made misleading statements about the cause of the reduced earnings in its fourth quarters. 
+
+ Misrepresentations to Auditors 
+
+ 15. Minuteman's CFO, Nolan, and its CEO, G. Rau, made false statements to the Company's auditors about the practice. Nolan and G. Rau, after becoming CEO in September 2000, signed management representation letters to the Company's auditors after the close of each quarter, which stated that the Company's financial statements were accurate and were prepared in conformity with GAAP, when they knew that this was not correct. Nolan also made the same representation orally during quarterly reviews to audit firm personnel with the knowledge that revenue was recognized that was not in conformity with GAAP. 
+
+ Minuteman's Discontinuation of the Practice 
+
+ 16. Beginning with the quarter ended June 30, 2001, the quarterly practice of keeping sales open into the next fiscal quarter was halted. Minuteman discontinued this practice after it was notified in June 2001 of the Commission staff's informal inquiry concerning the Company and was asked to produce records related to quarterly revenue recognition and sales cut-off testing. 
+
+ Minuteman's Restatement of Earnings 
+
+ 17. On August 20, 2001, Minuteman filed its Form 10-Q for the three months ended June 30, 2001. In the filing, the Company restated its consolidated statements of income for the three months ended March 31, 2001, June 30, 2000 and March 31, 2000 and for the six months ended June 30, 2000. According to the filing: "The Company determined that it was necessary to restate these interim results based on a review of the timing of the recording of certain sales transactions which were not consistent with the Company's sales recognition policy. Accordingly, the restatements include the deferral of certain sales from the reporting period in which the sales were originally recorded to the reporting period in which the sales would be properly recorded under the Company's sales recognition policy." Thereafter, on September 17, 2001, Minuteman filed an amended Form 10-Q for the quarter ended March 31, 2001 in which it restated its consolidated balance sheet at March 31, 2001 and its consolidated statements of income and cash flows for the three months ended March 31, 2001 and March 31, 2000. Then, on October 31, 2001, Minuteman filed its Form 10-Q for the quarter ended September 30, 2001 in which it restated its consolidated statements of income and balance sheets for the three months ended September 30, 2000. Subsequently, on December 18, 2001, Minuteman filed restatements of 1999 and 1998 quarterly information. 
+
+ Violations of the Exchange Act 
+
+  Minuteman  
+
+ 18. Minuteman filed false and misleading periodic reports with the Commission that misrepresented its financial condition and results of operations. As a result of the conduct described above, Minuteman violated Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder by recognizing revenue from sales of goods which occurred in new quarters in its financial statements for the prior quarters contained in Forms 10-K and 10-Q filed with the Commission from at least 1989 through May 2001. Minuteman violated Section 13(b)(2)(B) of the Exchange Act by failing to maintain an adequate system of internal accounting controls necessary to accurately reflect Minuteman's sales transactions, assets and income from at least 1989 through May 2001. Further, Minuteman violated Rule 13b2-1 by falsifying its books and records through the inclusion of post-period sales. Also, Minuteman violated Section 13(b)(5) of the Exchange Act by knowingly failing to implement a system of internal accounting controls to ensure proper closing of quarterly sales and knowingly falsifying its books, records, and accounts required to be kept pursuant to Section 13(b)(2). 
+
+  G. Rau  
+
+ 19. As a result of the conduct described above, G. Rau was a cause of Minuteman's violations that misrepresented the Company's financial condition and results of operations. After becoming CEO, G. Rau learned that Minuteman's quarterly books were being held open and its quarterly financial statements were false. However, he permitted Minuteman to continue this practice and signed the Company's filings with the Commission. Accordingly, he was a cause of Minuteman'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. His conduct also violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. G. Rau also violated Rule 13b2-2 by signing management representation letters provided to Minuteman's auditors for the third quarter of 2000 and first quarter of 2001 that falsely stated that the financial statements were prepared in conformity with GAAP, while knowing that the financial statements wrongly included sales occurring after the end of the quarter. 
+
+  Nolan  
+
+ 20. As a result of the conduct described above, Nolan was a cause of Minuteman'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. His conduct also violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. In addition, he was a cause of the Company's violation of Section 13(b)(2)(B) of the Exchange Act by knowingly failing to devise and maintain requisite systems of internal accounting controls to properly close the quarterly sales. Nolan also violated Rule 13b2-2 under the Exchange Act by signing management representation letters each quarter that falsely stated that the financial statements were prepared in conformity with GAAP, while knowing that the financial statements included revenue that was not in conformity with GAAP. 
+
+  Markison  
+
+ 21. As a result of the conduct described above, Markison was a cause of Minuteman's violations of Section 13(a) and 13(b)(2)(A) of the Exchange Act and Rule 13a-13 thereunder. Markison participated in practices or directed acts that he knew would result in materially misstated filings with the Commission. He instructed the customer service department to back-date invoices and when to close the books, and prepared Minuteman's financial statements with knowledge that they included post-period sales. During the course of his conduct, Markison violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. 
+
+  Minuteman's Remedial Efforts  
+
+ In determining to accept the Offers, the Commission considered remedial acts promptly undertaken by Minuteman and cooperation afforded the Commission staff. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offers. 
+
+ ACCORDINGLY, IT IS HEREBY ORDERED: 
+
+ A. Pursuant to Section 21C of the Exchange Act, that Minuteman shall cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder. 
+
+ B. Pursuant to Section 21C of the Exchange Act, that Gregory J. Rau shall cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, and from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder. 
+
+ C. Pursuant to Section 21C of the Exchange Act, that Thomas J. Nolan shall cease and desist from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, and from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder. 
+
+ D. Pursuant to Section 21C of the Exchange Act, that David L. Markison shall cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rule 13a-13 thereunder, and from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. 
+
+ E. Within 90 days of this order, Minuteman shall comply with the following undertakings, as agreed to in its Offer of Settlement: 
+
+ 
+	 
+	 1. For at least five years from the date of this Order, Minuteman will employ a Chief Accounting Officer who will review all of its filings with the Commission and will be a financial officer principally responsible for financial reporting. To the extent the Chief Financial Officer has any involvement in financial reporting, the Chief Accounting Officer will have supervisory responsibilities over him. The Chief Accounting Officer, along with the Chief Executive Officer and Chief Financial Officer, will certify Minuteman's financial reports under Sections 302 and 906 of The Sarbanes-Oxley Act of 2002. The certification by the Chief Accounting Officer will include the following legend: "This certification is being provided pursuant to Commission order, dated ______________, 2003, in  In the Matter of Minuteman International, Inc., et al. , Admin. Proc. File No. ____________." The certifications by the Chief Accounting Officer, Chief Executive Officer and Chief Financial Officer will each include the following legend: "The certification provided by the CAO does not in anyway alter the responsibilities of the CEO and CFO of Minuteman International, Inc. in connection with their certifications provided pursuant to Sections 302 and 906 of The Sarbanes-Oxley Act." 
+
+	 2. Minuteman will adopt and implement written internal procedures to review documentation from quarterly sales recorded to ensure revenue is recognized in accordance with Generally Accepted Accounting Principles. 
+
+	 3. Minuteman will engage an auditing firm, other than its regular independent auditor, to conduct quarterly internal audits, and reviews of internal controls, specifically reviewing the recording of quarterly sales for at least two years from the date of this Order. Minuteman shall follow the recommendations made by the auditor in the internal audits. No later than 60 days after the conclusion of the auditor's engagement, Minuteman shall provide a copy of the auditor's findings to the SEC. The findings should be mailed to: U.S. Securities & Exchange Commission, Attention: Jane Jarcho, Assistant Director, 175 West Jackson Boulevard, Suite 900, Chicago, Illinois 60604. 
+	 
+ 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ 
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diff --git a/raw/aaer/2003/AAER-1788.txt b/raw/aaer/2003/AAER-1788.txt
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@@ -0,0 +1,1611 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     
+     
+     SEC.gov | Philip G. Hirsch, CPA 
+     
+     
+     
+     
+     
+     
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+              Philip G. Hirsch, CPA
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+        Philip G. Hirsch, CPA
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+Securities Exchange Act of 1934 
+Release No.  34-47901 / May 22, 2003 
+ 
+Accounting and Auditing Enforcement 
+Release No. 1788 / May 22, 2003 
+ 
+Administrative Proceeding 
+File No.  3-11133 
+        
+In the Matter of 
+  
+Philip G. Hirsch, 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 Philip G. Hirsch ("Hirsch" or "Respondent") pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.    1   
+
+ II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over Respondent and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+ 
+On the basis of this Order and Respondent's Offer, the Commission finds    2   that: 
+
+ Respondent 
+ 
+ Philip G. Hirsch , age 50, is licensed as a certified public accountant in the state of California.  Hirsch was the Price Waterhouse LLP ("PwC")    3   engagement partner on the audits of SmarTalk TeleServices, Inc.'s ("SmarTalk") financial statements from 1996 through March 1998.  During that period, he was also the managing partner of PwC's Century City office.  Hirsch was employed by PwC from 1976 to 1978, from 1983 to about 1985 and from 1987 through March 31, 1998.  Hirsch left PwC in April 1998 after the audit of SmarTalk's 1997 financial statements was completed. 
+
+ Relevant Entity 
+ 
+ SmarTalk  was a provider of prepaid telephone cards and wireless services that went public in October 1996.  During the relevant period, SmarTalk's stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed on the NASDAQ National Market.  In November 1998, as a result of some of the accounting issues discussed in this Order, as well as other issues, SmarTalk restated its financial statements for its year ended December 31, 1997 and its first two quarters of 1998.    4   When all of the restated items are taken into consideration, net losses at year-end 1997 decreased from $61.9 million to $25.7 million, net losses for the first quarter of 1998 increased from $3.4 million to $15.2 million, and net income of $2.2 million for the second quarter of 1998 changed to a net loss of $29.2 million. 
+ 
+On January 19, 1999, SmarTalk filed for Chapter 11 bankruptcy and trading in SmarTalk stock was halted.  In March 1999, SmarTalk sold substantially all of its assets to AT&T.  Since that time, SmarTalk has been liquidating its remaining assets in the bankruptcy proceeding. 
+
+ Summary 
+ 
+SmarTalk filed with the Commission an annual report on Form 10-K, which contained materially false and misleading financial statements for its year ended December 31, 1997.  In the 1997 annual report, SmarTalk reported a one-time charge, a $25 million restructuring reserve, purportedly for anticipated 1998 costs, after its purchase of six other prepaid telephone card businesses.  As a result of the acquisitions, SmarTalk obtained additional offices, employees and carrier service providers, as well as prepaid telephone cards with different logos.  The entire restructuring reserve did not conform to Generally Accepted Accounting Principles ("GAAP") because the anticipated costs were not proper restructuring costs and the company had failed to properly establish a plan of restructuring in conformity with Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF 94-3").  SmarTalk also improperly understated current period operating expenses by charging 1997 operating expenses against the non-GAAP restructuring reserve.  This enabled SmarTalk to falsely inflate earnings before one-time charges at year-end 1997. 
+ 
+Hirsch, the engagement partner on the PwC audit team, audited the financial statements that were contained in SmarTalk's 1997 Form 10-K.  However, Hirsch failed to comply with Generally Accepted Auditing Standards ("GAAS") in the conduct of the audit. 
+ 
+On August 10, 1998, SmarTalk announced that its auditors had informed management about potentially significant issues with SmarTalk's accounting treatment for acquisitions that occurred during 1997 and certain other items relating to fiscal year 1997.  On August 11, after the press release, SmarTalk's stock price fell 57%, from $16 5/8 to $7 5/32. 
+ 
+In November 1998, SmarTalk restated its financial statements for year-end 1997, as well as its first two quarters of 1998.  In the restatement, SmarTalk reversed the entire $25 million restructuring reserve that had been recorded at year-end 1997.  In addition, SmarTalk expensed most of the operating costs that had previously been charged against the restructuring reserve. 
+ 
+Hirsch's conduct constituted improper professional conduct for purposes of Commission Rule of Practice 102(e). 
+
+ Year-End 1997:  SmarTalk Establishes a Non-GAAP 
+Restructuring Reserve and Overstates Net Income Before One-Time Charges 
+ 
+In its year-end 1997 financial statements, SmarTalk recorded a one-time charge, a $25 million restructuring reserve.  As reflected in SmarTalk's Form 10-K and restructuring reserve schedules given to PwC, the $25 million restructuring reserve consisted of five types of costs purportedly to be incurred in 1998 in order to exit certain activities:  contract termination fees; write-down of prepaid card inventory that would be recalled in 1998; certain asset write-downs; severance benefits associated with personnel reductions in 1998; and various general reserves.  SmarTalk failed to follow through on most of its restructuring plan and therefore incurred few of the costs for which it had reserved. 
+ 
+Glen Andrew Folck,    5   SmarTalk's Chief Financial Officer (the "CFO") consulted with Hirsch in the course of establishing the restructuring reserve.  Also, Hirsch arranged for the CFO to be given a copy of EITF 94-3, which applies to certain costs incurred in restructuring. 
+ 
+At the beginning of the audit of SmarTalk's 1997 financial statements, PwC assessed the risks of SmarTalk engaging in fraudulent accounting and reporting.  Specifically, in January 1998, Hirsch signed a risk assessment form in which a PwC audit staff member had identified certain risks potentially affecting the audit, including:  SmarTalk management had an excessive interest in maintaining or increasing SmarTalk's stock price or earnings trend through the use of unusually aggressive accounting practices; SmarTalk had an inability to generate cash flows from operations while reporting earnings and earnings growth; some of SmarTalk's estimates involved unusually subjective judgments or uncertainties or were subject to potential significant change in the near term; and SmarTalk's staff was weak in financial/SEC reporting.  In view of these known risks, Hirsch should have exercised more skepticism and obtained more evidence from management to support PwC's audit opinion on the financial statements.  Instead, as set forth below, Hirsch did not ensure that sufficient audit procedures were conducted.  While management had provided a written representation to PwC that GAAP had been applied in the preparation of the financial statements for the year ended December 31, 1997, as described below, Hirsch was aware of other audit evidence from which he should have realized further audit work was required. 
+
+ Hirsch Failed to Adequately Test Management's
+Commitment to a Detailed Exit Plan Prior to Year-end 1997 
+ 
+To establish a restructuring reserve, EITF 94-3 required SmarTalk management to approve and commit the enterprise to an exit plan by the date of the financial statements (in this case December 31, 1997).  An exit plan must specifically identify all significant actions to be taken to complete the exit plan, activities that will not be continued, including the method of disposition and location of those activities, and the expected date of completion.  EITF 94-3 also provides that a liability should be recognized at the commitment date (by December 31, 1997) for only those exit costs that can be reasonably estimated. 
+ 
+SmarTalk had no detailed plan or proper approval in 1997.  At the end of October 1997, some elements of a plan, but not the details or the amounts, were discussed at a board of directors meeting.  By late December 1997, the CFO developed a list of potential restructuring reserve costs.  Nevertheless, that list was not finalized and the amounts and other details, including the timing of activities to be discontinued, were not determined in 1997.  Rather, in January 1998, the CFO began getting input from SmarTalk employees to prepare a more detailed schedule of restructuring reserve items and to derive amounts.  In January 1998, the CFO compiled a first draft schedule of restructuring reserve amounts and presented the draft schedule to PwC. 
+ 
+Later in 1998 the CFO's schedule of restructuring items went through several subsequent revisions, when the exit plan should have been completed and amounts estimated by December 31, 1997.  There were material changes in the nature, amounts and timing of many items in the several versions of the restructuring reserve schedules in 1998.  The changes to the plan in 1998 reflect SmarTalk's failure to commit to a restructuring plan in conformity with EITF 94-3 and inability to make reliable estimates by year-end 1997.  In view of the failure to commit to a detailed exit plan prior to year-end, any approval in 1997 was too limited and any approval in 1998 was too late. 
+ 
+Hirsch was aware of information which should have made him question whether SmarTalk had committed to a detailed plan and estimated amounts by December 31, 1997.  For example, in late November or early December 1997, the CFO told Hirsch that SmarTalk had not yet completed its plan or finalized the amounts.  It was not until January 1998 that Hirsch and other PwC staff were first given the CFO's draft schedule of restructuring reserve amounts. 
+ 
+Later in January 1998, a PwC audit staff member provided Hirsch with an analysis (the "January 1998 Memorandum") of the CFO's draft restructuring reserve schedule.  The January 1998 Memorandum, which was not made part of PwC's working papers, evaluated the propriety of the components of the proposed restructuring reserve based on information available at the time.  Among other things, the January 1998 Memorandum disclosed that the timing of the two carrier contract terminations had not yet been decided and the timing of these events would affect the amounts reserved.  The January 1998 Memorandum further stated that the following were issues with the prepaid card inventory:  the timing of the recall of prepaid card inventory would affect the amount reserved and the "cost of [the] recall [was] difficult to determine."  The amounts ultimately reserved for these items totaled more than $17 million of the $25 million restructuring reserve. 
+ 
+In February and March 1998, PwC was given two subsequent versions of the restructuring reserve schedules, which reflected material changes to the amounts to be reserved for various components.  For example, the amount estimated for one of the contract terminations increased from $5 million in January to $8.4 million in February and then to $9.7 million in March.  As noted above, the changes to the plan in 1998 reflect SmarTalk's failure to commit to a restructuring plan in conformity with EITF 94-3 and its inability to make reliable estimates by year-end 1997. 
+ 
+At the end of March 1998, SmarTalk management signed a letter to PwC which contained certain representations ("Management Representation Letter").  In the Management Representation Letter, SmarTalk's management represented that SmarTalk was "committed to its plan of restructure to be executed during the year ended December 31, 1998."  The Management Representation Letter does not state, however, that SmarTalk had committed to the plan in 1997. 
+ 
+In view of the foregoing information that Hirsch knew, he should have raised questions concerning management's commitment to a detailed plan by year-end 1997.  Therefore, Hirsch failed to adequately test management's commitment to a detailed plan in 1997.  Hirsch failed to obtain sufficient documentary support or a sufficient written representation indicating that management had committed to a detailed exit plan by year-end 1997. 
+
+ Hirsch Failed to Adequately Audit the Reserve for Contract Termination Fees 
+ 
+The largest component of the reserve was $13.5 million for commitments and penalties pertaining to contracts that were ostensibly to be terminated in 1998.  Most of this component was for amounts due upon termination of SmarTalk's carrier services with WorldCom and MCI.    6   In SmarTalk's 1997 Form 10-K, SmarTalk stated that its restructuring plan included consolidating its transport provider base from approximately seven to two carriers.  In addition, SmarTalk management represented that the company intended to switch its carrier traffic from WorldCom and MCI to Frontier Communications at some point in 1998, due to more favorable rates on the Frontier contract.  Moreover, the management representation letter stated that SmarTalk would not utilize traffic volume commitments (other than those estimated to be used through March 31, 1998) with MCI or WorldCom, and management did not believe that these commitments could be sold, transferred or otherwise assigned to a third party or that any of the costs to be incurred under existing agreements would be recouped.  However, only some traffic was ever switched to Frontier, in part, because of technical difficulties in 1998.  Also, the switch of traffic occurred later in 1998 than had been reflected in SmarTalk's restructuring schedules, which had been provided to PwC.  SmarTalk continued to use the MCI contract through its bankruptcy in 1999 and assigned its interest in the WorldCom contract to another company in mid-1998. 
+ 
+While Hirsch considered the contracts to be adverse purchase commitments, Hirsch should have known that the contract termination costs were not exit costs under EITF 94-3.  SmarTalk was switching one contract for another and thus, the termination costs were associated with activities that would be continued, which would not satisfy the requirements of EITF 94-3. 
+ 
+In addition, Hirsch should have known that SmarTalk had no reasonable basis for accrual of these costs under Statement of Financial Accounting Standards ("SFAS") No. 5, Accounting for Contingencies.  SFAS No. 5 requires that losses associated with contingencies be accrued only if it is probable that a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.  Hirsch knew that SmarTalk management intended to and did continue to use the carrier contracts in the early part of 1998.  Hirsch also knew that SmarTalk had not notified MCI or WorldCom prior to December 31, 1997 of its intention to terminate the contracts.  Accordingly, Hirsch should have known that no events had occurred that would have obligated SmarTalk as of year-end 1997 to pay termination costs.  Moreover, Hirsch was informed that, by year-end 1997, SmarTalk management had not determined the timing of the contract terminations and the timing of those events would and did affect the amount reserved for the WorldCom contract.  Accordingly, Hirsch should have known that at year-end management was unable to reasonably estimate how much the penalties under that contract would be. 
+
+ Hirsch Failed to Adequately Audit the Reserve for Inventory Write-Downs 
+ 
+Another component improperly included in the restructuring reserve was $4.5 million for inventory of prepaid telephone cards that were to be recalled from customers, discarded and replaced some time in 1998 with cards containing a new SmarTalk logo.  The Management Representation Letter stated that SmarTalk "will dispose of obsolete inventory as part of the restructure."  The prepaid card inventory, however, was not recalled or destroyed and SmarTalk continued selling some of the cards. 
+ 
+Hirsch was aware that inventory write-downs are specifically addressed in Emerging Issues Task Force Issue No. 96-9, Classification of Inventory Markdowns and Other Costs Associated with a Restructuring, which contains the Commission's view that write-downs of inventory should be reflected as costs of goods sold.  The January 1998 Memorandum that was provided to Hirsch noted the Commission's view. 
+ 
+Hirsch also should have known that SmarTalk had no reasonable basis for accruing these costs as a loss at year-end under SFAS No. 5.  Hirsch was aware that SmarTalk continued to sell its inventory on hand in 1998.  Hirsch also was aware that SmarTalk was unable to replace its existing inventory until it had developed a new logo and that had not occurred by year-end 1997 or even as of the end of the audit in 1998.  In addition, some of the inventory that was ultimately to be discarded had not even been manufactured by year-end.  Thus, Hirsch should have known that the assets had not been impaired by the end of 1997.  Additionally, as noted above, Hirsch was informed in the January 1998 Memorandum that the timing of the product recall would affect the amount reserved and the cost of the recall was difficult to determine.  Accordingly, while SmarTalk management estimated the value of the cards that would be discarded based on the amount of inventory on hand at year-end 1997, Hirsch should have known that the amount of anticipated losses from the eventual destruction of inventory was not reasonably estimable by December 31. 
+
+ Hirsch Failed to Adequately Audit the Reserve for Asset Write-Downs Associated with Offices Purportedly to be Closed in 1998 
+ 
+The restructuring reserve also improperly included $3.5 million for assets to be disposed of when SmarTalk closed certain offices in 1998.  The Management Representation Letter stated that SmarTalk's "closure of several offices and sites and the relocation of its corporate office will result in lease penalty payments and the possibility of impairment in value of specific assets exists and recovery of the cost thereof is uncertain."  However, SmarTalk did sublease its corporate office and the sublease was made effective as of April 1, 1998.  SmarTalk also subleased another office. 
+ 
+For the losses on asset impairments, EITF 94-3 defers to SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121").  The January 1998 Memorandum stated that under SFAS No. 121, losses on asset write-downs are to be reported as a component of income from continuing operations.  In addition, Hirsch should have known that these assets did not meet the criteria for asset impairments or asset disposals at December 31, 1997.  Moreover, the possibility of impairment and uncertainty of recovery of costs would not, without additional information, support a reserve being established.  Accordingly, Hirsch should have known that the reserve for asset write-downs was improper. 
+
+ Hirsch Failed to Adequately Audit the Reserve for Severance Benefits 
+ 
+The fourth component of the restructuring reserve improperly included $1.1 million for severance benefits for employees, at offices to be closed and at SmarTalk's new headquarters, whose employments were to be terminated in 1998.  For involuntary severance benefits to be included in the reserves as of December 31, 1997, EITF 94-3 required management, prior to year-end, to identify the number of employees to be terminated, their job classifications and locations, establish the benefits employees will receive upon termination and communicate the benefit arrangement to employees.  SmarTalk did not comply with these requirements. 
+ 
+The Management Representation Letter stated, "[e]mployees to be terminated as a result of the restructure plan have been identified and notified of the restructure plan as of December 31, 1997, including benefits to be paid under termination agreements."  However, the severance benefit arrangement for most employees was not decided upon until 1998 and employees did not learn the amount of their severance benefits until they were actually terminated (which for most employees was in 1998).  In addition, there was no determination in 1997 of the total number of employees to be terminated.  Moreover, SmarTalk did not terminate a number of the employees identified on schedules provided to PwC nor pay the amount of severance benefits reflected on those schedules. 
+ 
+Hirsch should have known that SmarTalk did not comply with EITF 94-3 in reserving for severance benefits.  The January 1998 Memorandum informed Hirsch, "Although employees were aware of reductions to come, no specific identification of employees or communication of benefits was made until post [year-end] . . . and [s]ome employees are yet to be informed."  In view of this information, Hirsch did not obtain sufficient documentation or a sufficient written management representation showing that employees had been identified or that benefits had been communicated prior to December 31, 1997. 
+
+ Hirsch Failed to Adequately Audit SmarTalk's Establishment of General Reserves
+ 
+ 
+The restructuring reserve improperly included $1.8 million of general reserves.  The general reserves consisted of:  $575,000 for computer conformity, utilities and taxes; $625,000 for travel and telephone expenses related to employee terminations; an overstatement by $180,000 of the MCI contract termination amount; an overstatement by $180,000 of the amount set aside for inventory write-downs; and $250,000 for "various employee severances," for which SmarTalk management failed to identify the number of employees, their job classifications and their locations, as is required under EITF 94-3.  SFAS No. 5, paragraph 14, prohibits the accrual of general reserves.  Accordingly, these costs were operating expenses that should not have been recorded until they were incurred.  Hirsch posted some of the general reserves to the effects schedule and considered them to be immaterial in light of offsetting adjustments identified in the effects schedule.  Nevertheless, Hirsch knew, or should have known, that general reserves were wrongly included in the restructuring reserve. 
+
+ Hirsch Failed to Adequately Audit the Improper Charging of 1997
+Operating Expenses Against the Restructuring Reserve 
+ 
+SmarTalk's restructuring plan contemplated that SmarTalk would incur the previously described categories of costs in 1998.  Nevertheless, SmarTalk improperly charged a total of $1.06 million of 1997 operating expenses against the restructuring reserve at year-end 1997.  The expenses, which were not contemplated by the restructuring plan, included executive travel and entertainment costs, telephone and moving expenses, and consulting fees.  Most of the operating expenses charged against the restructuring reserve as of year-end 1997 were incurred in the third quarter of 1997.  If the total operating expenses charged as of December 31, 1997 had been properly reflected on SmarTalk's financial statements, earnings before one-time charges would have been reduced from $2.3 million to $1.2 million.  In SmarTalk's restated financial statements, most 1997 charges against the restructuring reserve were reversed and reclassified as operating expenses. 
+ 
+SmarTalk's Form 10-K for fiscal year 1997 failed to describe the types and amounts of costs charged against the liability in 1997, as required by EITF 94-3.  Instead, SmarTalk reflected these charges on its balance sheet by reducing the total restructuring reserves ($25 million) by the total amount charged as of year-end 1997 ($1.06 million).  Although the reduced restructuring reserve amount on the balance sheet reflected use of the reserve in 1997, the reduced restructuring reserve amount on the balance sheet was not explained anywhere in the Form 10-K.  Had the costs been described in SmarTalk's Form 10-K, as was required, the misuse of the restructuring reserve in 1997 would have been apparent. 
+ 
+A review by PwC and Hirsch of SmarTalk's restructuring reserve account would have revealed that SmarTalk had already improperly charged expenses against the restructuring reserve in 1997, when the restructuring reserve had been established for expenses purportedly to be incurred in 1998.  PwC had access to SmarTalk's accounting records and PwC accounting staff was aware that there were charges to the restructuring reserve in 1997.  In addition, the January 1998 Memorandum stated that some costs to be included in the restructuring reserve were "probably incurred pre 12/31."  In view of all of the information that Hirsch knew and had access to, Hirsch failed to adequately audit the amounts charged against the restructuring reserve at year-end 1997. 
+
+ Hirsch Engaged in Improper Professional Conduct
+Within the Meaning of Commission Rule of Practice 102(e) 
+
+ Hirsch Failed to Maintain an Attitude of Professional Skepticism 
+ 
+An auditor is required to exercise professional skepticism when performing audit procedures and gathering and analyzing audit evidence.  AICPA Codification of Statements on Auditing Standards ("AU") Section 230.07. 
+ 
+Based on the foregoing, in connection with its audit of SmarTalk's 1997 year-end financial statements, Hirsch failed to maintain the attitude of professional skepticism required by GAAS concerning SmarTalk's accounting for its establishment of and charges against the restructuring reserves.  Hirsch did not follow up on certain information, including the reduced restructuring reserve amount on the balance sheet which reflected the improper charging of 1997 operating expenses against the restructuring reserve that was purportedly established for 1998 costs.  Furthermore, in some instances, Hirsch accepted uncorroborated representations of SmarTalk's management in lieu of performing additional audit procedures, in contravention of AU Section 333.  For example, in the Management Representation Letter, management represented that GAAP had been applied in the preparation of the financial statements for the year ended December 31, 1997.  However, as described above, this representation was contradicted by other audit evidence Hirsch obtained.  "[R]epresentations from management are part of the evidential matter the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit."  AU Section 333.02. 
+
+ Hirsch Failed to Obtain Sufficient Competent Evidential Matter 
+ 
+In conducting an audit, an auditor must obtain sufficient competent evidential matter through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.  AU Sections 150.02 & 326.01. 
+ 
+Based on the foregoing, in connection with SmarTalk's year-end 1997 financial statements, Hirsch failed to obtain sufficient competent evidence (including sufficient management representations) in support of SmarTalk's accounting for its establishment of each component of the restructuring reserve and its charging 1997 expenses against the restructuring reserve that purportedly had been established for anticipated 1998 expenses. 
+
+ Hirsch Failed to Exercise Due Professional Care 
+ 
+Auditors must exercise due professional care in performing the audit and preparing the audit report.  AU Sections 150.02 and 230.01. 
+ 
+Based on the foregoing, in connection with the audit of SmarTalk's 1997 year-end financial statements, Hirsch failed to exercise due professional care by failing to plan and perform audit procedures necessary to afford a reasonable basis for PwC's audit opinion.  As described above, Hirsch identified a number of risk factors associated with the preparation of SmarTalk's financial statements.  Despite Hirsch's awareness of numerous risks and other information that could materially impact the financial statements, Hirsch failed to perform sufficient audit procedures to assess properly whether SmarTalk's accounting for and charges against its restructuring reserves was in conformity with GAAP.  As a result, SmarTalk improperly established a non-GAAP restructuring reserve and, as described above, misused it to materially inflate earnings before one-time charges at year-end 1997. 
+
+ Hirsch Failed to Render an Accurate Audit Report 
+ 
+In conducting an audit, an auditor is required to state in the auditor's report whether, in the auditor's opinion, the financial statements are presented in all material respects in conformity with GAAP.  AU Sections 410 and 411.  An auditor may express that the financial statements are presented in conformity with GAAP only when the auditor has formed such an opinion on the basis of an audit performed in accordance with GAAS.  AU Section 508.07. 
+ 
+Based on the foregoing, in connection with the audit of SmarTalk's year-end 1997 financial statements, Hirsch failed to render an accurate audit report when he stated that SmarTalk's financial statements had been prepared in conformity with GAAP and the audit had been performed in accordance with GAAS.  In fact, the financial statements were not in conformity with GAAP, and the audit was not performed in accordance with GAAS. 
+
+ Findings 
+ 
+Based on the foregoing, the Commission finds that Hirsch engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.  Specifically, Hirsch engaged in repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards. 
+
+ 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: 
+  Hirsch is denied the privilege of appearing or practicing before the Commission as an accountant.   
+
+ After one (1) year from the date of this Order, Hirsch may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:   
+  a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Hirsch's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or   
+
+ an independent accountant.  Such an application must satisfy the Commission that:   
+
+   (a)   Hirsch, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");      (b)   Hirsch, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and      (c)   As long as Hirsch appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.       The Commission will consider an application by Hirsch to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy.   However, if state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits.  The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Hirsch's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+  
+By the Commission. 
+ 
+ 
+ 
+ 
+Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+ 
+  Footnotes 
+ 
+       1   
+ Rule 102(e)(1)(ii) provides, in relevant part, that:  
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it . . . any person who is found . . . to have engaged in improper professional conduct.        2   
+ The findings herein are made pursuant to Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.         3   
+ In this Order, "PwC" refers to Price Waterhouse LLP before its merger with Coopers & Lybrand LLP on July 1, 1998 and to PricewaterhouseCoopers LLP after the merger.        4   
+ PwC performed the audit of SmarTalk's restated financial statements.  However, PwC did not audit SmarTalk's quarterly financial statements.        5   
+ Previously, the Commission issued an Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order in the matter of Glen Andrew Folck and also filed a complaint for a civil penalty against Folck.        6   
+ A small portion of this component ($800,000) also related to SmarTalk's intention to terminate a contract with Polaroid in 1998, which was to produce holographic images on prepaid cards.  The analysis of why the Polaroid contract termination fees were improper restructuring costs is similar to the analysis of the carrier contract termination costs.    
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diff --git a/raw/aaer/2003/AAER-1789.txt b/raw/aaer/2003/AAER-1789.txt
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+
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+     
+     
+     SEC.gov | David R. Behanna, CPA 
+     
+     
+     
+     
+     
+     
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+              David R. Behanna, CPA
+           
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+
+   
+
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+        David R. Behanna, CPA
+       
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+                        
+              Securities Exchange Act of 1934 
+Release No. 34-47907 / May 22, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1789 / May 22, 2003 
+
+ Administrative Proceeding 
+File No. 3-11134 
+
+ 
+	 
+		 
+			 
+			 
+			    
+			In the Matter of 
+			  
+			David R. Behanna, CPA,      
+			  
+			Respondent 
+			   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS  
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against David R. Behanna ("Behanna") pursuant to Rule 102(e) of the Commission's Rules of Practice. 1  
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Behanna has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's findings of jurisdiction over him and the subject matter of these proceedings and of the entry of the injunction set forth in paragraph III.D. below, which Behanna admits, Behanna consents to the entry of this Order Instituting Public 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. 
+
+ FINDINGS 
+
+ On the basis of this Order and the Offer submitted by Behanna, the Commission finds that: 
+
+ A. Behanna is a certified public accountant and has been licensed since 1983. During the period February 1995 through September 1997, Behanna was the chief financial officer ("CFO") and a director of Windswept Environmental Group, Inc. ("Windswept"). Previously, Behanna was a principal in the accounting firm of Behanna & Oliva, which was Windswept's independent auditor for its fiscal year ended April 30, 1994. 
+
+ B. Windswept is a Delaware corporation that was known as Comprehensive Environmental Systems, Inc. from February 1995 through April 1997 and as Integrated Resource Technologies, Inc. from June 1993 until February 1995. Windswept is a waste remediation company headquartered in Bay Shore, New York. Since September 1987, Windswept's common stock has been registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and was listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), until it was delisted on October 22, 1996. It currently is traded on the OTC Bulletin Board. On November 22, 1999, the Commission issued, among other remedial sanctions, an order directing Windswept to cease and desist from committing or causing any violation and any future violation of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.  In the Matter of Windswept Environmental Group, Inc. , Securities Act Release No. 7780; Exchange Act Release No. 42165. 
+
+ C. On November 10, 1999, the Commission filed a complaint ("Complaint") against Behanna and sixteen others,  SEC v. Curtis, et al. , 99 CV 7357 (E.D.N.Y.), alleging, in relevant part, as follows: 
+
+ 1. From at least 1994 through 1996, defendants Grant R. Curtis ("Curtis"), Timothy H. Masley ("Masley") and Leo Mangan ("Mangan") (collectively, "the Trio"), acting as a partnership, masterminded and engaged in a fraudulent scheme to exercise undisclosed control over Windswept and two other public companies and used that control to retail stock of those companies illegally at inflated prices to the public. The Trio caused Windswept to issue an aggregate of over 4 million shares of its common stock to various foreign shell companies, nearly all of which were under the control of the Trio. Approximately 3.4 million of the 4 million shares of Windswept stock issued to the foreign shell companies were sold to the investing public for approximately $5 million. Behanna and other defendants, acting at the direction of the Trio, engaged in conduct which furthered the scheme. 
+
+ 2. With respect to the issuance of the Windswept stock, the Complaint further alleges, among other things, as follows: 
+
+ 3. Behanna, as CFO and through his involvement in Windswept's day-to-day operations, knew, or was reckless in not knowing, that Windswept was controlled by the Trio; that the Trio controlled Piedmont and Hersilia; that Kessler controlled Broadcast; and that Windswept received no consideration for the stock it issued to Piedmont and Broadcast and less than full consideration for the stock it issued to Hersilia. Further, in light of his position and involvement with Windswept, Behanna was a controlling person of Windswept. 
+
+ 4. Windswept's Form 10-K for its fiscal year ended April 30, 1995, its quarterly and annual filings for its fiscal year ended April 30, 1996, and its Form 10-Q for its quarter ended July, 1996, which were all signed by Behanna and filed with the Commission, contained materially false and misleading statements because they failed to disclose, among other things, that (i) Curtis and Masley were control persons of Windswept; (ii) Curtis had been convicted of a felony within the past five years; (iii) the stock issuances to the foreign shell companies were related party transactions; and (iv) the foreign shell companies had performed no services or paid little or no consideration for the stock issued to them. 
+
+ 5. Windswept's books and records, including corporate resolutions, falsely reflected stock issuances to the foreign shell companies, as described above, when, in fact, the members of the Trio and/or Kessler were the true recipients of the stock, and Windswept received little or no consideration for the stock. Windswept failed to adopt internal accounting controls sufficient to accurately reflect that Windswept stock was issued, for little or no consideration, to various nominees and aliases of the Trio and/or Kessler in related party transactions. 
+
+ 6. Behanna and others failed to disclose material facts to accountants in connection with the preparation and filing of documents and reports filed with the Commission, as set forth above, and failed to disclose material facts to accountants in connection with an audit of Windswept's financial statements. 
+
+ 
+	 
+	 a. In March 1995, Windswept issued a total of 200,000 shares of stock to Piedmont Securities, Ltd. ("Piedmont"), an Irish shell company, and filed with the Commission a Form S-8 Registration Statement, signed by Behanna, which purported to register 500,000 shares of Windswept common stock, including the 200,000 shares issued to Piedmont. Behanna signed the corporate resolution authorizing the issuance of the stock to Piedmont. Piedmont never performed any services for Windswept and never paid any consideration for the 200,000 shares of Windswept stock. 
+
+	 b. From May 1995 through May 1996, Windswept issued a total of 2,800,000 shares of unregistered stock in three transactions to Hersilia Investments, Ltd., a British Virgin Islands corporation, and the Hersilia Trust, located in Guernsey, Channel Islands (collectively "Hersilia"). Those transactions purportedly fell within a safe harbor exemption from the registration requirements of the Securities Act provided by Regulation S for offers and sales of securities to foreign persons that occur outside the United States. 17 C.F.R. § 230.901  et seq.  Hersilia, however, was controlled by the Trio. Windswept did not receive full consideration for the stock issued to Hersilia. 
+
+	 c. In July 1996, Windswept issued 115,000 shares to Broadcast Communications, Inc. ("Broadcast"), a Liberian company. This stock was purportedly registered on a Form S-8 Registration Statement filed with the Commission on December 21, 1995, which Behanna signed. Broadcast was a nominee for defendant Donald Kessler ("Kessler"), Windswept's then president, chairman, and CEO. Broadcast did not provide any services to Windswept. 
+
+	 d. None of these issuances of Windswept stock described above were properly registered with the Commission or exempt from registration. Most of the stock issued was sold to the public. 
+	 
+ 
+
+ D. On July 22, 2002, the United States District Court for the Eastern District of New York entered a Final Judgment of Permanent Injunction and Other Relief as to David R. Behanna ("Final Judgment") that, among other things, permanently enjoins Behanna from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Rules 13b2-1 and 13b2-2, promulgated under Section 13(b) of the Exchange Act, and from engaging in conduct as a controlling person that would render him liable pursuant to Section 20(a) of the Exchange Act for violations of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. Behanna consented to the entry of the Final Judgment without admitting or denying the allegations in the Complaint, except as to jurisdiction. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Behanna's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that 
+
+ A. Behanna is suspended from appearing or practicing before the Commission as an accountant. 
+
+ B. After five years from the date of this Order, Behanna 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 Behanna'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) Behanna, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+	 (b) Behanna, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and 
+
+	 (c) As long as Behanna appears or practices before the Commission as an independent accountant, he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+	 
+ 
+
+ C. The Commission will consider an application by Behanna 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 the 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 Behanna's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ By the Commission. 
+
+  
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ 
+ Footnotes 
+ 
+
+  1  Rule 102(e)(3)(i) provides, in relevant part, that: 
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder 
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diff --git a/raw/aaer/2003/AAER-1801.txt b/raw/aaer/2003/AAER-1801.txt
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+       
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+ Litigation Release No.  18189 / June 12, 2003
+
+  Accounting and Auditing Enforcement Release No. 1801/June 12, 2003
+
+   Securities and Exchange Commission v. Terry W. Davis,  Civil Action No. C 03-2729 (WDB) (N.D. Cal.) (June 11, 2003)
+
+   SEC CHARGES FORMER NETWORK ASSOCIATES, INC. VICE PRESIDENT AND CORPORATE CONTROLLER WITH FINANCIAL FRAUD 
+
+  On June 11, 2003, the Securities and Exchange Commission filed civil fraud charges against Terry W. Davis, the former Vice President and Corporate Controller at Santa Clara, California-based software manufacturer Network Associates, Inc.  The Commission's complaint alleges that from the second quarter of fiscal 1998 through the fourth quarter of fiscal 2000, Davis engaged in a scheme to overstate Network Associates' revenue and earnings, and thereby inflate the company's stock price.
+
+  According to the complaint, Davis and other Network Associates employees actively participated in a multi-part scheme to artificially inflate the revenue generated from the sale of the company's products to distributors.  The scheme included:
+
+        paying distributors so that they would hold excess inventory and buy more products;
+
+       giving deep discounts to distributors on amounts owed through side agreements to contracts;
+
+       fraudulently manipulating reserve accounts to, among other things, cover payments and discounts provided to distributors;
+
+       improperly recognizing revenue when selling to distributors on consignment in violation of GAAP and Network Associates' stated revenue recognition practices; and
+
+       using a wholly-owned subsidiary to buy products previously sold to distributors to reduce distributor inventory levels and product returns.
+
+   The complaint further alleges that Davis took action to conceal the fraud.  For example, in many instances, the payments and discounts to distributors were recorded improperly in Network Associates' books and records.  According to the complaint, Davis, encouraged by at least one other senior employee at Network Associates, made a series of fraudulent entries in Network Associates' general ledger to decrease a tax-related reserve in order to disguise the distributor payments and discounts and to increase inadequate sales reserves.
+
+  The complaint alleges that while Davis was aware of the financial fraud at Network Associates, he sold Network Associates stock for proceeds of approximately $1.4 million.
+
+  The Commission seeks to permanently enjoin Davis from violating certain of the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5) and from violating, or aiding and abetting violations of, certain reporting, books and records, internal controls, and representations to accountants provisions (Exchange Act Sections 13(a), 13(b)(5), 13b2-1, 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules12b-20, 13a-1, 13a-13 and 13b2-2).  The complaint also seeks an accounting, disgorgement of ill-gotten gains, prejudgment interest, civil money penalties, and an order prohibiting Davis from acting as an officer or a director of any reporting company.
+
+  The United States Attorney for the Northern District of California today announced criminal charges against Davis arising from the same conduct charged in the Commission's complaint.
+
+  The Commission's investigation into these matters is continuing.  
+
+  The Commission thanks the United States Attorney's Office for the Northern District of California and the Federal Bureau of Investigation for their cooperation in this matter.    
+  
+
+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1806.txt b/raw/aaer/2003/AAER-1806.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1806.txt
@@ -0,0 +1,1375 @@
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+ Litigation Release No. 18201 / June 25, 2003 
+
+ Accounting and Auditing Release No. 1806 / June 25, 2003 
+
+  Securities and Exchange Commission v. Peter J. Webb , (Civil Action No. CV 03-4526 AHM (RNBx) (C.D. Cal.). 
+
+ SEC Charges Former Sales Vice President of Digital Lava, Inc. with Inflating Revenues 
+
+ The Securities and Exchange Commission announced today that it filed a complaint against Peter J. Webb, age 50, of Southlake, Texas, the former Vice President of Sales for Digital Lava, Inc., for inflating revenues for Digital Lava's fiscal quarter ended September 30, 2000 ("Q3 2000").  According to the Commission's complaint, filed in federal court in Los Angeles, Webb engaged in fraudulent sales practices to increase Digital Lava's revenue by 54% during Q3 2000, which resulted in Digital Lava reporting false financial information in its Form 10-Q for that quarter.  On March 21, 2001, Digital Lava restated its Q3 2000 revenues from $1.7 million to $1.1 million.  Simultaneous with the filing of the complaint, Webb settled the action.  He consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining him from future violations of the charged provisions. 
+
+ Digital Lava, previously headquartered in Marina Del Rey, California, provided digital publishing services and software products that created on-demand, interactive presentations, training, and communication services until its dissolution on January 30, 2002.  Its stock previously traded on the Nasdaq Stock Market.  
+
+ The Commission's complaint alleges that during Q3 2000, Webb entered into several transactions with Digital Lava's dealers that involved placing contingencies, some documented in side letters, on the sale of a new product called Firestream.  Webb concealed the contingencies from Digital Lava's management and its auditors, which caused Digital Lava to improperly recognize revenue on these sales.  As a result, Digital Lava overstated revenue from its Firestream sales in Q3 2000 by $598,000, or 54%. 
+
+ The Commission charged Webb with violating or aiding and abetting violations of provisions of the federal securities laws, including the antifraud provisions (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder), reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder), record-keeping provisions (Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder), internal controls provision (Sections 13(b)(5) of the Exchange Act) and lying-to-an-accountant provision (Rule 13b2-2 under the Exchange Act).   
+
+ In a related administrative proceeding announced today, the Commission also charged Robert C. Cloyd, former Vice President of Sales for Three Point Digital, one of Digital Lava's dealers, with causing Webb's violation.  Cloyd, without admitting or denying the findings, consented to the entry of an Order that he cease and desist from committing or causing violations of certain provisions of the federal securities laws.  The Commission found that Cloyd provided a false audit confirmation to Digital Lava's auditors for $319,000, which represented the largest transaction Digital Lava reversed in Q3 2000. For further information, see  Administrative Proceeding File No. 3-11166  (June 25, 2003). 
+
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diff --git a/raw/aaer/2003/AAER-1808.txt b/raw/aaer/2003/AAER-1808.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1808.txt
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+ Litigation Release No.  18205  /  June 30, 2003 
+
+ Accounting and Auditing Enforcement Release No.  1808 /  June 30, 2003 
+
+  Securities and Exchange Commission v. Peregrine Systems, Inc. , Civil Action No. 03 CV 1276 K (LAB)  (S.D. Cal.) (June 30, 2003) 
+
+ SEC Charges Peregrine Systems, Inc. With Financial Fraud And Agrees To Partial Settlement 
+
+ The Securities and Exchange Commission today sued San Diego-based software company Peregrine Systems, Inc., in the United States District Court for the Southern District of California, for a massive financial fraud at the company that spanned 11 fiscal quarters.  Simultaneously with the filing of the complaint, the Commission submitted to the Court, for its approval, a partial settlement with Peregrine.   
+
+ According to the Commission's complaint, the purpose of the fraudulent scheme was to inflate the company's revenue and stock price.  To achieve that end, Peregrine filed materially incorrect financial statements with the Commission concerning the quarter ended June 30, 1999, through the quarter ended December 31, 2001.  In 2003 Peregrine restated its financial results for those quarters.  In its restatement, Peregrine reduced previously reported revenue of $1.34 billion by $509 million, of which at least $259 million was reversed because the underlying transactions lacked substance. 
+
+ The complaint alleges that Peregrine improperly booked millions of dollars of revenue for purported software license sales to resellers.  These transactions were non-binding sales of Peregrine software with the understanding-reflected in secret side agreements-that the resellers were not obligated to pay Peregrine.  Those involved in the scheme called this "parking" the transaction.  Peregrine personnel parked transactions when Peregrine was unable to complete direct sales it was negotiating (or hoping to negotiate) with end-users, but needed revenue to achieve its forecasts.  Peregrine engaged in other deceptive practices to inflate the company's revenue, including entering into reciprocal transactions in which Peregrine essentially paid for its customers' purchases of Peregrine software.  Peregrine routinely kept its books open after fiscal quarters ended, and improperly recorded as revenue, for the prior quarter, software transactions that were not consummated until after quarter end.  Certain Peregrine officers characterized these transactions as having been completed on "the 37th of December."   Peregrine senior officers, and sales and finance personnel knew, or were reckless in not knowing, that the applicable accounting rules prohibited revenue recognition on these and other transactions for which Peregrine booked revenue.   
+
+ The complaint alleges that, by various means, certain Peregrine officers and employees fraudulently concealed the revenue inflation scheme.  When Peregrine booked revenue for the non-binding reseller contracts, and the customers predictably did not pay, receivables-some of them bogus-ballooned on Peregrine's balance sheet.  Large aged accounts receivable were not being paid, an indication that Peregrine's financial health was deteriorating.  To make it appear to investors that Peregrine was collecting its receivables more quickly than it was, a senior officer entered into financing arrangements with banks to exchange receivables for cash.  Peregrine improperly accounted for these financing arrangements as sales of the receivables and removed them from the company's balance sheet.  There were several problems with this.  First, because Peregrine had given the banks recourse, and frequently paid or repurchased unpaid receivables from them, Peregrine should have accounted for the financing arrangements as loans and left the receivables on its balance sheet.  Second, some of the "sold" receivables were not valid because the customers were not obligated to pay Peregrine.  Third, several of the "sold" invoices were fake.  For example, in June 2001, Peregrine's senior treasury manager, with senior management's approval and encouragement, created a false $19.59 million invoice and sold it to a bank.  As a result, Peregrine's financial statements and books and records overstated Peregrine's cash flow from operations, and understated its accounts receivable.   
+
+ The complaint also alleges that, as part of the cover up, Peregrine personnel wrote off millions of dollars in uncollectible-primarily sham-receivables, to acquisition-related accounts in Peregrine's financial statements and books and records.  These write-offs were improper because they had nothing to do with acquisitions, and because the Peregrine personnel who directed the write-offs knew, or were reckless in not knowing, that certain written-off receivables should not have been recorded as revenue in the first place.  Peregrine misled investors by not including the write-offs in its pro forma operating results, and by making the write-offs appear on Peregrine's income statement as one-time charges rather than expenses from operations.  Through its officers and employees, Peregrine knew that (a) a substantial portion of these receivables should not have been recorded as revenue in the first place, (b) the receivables were not impaired by acquisitions, and (c) it was inappropriate to make it appear to the investing public that the write-offs related to non-recurring events. 
+
+ The Commission's complaint seeks to permanently enjoin Peregrine from violating certain antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), and from violating certain reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13).  The complaint also seeks disgorgement of ill-gotten gains, prejudgment interest, and civil monetary penalties. 
+
+ Peregrine, without admitting or denying the allegations of the Commission's complaint, has agreed (1) to be enjoined from violating the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws, (2) to disclose the current condition of its internal controls and financial reporting procedure, when a reorganization plan under Chapter 11 of the Bankruptcy Code becomes effective, (3) to comply, on an accelerated basis, with the rules regarding management's report on internal controls, implementing Section 303 of the Sarbanes-Oxley Act of 2002, (4) to retain an Internal Auditor to ensure that Peregrine's financial results are accurately reported in Peregrine's public financial statements, (5) to appoint a Corporate Compliance Officer to perform an ongoing review of Peregrine's corporate governance policies and practices, and (6) to commence a training and education program for its officers and employees, to prevent violations of the federal securities laws.  The partial settlement provides that the amount of disgorgement and/or civil penalty to be paid by Peregrine, if any, shall be determined at a later date.  In determining to accept Peregrine's offer of partial settlement, the Commission considered remedial acts promptly undertaken by Peregrine and cooperation afforded the Commission staff.   
+
+ This is the fourth civil fraud action the Commission has filed in this investigation.  In November 2002, the Commission filed a civil injunctive action against Ilse Cappel, the former senior treasury manager at Peregrine (Litigation Release No. 17859A).  In April 2003, the Commission filed a civil injunctive action against Matthew C. Gless, Peregrine's former chief financial officer ( Litigation Release No. 18093 ).  In June 2003, the Commission filed a civil injunctive action against Steven S. Spitzer, a former vice president of sales at Peregrine ( Litigation Release No. 18191 ). 
+
+ The Commission's investigation of participants in the financial fraud at Peregrine is continuing. 
+
+ The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation in this matter. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1816.txt b/raw/aaer/2003/AAER-1816.txt
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+ Litigation Release No. 18241 / July 22, 2003  
+
+ Accounting And Auditing Enforcement Release No. 1816 / July 22, 2003  
+
+  SEC V. Rent-Way, Inc., et al. , 03 CIV 231E (JSM) (W.D.PA.) 
+
+ SEC Charges $60 Millon Dollar Financial Reporting Fraud Against Former President And Chief Accounting Officer  Of Rent-Way, Inc.  
+
+ The Commission announced today that it has brought securities fraud charges against two former senior officers of Rent-Way, Inc. ("Rent-Way" or the "Company"), one of the largest rent-to-own companies in the United States, in connection with a scheme that caused Rent-Way to under-report expenses and substantially inflate reported earnings in 1999 and 2000.  In addition, the Complaint charges Rent-Way with corporate reporting and record keeping violations and charges another former employee with record keeping violations. The Commission further announced that, simultaneously with the filing of the Complaint, it settled the charges against three of the defendants and partially settled the charges against the fourth defendant. 
+
+ The Complaint alleges that, during fiscal 1999 and 2000, Rent-Way under-reported a variety of expenses by approximately $60 million.  Each of Rent-Way's Forms 10-Q and Form 10-K filed in fiscal 1999 and 2000 overstated pre-tax earnings or understated pre-tax loss by between 12%-448%.  In addition, approximately $35 million in fraudulent entries made to Rent-Way's books and records in the fourth quarter of fiscal 2000 were discovered prior to any public dissemination of the Company's financial results for that quarter.  Jeffrey Conway ("Conway"), Rent-Way's former president, CFO, COO and a director, and Matthew Marini ("Marini"), Rent-Way's former controller and chief accounting officer, directed the fraudulent scheme.  Conway directed Marini to meet periodic earnings forecasts that Conway set, and Marini directed lower level employees to make fraudulent entries to Rent-Way's books and records.  Conway also directed Jeffrey Underwood ("Underwood"), Rent-Way's former senior vice president in charge of operations, to defer the recording of certain operating expenses at the end of fiscal 1999 and 2000.  The effect was to inflate falsely and substantially the Company's financial results.  
+
+ The defendants are as follows: 
+
+  Rent-Way  is a Pennsylvania corporation with its principal executive offices in Erie, Pennsylvania.  Its common stock is listed on the New York Stock Exchange.  
+
+  Conway , age 45, was the chief financial officer of Rent-Way from February 1992 through September 1999 and president and chief operating officer of Rent-Way from September 1999 until he resigned in December 2000.  Conway also served as a director from February 2000 until he resigned in December 2000.  Conway is a certified public accountant.  
+
+  Marini , age 38, was the controller of Rent-Way from October 1995 to December 1999 and the chief accounting officer from December 1999 until he was terminated in October 2000.  
+
+  Underwood , age 46, was the senior vice president in charge of operations overseeing all of Rent-Way's operations from September 1999 to July 2002.      
+
+ The Complaint alleges as follows:  
+
+   Beginning in December 1998, Conway directed Marini to do whatever was necessary to ensure that the Company met its earnings guidance but not to tell Conway how he was meeting the earnings guidance so that Conway could maintain "plausible deniability" ( i.e.,  the ability to deny direct knowledge of the misconduct).  Beginning in December 1999, Marini told Conway the details of his fraudulent conduct and continued to discuss with Conway details of his ongoing efforts to meet the Company's earnings guidance. Conway condoned and encouraged Marini's actions.   
+
+   Marini systematically understated Rent-Way's operating expenses across many corporate-level accounts and also inflated the Company's miscellaneous and other income accounts. Marini accomplished this by directing lower level accounting employees to make unsupported and false entries to the Company's corporate general ledger.  
+
+   Conway also directed Underwood to defer improperly the recording of certain rental merchandise related losses at the end of fiscal 1999 and 2000 for the sole purpose of meeting the Company's earnings targets.  
+
+   When the fraudulent scheme began to unravel in October 2000, Conway and Marini took overt steps to conceal the manipulation from the auditors and from other officers of the Company.  For example, in order to bring a store-level rental merchandise account into balance with the corporate level general ledger that had been manipulated, Marini directed an employee to add back to the store-level point of sale system approximately $16 million in rental merchandise losses that had been written off in an earlier quarter. When the employee refused, Conway directed the employee to follow Marini's instructions.  Conway also directed another employee to misrepresent to the CFO the true nature of the discrepancy in the accounts, and Conway and Marini later concocted a false explanation of the problem in order to prevent any further investigation by the CFO.  
+
+   The Complaint further alleges that in May 2000, Conway engaged in illegal insider trading by selling 6,500 shares of Rent-Way stock at a time when he had nonpublic information about the true financial condition of the Company and the fraudulent scheme. 
+   The Commission alleges that, as a result of the foregoing, Rent-Way violated Sections 13(a) and 13(b)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder; Conway and Marini violated  Sections 10(b) and 13b-5 of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and are also liable as control persons of Rent-Way under Section 20(a) of the Exchange Act for Rent-Way's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13; and that Underwood violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1.    
+
+ The Commission seeks a Final Judgment (i) permanently enjoining each defendant from future violations of the securities laws; (ii) ordering Conway to pay disgorgement plus prejudgment interest; (iii) imposing civil penalties against Conway, Marini and Underwood; and (iv) barring Conway and Marini from serving as an officer or director of a public company.  
+
+ The Company has consented to the entry of a final judgment that permanently enjoins the Company from further violations of the reporting and books and records provisions of the federal securities law.  In determining to accept Rent-Way's settlement offer, the Commission considered that Rent-Way undertook remedial actions and cooperated with Commission staff.  
+
+ Defendant Conway has consented to the entry of a final judgment that permanently enjoins him from further violations of the antifraud, reporting and books and records provisions of the federal securities laws; permanently bars him from serving as an officer or a director of a public company; and orders him to pay $129,350 in disgorgement of the loss he avoided on his sale of Rent-Way stock plus $30,067 in prejudgment interest, and a $200,000 civil penalty.   
+
+ Defendant Marini has consented to the entry of a judgment that permanently enjoins him from further violations of the antifraud, reporting and books and records provisions of the federal securities laws, and that permanently bars him from serving as an officer or a director of a public company.  The amount of any civil penalty that Marini must pay is left open to a later determination.   
+
+ Defendant Underwood has consented to the entry of a final judgment that permanently enjoins him from further violations of the books and records provisions of the federal securities laws and orders him to pay a civil penalty in the amount of $25,000. 
+
+ The offers of settlement by the defendants will be submitted to the Court for its approval. 
+
+ The Commission thanks the United States Attorney for the Western District of Pennsylvania and the Federal Bureau of Investigation for their assistance to its investigation.  In a separate action, Conway, Marini and Underwood each pleaded guilty to a criminal information for their respective roles in the fraudulent scheme.  
+
+   SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1820.txt b/raw/aaer/2003/AAER-1820.txt
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@@ -0,0 +1,1391 @@
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+ J.P. Morgan Chase Simultaneously Settles Charges for $135 Million 
+
+ The Securities and Exchange Commission ("Commission") today charged J.P. Morgan Chase & Co. with aiding and abetting Enron Corp.'s securities fraud.  The Commission's complaint, filed in U.S. District Court in Houston, alleges that J.P. Morgan Chase aided and abetted Enron's manipulation of its reported financial results through a series of complex structured finance transactions, called "prepays," over a period of several years preceding Enron's bankruptcy.  These transactions were used by Enron to report loans from J.P. Morgan Chase as cash from operating activities.  The structural complexity of these transactions had no business purpose aside from masking the fact that, in substance, they were loans from J.P. Morgan Chase to Enron.  Between December 1997 and September 2001, J.P. Morgan Chase effectively loaned Enron a total of approximately $2.6 billion in the form of seven such transactions. 
+
+ Simultaneous with the filing of the complaint, J.P. Morgan Chase agreed to file a consent and final judgment settling the Commission's action against it.  In the consent, J.P. Morgan Chase has agreed, without admitting or denying the allegations of the complaint, to the entry of a final judgment permanently enjoining it from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5.  J.P. Morgan Chase also has agreed to pay disgorgement, penalties and interest in the amount of $135 million.  The Commission intends to have these funds paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 for ultimate distribution to victims of the fraud. 
+
+ Specifically, the complaint alleges that between December 1997 and Enron's demise in 2001, J.P. Morgan Chase and Enron engaged in seven of these prepay transactions in order to disguise loans as commodity trades thus achieving Enron's desired accounting and reporting objectives.  As the complaint alleges, the clearest indication that the J.P. Morgan Chase/Enron prepays were disguised loans was their structure.  In general, in a prepay transaction (also known as a prepaid forward sale contract) the purchaser pays for a commodity upfront, in full, at the time the contract is made, and the seller agrees to deliver the subject commodity on future dates, often over the course of several years.  In effect, the seller bets that the market price of the subject commodity would be lower at the time of delivery than at the time the contract is made.  The purchaser bets the opposite way:  that the market price of the commodity at the time of delivery will exceed the price it paid at the time of contracting.  In a typical prepay transaction, therefore, each side assumes commodity price risk.  
+
+ According to the complaint, the critical difference in the J.P. Morgan Chase/Enron prepays -- and the reason that these transactions were in substance loans -- was that they employed a structure that passed the counter-party commodity price risk back to Enron, thus eliminating all commodity risk from the transaction.  This was accomplished through a series of simultaneous trades whereby Enron passed the counter-party commodity price risk to a J.P. Morgan Chase-sponsored special purpose vehicle called Mahonia, which passed the risk to J.P. Morgan Chase, which, in turn, passed the risk back to Enron.   
+
+ As in typical prepays, the complaint alleges, Enron received cash upfront.  In contrast to typical prepays, according to the complaint, with all elements of the structure taken together, Enron's future obligations were reduced to the repayment of cash it received from J.P. Morgan Chase with negotiated interest.  The interest was calculated with reference to LIBOR.  Since all price risk and, in certain transactions, even the obligation to transport a commodity were eliminated, the only risk in the transactions was Chase's risk that Enron would not make its payments when due,  i.e. , credit risk.   In short, the complaint alleges, these seven prepays were in substance loans.  
+
+ According to the complaint, Mahonia was included in the structure solely to effectuate Enron's accounting and financial reporting objectives.  Enron told J.P. Morgan Chase that Enron needed Mahonia in the transactions for Enron's accounting.  Mahonia was controlled by Chase and was directed by Chase to participate in the transactions ostensibly as a separate, independent, commodities-trading entity.  As the complaint further alleges, in order to facilitate Enron's accounting objectives, J.P. Morgan Chase took various steps to make it appear that Mahonia was an independent third party. 
+
+ The Commission alleges that J.P. Morgan Chase knew that Enron engaged in prepays to match its so-called mark-to-market earnings (paper earnings based on changes in the market value of certain assets held by Enron) with cash flow from operating activities.  By matching mark-to-market earnings with cash flow from operating activities, Enron is alleged to have sought to convince analysts and credit rating agencies that its reported mark-to-market earnings were real,  i.e. , that the value of the underlying assets would ultimately be converted into cash.   
+
+ The Commission further alleges that J.P. Morgan Chase also knew that prepays yielded another substantial benefit to Enron:  they allowed Enron to hide the true extent of its borrowings from investors and rating agencies because sums borrowed in prepay transactions appeared as "price risk management liabilities" rather than "debt" on Enron's balance sheet.  In addition, Enron's obligation to repay those sums was not otherwise disclosed.  Significantly, according to the Commission's allegations, J.P. Morgan Chase considered prepays to be unsecured loans to Enron, rather than commodity trading contracts, and based its decisions to participate in these transactions primarily on its assessment of Enron's credit. 
+
+ The Commission brought this action in coordination with the New York County District Attorney's Office.  The Commission also acknowledges the assistance of the Federal Reserve and the New York State Banking Department. 
+
+ The Commission's investigation is continuing.   
+
+ For additional information, see 
+
+   SEC v. Michael J. Kopper  -  Litigation Release 17692  (Aug. 21, 2002)
+
+   SEC v. Andrew S. Fastow  -  Litigation Release 17762  (Oct. 2, 2002)
+
+   SEC v. Kevin A. Howard and Michael W. Krautz  -  Litigation Release 18030  (March 12, 2003)
+
+   SEC v. Merrill Lynch & Co. Inc., et al.  -  Litigation Release 18038  (March 17, 2003)
+
+   SEC v. Kevin A. Howard, Michael W. Krautz, Kenneth D. Rice, Joseph Hirko, Kevin P. Hannon, Rex T. Shelby, and F. Scott Yeager  -  Litigation Release 18122  (May 1, 2003) (Amended Complaint)
+
+   In the Matter of Citigroup, Inc.  -  Securities Exchange Act Of 1934 Release No. 48230 ; Accounting and Auditing Enforcement Release No. 1821; Administrative Proceeding File No. 11192 (July 28, 2003)
+     SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1821.txt b/raw/aaer/2003/AAER-1821.txt
new file mode 100644
index 0000000000000000000000000000000000000000..be0216b01a976fbc341590250c9a5fab0fde3a68
--- /dev/null
+++ b/raw/aaer/2003/AAER-1821.txt
@@ -0,0 +1,1746 @@
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+     SEC.gov | Citigroup, Inc. 
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+ Securities Exchange Act Of 1934 
+Release No. 48230 / July 28, 2003 
+
+ Accounting And Auditing Enforcement 
+Release No. 1821 / July 28, 2003 
+
+ Administrative Proceeding 
+File No. 3-11192 
+
+     In the Matter of 
+
+ Citigroup, Inc. 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING A PUBLIC ADMINISTRATIVE PROCEEDING PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER AND OTHER RELIEF    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate to institute a public administrative proceeding pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Citigroup, Inc. ("Citigroup")   and such a proceeding is hereby instituted. 
+
+ II. 
+
+ In anticipation of the institution of this proceeding, Citigroup has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept.  Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R.Sec. 201.100  et seq ., Citigroup, without admitting or denying the findings contained herein, except that Citigroup admits to the jurisdiction of the Commission over it and over the subject matter of this proceeding, consents to the issuance of this Order Instituting a Public Administrative Proceeding Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order and Other Relief ("Order"). 
+
+ III. 
+
+ The Commission makes the following findings:  1   
+
+ A. Introduction 
+
+ Citigroup assisted two Houston-based energy companies, Enron Corp. ("Enron") and Dynegy Inc. ("Dynegy"), in enhancing artificially their financial presentations through a series of complex structured transactions whose purpose and effect, among other things, was to allow those companies to report proceeds of financings as cash from operating activities on their statements of cash flows.  In these transactions, Enron and Dynegy received cash upfront and repaid that cash on terms that included a negotiated return in the nature of interest.  2    Nonetheless, Enron and Dynegy did not disclose that these transactions were financings or report them as such.  Instead, these transactions were structured purportedly to take advantage of certain accounting rules so that Enron and Dynegy could report them on their balance sheets as "price risk management liabilities," "minority interest," or otherwise. 
+
+ 1. Enron Corp. 
+
+ Enron used fair value accounting for certain contracts and financial instruments related to its trading activities; for hedging related to non-trading activities; and for merchant investments, described by Enron as providing capital primarily to energy and communications-related businesses seeking debt or equity financing.  3    Increases in the fair value of assets accounted for on a fair value basis can generate current period earnings without generating any associated cash flow from operating activities.  A mismatch between earnings and cash flow from operating activities could have raised questions about the quality and sustainment of Enron's fair-value earnings; in other words, it could have created uncertainty over whether those earnings ultimately would convert into cash.  Enron turned to structured-finance transactions to make proceeds from financings appear as cash from operating activities and thereby balance its earnings with its cash flow from operating activities.   
+
+ Specifically with respect to Citigroup, Enron executed Project Nahanni, Project Bacchus ("Bacchus"), and ten so-called prepay transactions to meet its financial reporting needs.   
+
+ As Citigroup knew, because it helped structure the transaction, the purpose of Project Nahanni was to generate cash from operating activities by selling Treasury bills ("T-bills") bought with the proceeds of a loan.  The transaction took place over approximately five weeks spanning Enron's 1999 fiscal year end.  The project was structured as a business partnership between Enron and an "investor" entity arranged by Citigroup to engage in this transaction.  The investor entity was capitalized with a $485 million loan from a Citigroup affiliate and $15 million in equity contributed by a third party.  The idea was that the "investor" entity would turn its capitalization into T-bills and contribute those T-bills into a partnership with Enron.  The partnership would sell the T-bills (classified by Enron as "merchant investments"), thus generating cash flow from operating activities.  Enron would consolidate the partnership's results on its financial statements and report the proceeds of T-bill sales as cash from operating activities on its consolidated statement of cash flows.  The partnership was created in mid-December 1999.  On December 29, 1999, Enron used this structure to increase its reported cash from operating activities by $500 million.  Enron informed Citigroup that it would use this $500 million to decrease its reported debt by that amount.  Three weeks later, in January 2000, Enron arranged to repay the $485 million loan in full with interest.  Enron's purported disclosure of this transaction in its year-end 1999 filings failed to disclose fully that the partnership was created in December to fund a transaction that lasted just long enough to achieve a year-end financial reporting effect.  Enron's disclosure was also misleading because it created the false impression that this transaction related to Enron's regular-course-of-business investments in energy and technology companies.  
+
+ Project Bacchus was structured by Enron as a sale of an interest in certain of its pulp and paper businesses to a special purpose entity ("SPE") capitalized by Citigroup with a $194 million loan and $6 million in equity.  Citigroup understood that the $6 million in equity represented the three percent minimum capital investment by an independent, third party (here, Citigroup) considered necessary under the then existing accounting literature to avoid consolidating this entity with Enron for accounting purposes.  (To protect Citigroup's loan, Enron and the entity entered into a total return swap, the effect of which was to make Enron responsible for paying Citigroup an amount equal to the principal and interest on the $194 million loan.)  Enron and Citigroup signed documents that supported Enron's accounting treatment.  Simultaneously, however, Citigroup obtained oral representations from Enron that Citigroup would not lose money in connection with its three percent equity investment.  Citigroup understood that reducing this representation to a written contractual term would have negated Enron's accounting treatment.  Consequently, in substance, Citigroup was not at risk for its equity investment, thus rendering Project Bacchus a $200 million financing from Citigroup, which should have been accounted as such.  At the end of December 2000, Project Bacchus generated $200 million of cash from operating activities and $112 million in pre-tax income for Enron.  Four months before Project Bacchus' maturity date, the Project Bacchus structure was terminated and the pulp and paper assets were moved into a different structure involving Enron and Citigroup.  4   
+
+ The prepay transactions, as Citigroup understood, were financings structured as commodity trades.  5    Nominally, these transactions involved upfront cash payments (prepayments) to Enron in exchange for Enron's obligation to make future payments determined by multiplying the spot price of the referenced commodity by the contract volume.  However, the structure effectively passed the commodity price risk back to Enron.  If all the contracts were performed pursuant to their terms, Citigroup was entitled to receive repayment of its prepayment of the contract price, together with a negotiated return on that amount, on a specified schedule -  i.e. , the equivalent of an interest payment on the contract price.  The negotiated return was unrelated to any price risk associated with owning a commodity contract.  As Citigroup knew, Enron reported the receipt of cash generated from prepay transactions as cash flow from operating activities, rather than cash flow from financing activities, and it reported its repayment obligation as a price risk management liability, rather than debt.  In net economic effect, Enron used these transactions to borrow, over a two and one-half year period, an aggregate amount of $3.8 billion (although at any particular point in time the amount of Enron's outstanding obligations was lower). 
+
+ During fiscal year 1998, $500 million out of $1.6 billion that Enron reported as net cash flow from operating activities on its consolidated statement of cash flows came from prepay transactions with Citigroup.  During fiscal year 1999, the Project Nahanni and prepay structured transactions accounted for approximately $2 billion of Enron's reported net cash flow from operating activities.  But for these transactions, in that year, Enron would have reported that it used $800 million in net cash in operating activities (a negative amount in its statement of cash flows) instead of reporting that it generated $1.2 billion in net cash from operating activities (a positive amount in its statement of cash flows).  For fiscal 2000 the Bacchus and prepay structured transactions accounted for approximately $1 billion of $4.7 billion net cash generated by operating activities.  For the second quarter of 2001 prepay structured transactions accounted for approximately $1 billion of $1.3 billion that Enron reported as net cash flow used in operating activities.  But for the prepay structured transactions reported net cash flow used in operating activities (a negative amount in the statement of cash flows) would have been $2.3 billion.  6   
+
+ Citigroup knew or should have known that the acts or omissions described in this Order would contribute to Enron's violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-5.  Consequently, Citigroup was a cause of Enron's violations within the meaning of Exchange Act Section 21C. 
+
+ 2. Dynegy Inc. 
+
+ Dynegy also turned to a structured-finance transaction to address the mismatch between its earnings and operating cash flow resulting from fair value accounting for trading-related contracts and financial instruments.  Dynegy, too, was concerned that the mismatch between earnings and cash flow from operations would raise questions about the quality of Dynegy's earnings and its ability to sustain those earnings.  In addition, Dynegy sought to lower its effective tax rate through a transaction-based tax benefit. 
+
+ Project Alpha ("Alpha") was a complex financing, structured as a two-phase long-term natural gas contract.  The transaction was conceived and marketed to Dynegy by Dynegy's then auditor-consultant; Citigroup's role was to raise the financing and assist in facilitating the transaction.  As Citigroup understood, essentially, Alpha was a loan to Dynegy, pursuant to which Dynegy purchased gas at a discount from a sponsored SPE during the initial nine months of Alpha's five-year term and then sold the gas for a profit; Dynegy is currently repaying the loan, with interest, over the remaining 51 months by purchasing gas at above-market prices from the SPE.  The commodity price and interest rate risks associated with the loan repayment are hedged through a series of derivative transactions.  Citigroup knew that Dynegy used Alpha to borrow a total of $300 million and generate a $79 million tax benefit.  As Citigroup also knew, Dynegy recorded the Alpha-derived loan proceeds in its statement of cash flows as operating cash flow.   
+
+ In fiscal year 2001, Alpha accounted for $300 million of Dynegy's reported cash flow from operating activities, out of a gross reported figure of $811 million.  The Alpha-related cash flows represented 37 percent of Dynegy's reported operating cash flow.  The Alpha-based $79 million tax benefit comprised 12 percent of 2001 Dynegy's net income. 
+
+ Citigroup knew or should have known that the acts or omissions described in this Order would contribute to Dynegy's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  Consequently, Citigroup was a cause of Dynegy's violations within the meaning of Section 21C of the Exchange Act. 
+
+ B. Respondent 
+
+ Citigroup, Inc. 
+
+ Citigroup is a Delaware corporation with its principal place of business in New York, New York.  Citigroup is a diversified global financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers.  At all times pertinent to this Order, the common stock of Citigroup was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange under the symbol "C". 
+
+ C. Issuers 
+
+ 1. Enron Corp. 
+
+ Enron Corp. is an Oregon corporation with its principal place of business in Houston, Texas.  At all times pertinent to this Order, the common stock of Enron was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange under the symbol "ENE".   
+
+ Until its bankruptcy filing in December 2001, Enron was the seventh largest corporation in the United States based on reported revenue.  In the previous ten years, Enron had evolved from a regional natural gas provider to a commodity trader of natural gas, electricity, and other physical commodities with retail operations in energy and other products.  The Company also created and traded financial products. 
+
+ 2. Dynegy Inc. 
+
+ Dynegy is an Illinois corporation headquartered in Houston, Texas.  7    At all times pertinent to this Order, the common stock of Dynegy was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange under the symbol "DYN". 
+
+ Dynegy produces and delivers energy, including natural gas, electricity, natural gas liquids, and coal, to customers in North America, the United Kingdom, and Continental Europe.  In addition to energy production and delivery, energy trading was a key component of Dynegy's business during the relevant period. 
+
+ D. Discussion 
+
+ 1. Enron-Related Conduct 
+
+ Project Nahanni 
+
+ At a September 1999 meeting between Enron and Citigroup, Enron explained that it projected a year-end shortfall in its cash flow from operating activities because of a delay in a sale of one of its merchant investments.  Enron indicated to Citigroup that it wanted to develop and execute a transaction with Citigroup before the year end to generate cash flow from operating activities to make up for the shortfall. 
+
+ Citigroup developed Project Nahanni and presented it to Enron as a financial statement solution to that operating cash flow shortfall.  The basic concept behind Project Nahanni was to generate cash flow from operating activities by selling T-bills bought with the proceeds of a loan arranged by Citigroup, using a minority interest structure.  In this structure, a third party provides capital by acquiring a minority interest in a consolidated subsidiary of a sponsor.  Accordingly, cash flow associated with the activities of the consolidated subsidiary appears as cash flow from operating activities on the sponsor's financial statements.  The third party's financial contribution to the consolidated subsidiary appears as a minority interest on the sponsor's balance sheet, rather than debt.  Here, Citigroup fashioned a structure whereby an investor entity would purchase T-bills primarily with proceeds of a loan.  The investor entity would then use those T-bills to acquire a minority interest in a consolidated subsidiary of Enron created specifically to effectuate this transaction.  The Enron subsidiary would then sell the T-bills.  The sale of the T-bills, in turn, would generate cash that would appear as cash from operating activities on Enron's statement of cash flows.   
+
+ In addition, Enron told Citigroup that it would use the proceeds of this transaction to pay down certain of its debt obligations.  In effect, in addition to increasing its reported cash flow from operating activities, Enron intended to use Project Nahanni to improve its reported debt to equity ratio by replacing debt with a minority interest in a consolidated subsidiary.   
+
+ More specifically, the Project Nahanni transaction was structured as follows:  The consolidated subsidiary of Enron that sold the T-bills was a partnership called Marengo Assets, L.P. ("Marengo").  Marengo was a partnership between Enron and an entity called Nahanni Investors L.L.C. ("Nahanni").  Enron was the general partner of Marengo.  For its general partner interest, Enron contributed $400 million in Enron unsecured interest-bearing notes and $100 million worth of preferred stock in one of Enron's wholly owned subsidiaries.  Nahanni was the limited partner of Marengo.  Nahanni was arranged by Citigroup to act as the third party, minority interest investor in this transaction.  Citigroup arranged for Nahanni to be capitalized with a $485 million loan  8   and a $15 million investment by a third party.  9    In order to execute a cash-less transaction with Marengo, Nahanni used its cash capitalization to buy T-bills and contributed $500 million worth of T-bills into Marengo in exchange for its partnership interest.  10    As the general partner, Enron consolidated Marengo into its financial statements: Marengo's sale of T-bills appeared as cash flow from operating activities on Enron's consolidated statement of cash flows.  11   
+
+ The principal and interest on the loan to Nahanni were indirectly paid by Enron via Nahanni's partnership interest in Marengo.  The Marengo Partnership Agreement required Marengo to make payments to Nahanni in amounts and at times corresponding to Nahanni's payment obligations under its loan.  Project Nahanni's structure contemplated that assets contained in Marengo would generate sufficient proceeds to cover interest on the loan to Nahanni, Nahanni's operating expenses, and the current return to the third-party equity investors in Nahanni.   
+
+ Although Enron used the Project Nahanni structure only once, at year-end 1999, it was available to be used each year at Enron's option for up to the entire five-year term.  The loan to Nahanni was revolving.  In any one year, Enron could redeem up to $485 million of Nahanni's interest in Marengo, thereby causing Nahanni to repay the portion of its loan representing the redeemed interest.  12    Thereafter, Enron could cause Nahanni to draw on Nahanni's revolving loan by calling upon Nahanni to make a capital contribution to Marengo.  By operation of the revolving loan agreement, any such capital contribution would be limited to an amount representing any previously redeemed Nahanni interest in Marengo (up to $485 million).  Nahanni and Marengo were specifically prohibited from engaging in any other business or activity. 
+
+ As originally contemplated, Enron could withdraw the proceeds of the T-bill sales by borrowing from Marengo, after contributing into Marengo sufficient assets to assure eventual redemption of Nahanni's interest.  (Since Enron consolidated Marengo, any such loan would be eliminated in consolidation,  i.e. , it would be an unreported inter-company loan.)  Alternatively, the cash proceeds would remain in Marengo or could be used to effectuate the repayment of the $485 million Nahanni loan by partially redeeming Nahanni's interest in Marengo.   
+
+ While the initiation of the transaction was designed to be reported as an increase in cash flow from operating activities, its wind-down was designed to be reported as a reduction in cash flow from financing activities.  As noted, the repayment of the loan to Nahanni was triggered by the partial redemption of Nahanni's interest in Marengo.  Generally, under GAAP, redemption of a partnership interest has to be reported as cash used for financing activity.   
+
+ Nahanni was formed on December 17, 1999.  The entire structure was put in place on December 21, 1999.  On December 29, 1999, Enron generated - for financial statement purposes - $500 million in cash from operating activities by directing Marengo to liquidate all of its T-bills.  Shortly before the transaction was to close, Enron's then-Treasurer informed Citigroup that Enron wanted access to the $500 million cash proceeds of the T-bill sales to pay down its outstanding debt.  However, Enron did not post collateral that was acceptable to Citigroup.  Instead, Citigroup agreed to make some modifications to the structure that allowed Enron to borrow the $500 million from Marengo, provided that Enron obtained a letter of credit from a highly rated financial institution to guarantee the $500 million loan.  The term of the loan could not exceed the term of the letter of credit that Enron obtained.  Enron provided a letter of credit expiring on January 24, 2000, and borrowed the $500 million.  Since the transaction with Marengo was an inter-company loan and was eliminated in consolidation, Enron was able to reduce, at year-end, its reported debt by $500 million. 
+
+ On January 24, 2000, Enron drew on the letter of credit and repaid the $500 million loan from Marengo, with interest.  Enron then caused Marengo to partially redeem Nahanni's limited partnership interest.  To do so, Marengo paid Nahanni approximately $487.1 million, representing $485 million in principal borrowed by Nahanni on the revolving loan and approximately $2.1 in interest.  13   
+
+ At year-end 1999, Enron reported in its Statement of Cash Flows an increase of approximately $1.2 billion in cash flow from operating activities.  The $500 million Project Nahanni transaction accounted for 41 percent of that amount.  
+
+ Project Bacchus 
+
+ In December 2000, Enron recorded a $112 million gain on a $200 million sale to Citigroup of an equity interest in certain entities holding pulp and paper assets.  This transaction, referred to as Project Bacchus, was purportedly effected as a Statement of Financial Accounting Standards No. 125 ("SFAS 125") transaction.  14    Enron had executed similar SFAS 125 transactions with other financial institutions.  In asking Citigroup to execute Project Bacchus, Enron provided template transaction documentation for the deal.   
+
+ Under the circumstances of this particular transaction, Enron had to transfer control of the subject asset to an entity in which a third party had made a minimum three percent equity investment.  15    Enron transferred an equity method investment in an entity it created to hold an interest in its pulp and paper assets to an SPE called the Caymus Trust ("Caymus") though a multi-layered structure.  Caymus was capitalized with a Citigroup loan for $194 million and $6 million of equity contributed by another financial institution.  Although this institution made the equity contribution, it transferred the equity risk to Citigroup in a total return swap.  Citigroup was required under GAAP to be at risk for its $6 million equity investment in Caymus throughout the transaction.  Citigroup's debt contribution was protected by a total return swap between Caymus and Enron that effectively required Enron to pay Citigroup, through Caymus, a fixed amount of cash equal to principal and interest on the $194 million debt portion.  In return, Enron received a return based on the value of the equity interest in the pulp and paper assets subject to the transaction.  The transaction was given a nine-month term, at which time the assets Enron transferred to Caymus were to be sold.   
+
+ Citigroup signed written agreements that were drafted to allow Enron to achieve sale treatment pursuant to SFAS 125.  Simultaneously, Citigroup received oral representations from Enron that it would not lose money in connection with its equity investment.  Citigroup understood that reducing this representation to a written contractual term would have negated Enron's accounting treatment.  In addition, to induce Citigroup to enter into the transaction, Enron indicated that it would take Citigroup out of the transaction well before the expiration of its nine-month term.  (In fact, four months before Project Bacchus' maturity date, Enron and Citigroup formed a joint venture that purchased Citigroup's interest in Project Bacchus.  16  )      
+
+ In substance, Enron was economically at risk for 100 percent of the assets as a result of Enron's oral commitment regarding Citigroup's three percent equity investment and by application of the total return swap.  Citigroup, on the other hand, contributed $200 million in cash in return for repayment of that amount with interest.  In economic reality, therefore, Bacchus was a $200 million financing structured as a sale for the sole purpose of allowing Enron to characterize its proceeds as cash flow from operating activities  17   and to record a gain of $112 million.  18   
+
+ Project Bacchus accounted for four percent of Enron's reported cash flow from operating activities for year-end 2000 and 11 percent of its net pre-tax income. 
+
+ Prepay Transactions 
+
+ As noted, the prepay transactions were financings structured as commodity trades so that their proceeds could be reported by Enron on its statement of cash flows as cash flow from operating rather than financing activities.  To accomplish this objective, prepays were structured as three sets of separate transactions among Enron, Citigroup, and a third party.  (In some cases, the third party was an established financial institution; in other cases, the third party was Delta Energy Corporation ("Delta"), which was a Citigroup-sponsored special purpose vehicle.)  Each set of these separate transactions purported to transfer commodity risk.  When all the contracts were taken together, however, the net effect was that Enron received an up-front cash payment from Citigroup and Citigroup was entitled to receive repayment of this sum, together with a set negotiated return, on a specified schedule ( i.e. , the equivalent of a fixed interest rate).  The negotiated return was unrelated to any price risk associated with owning a commodity contract.  (The third parties received a nominal fee, paid by Enron, for participating in the transaction.)  Enron reported the cash it received from prepay transactions as cash flow from operating activities, rather than cash flow from financing, and it reported its repayment obligation as price risk management liability, rather than debt.   
+
+ In all, Citigroup and Enron executed ten prepay transactions between December 1998 and June 2001.  In all of these transactions, Citigroup was aware that Enron's primary motive was to receive cash financings, but characterize the proceeds from the transactions on its financial statements as cash from operating (instead of financing) activities.  Through these ten prepay transactions, Citigroup made available to Enron a total of $3.8 billion over a two and one-half year period (although at any particular point in time, the amount of Enron's outstanding obligations was lower).   
+
+ In its simplest form, the structure of the Enron-Citigroup prepay transactions involved three separate swap agreements: between Enron and a third party; the third party and Citigroup; and Citigroup and Enron.  The following illustrates the operation of this structure in the context of a $249.5 million Enron-Citigroup prepay transaction executed in June 2001. 
+
+ Leg 1:  Enron - Delta Swap  
+
+    In this leg of the transaction, in exchange for an upfront cash payment, Enron agreed to pay Delta an amount determined by multiplying the future index price of the referenced commodity by the contract volume.  The amount of the future payment from Enron to Delta "floated" with variations in the future index price (known as the "spot price").  If the spot price fell below a certain level, under the terms of the agreement, Delta would be entitled to less than its $249.5 million upfront payment.  However, as illustrated below, this price risk was eliminated through another simultaneous transaction.   LEG 2:  Delta - Citigroup Swap 
+
+    In this leg, in connection with the prepay transaction, Citigroup funded the Delta payment to Enron.  Citigroup made a $249.5 million upfront payment to Delta on June 28, 2001 - the same day that Delta made its $249.5 million upfront payment to Enron.   
+
+ Delta's commodity price risk was passed through to Citigroup: the future floating payment from Enron to Delta exactly mirrored the future floating payment from Delta to Citigroup ( i.e. , same amounts and payment schedule).   Leg 3:  Citigroup - Enron Swap 
+
+   In this leg, Enron agreed to pay Citigroup $255.6 million six months after June 28, 2001.   
+
+ Citigroup, in turn, passed the commodity price risk back to Enron.   Overall, the substance of the transaction was that Citigroup funded a $249.5 million disbursement to Enron and six months later Enron was obligated to repay Citigroup $255.6 million - an approximate five percent return to Citigroup exclusive of its arrangement fee.  The future floating payment from Enron to Delta, Delta to Citigroup, and Citigroup to 
+Enron exactly mirrored each other ( i.e. , same amounts and payment schedule) - canceling each other out.  The combined operative effect of the three agreements was to pass the commodity price risk back to Enron.  19   
+
+ The third party in many of these transactions, Delta, was a nominally capitalized SPE established by Citigroup, whose sole purpose in these transactions was to facilitate Enron's accounting treatment.  20    Delta had no material independent resources available to engage in commodity trades.  The only transactions that Delta participated in were those transactions that Citigroup asked it to execute and for which funding was provided by Citigroup.  For the relevant transactions, Citigroup and Enron prepared the necessary documentation for Delta's signature.  Moreover, whenever Enron needed to communicate with Delta ( e.g. , when Enron needed Delta to provide certain written representations for its auditors), Enron contacted Citigroup.  21   
+
+ Further, in certain of these transactions, Citigroup requested cross-default provisions so that if Enron defaulted on the Enron-Delta leg of the prepays, all of the legs would collapse simultaneously.  Enron advised Citigroup that its auditors would not permit cross-default provisions in which documents relating to one leg of the transaction would specifically reference other legs of the transaction.  Citigroup satisfied Enron's auditors' concerns by structuring certain more generalized termination provisions that would ensure termination of all legs of the transactions in case Enron defaulted.   
+
+ Finally, the amount of the commodity subject to a prepay was based on the amount Enron wanted to borrow.  That amount was determined by taking the principal amount required by Enron, adding interest for the number of days the transaction was to last, and dividing that sum by the per-unit price of the referenced commodity.   
+
+ The Yosemite Transactions 
+
+ In the beginning of 1999, Citigroup and Enron created a way for Enron to use the domestic and foreign capital markets to fund its prepay transactions.  At this time, Enron was looking to move some of its financings into the capital markets to free up its capacity to borrow from banks.  Citigroup welcomed a structure that would maintain its banking relationship with Enron without increasing its credit exposure. 
+
+ The structure, called Project Yosemite, accomplished this goal by using proceeds of sales of privately placed notes to fund blind pool trusts that either funded prepay transactions or served as security for Citigroup's funding of prepay transactions.  22    Specifically, Citigroup underwrote and privately placed certain notes with large sophisticated investors.  The proceeds of those notes were deposited in trusts that were allowed to make certain permitted investments.  These permitted investments could have taken a variety of forms generally consisting of highly rated securities or bank deposits, and certain obligations of Enron.  The trusts were set up such that Citigroup made the periodic interest payments on the notes.  In turn, Citigroup received the returns on permitted investments.   
+
+ Citigroup also entered into credit default swaps with the trusts whereby, in case of an Enron bankruptcy, Citigroup would deliver to the note holders senior unsecured obligations of Enron and Citigroup would receive the trust investments.  In the first two structures, the trusts invested in prepay transactions by replacing Citigroup as the source of Delta's funding.  In the later variation of this structure, Citigroup funded the prepays and the trusts invested in highly rated bank deposits.  In this iteration of the structure, Citigroup's extension of credit to Enron under the prepay arrangement was fully secured with highly rated bank deposits by operation of the credit default swap with the relevant trust.  Using the Yosemite structure, Enron and Citigroup raised approximately $2.3 billion in the capital markets, which provided the financing for additional Enron-Citigroup prepay transactions. 
+
+ The effect of the prepay transactions involving Enron and Citigroup on Enron's statement of cash flows for the relevant periods were as follows:  23   
+
+ For the year ended December 31, 1998, prepay transactions totaling approximately $500 million increased reported net cash purportedly  generated  by operating activities from $1.1 billion to $1.6 billion.  For the second quarter of 1999, a prepay transaction totaling approximately $250 million reduced reported net cash reportedly  used  in operating activities from ($288) million to ($38) million.  For the third quarter of 1999, a prepay transaction totaling approximately $337 million reduced reported net cash purportedly  used  in operating activities from ($380) million to ($43) million.  For the year ended December 31, 1999, prepay transactions totaling approximately $904 million increased reported net cash purportedly  generated  by operating activities from $296 million to $1.2 billion.  For the first quarter of 2000, a prepay transaction totaling approximately $305 million reduced reported net cash purportedly  used  in operating activities from ($762) million to ($457) million.  For the third quarter of 2000, a prepay transaction totaling approximately $475 million made it appear as if Enron  generated  $100 million rather than  used  ($375) million in reported net cash in its operating activities.  For the second quarter of 2001, prepay transactions totaling approximately $1 billion reduced reported net cash purportedly  used  in operating activities from ($2.3) billion to ($1.3) billion.   
+
+ 2. Dynegy-Related Conduct 
+
+ Project Alpha 
+
+ In 2000, Citigroup marketed to Dynegy Enron-style prepay transactions.  Although interested in the prepays, Dynegy concluded that a competing transaction under consideration by Dynegy's tax department offered Dynegy superior benefits.  Dynegy selected that transaction - which became known as Project Alpha.  In its final form, Alpha was a complex financing structured to achieve joint tax and financial statement benefits.  Dynegy turned to Citigroup to (i) arrange Alpha's financing and the equity contribution of a Dynegy-sponsored SPE; (ii) provide a portion of Alpha's financing; and (iii) participate as a party in a number of Alpha-supporting derivative transactions. 
+
+ Project Alpha involved, in essence, a $300 million loan to Dynegy.  Dynegy would benefit from the loan by receiving cash up-front, and by recording the loan proceeds, for accounting purposes, as cash flows from operating activity - the purchases and sales of natural gas.  The $300 million flowed to Dynegy at Alpha's inception in April 2001; Dynegy is currently repaying the loan, along with a negotiated return, and will continue to do so through the end of Alpha's five-year term.  The natural gas component of Alpha unfolds in two phases: in the first phase - the initial nine months of Alpha - Dynegy purchased gas from an SPE at below-market prices and then sold the gas into the market for a profit.  In Alpha's second phase - the remaining 51 months of Alpha's five-year term - Dynegy is repaying the loan, along with the negotiated return, by purchasing gas from the SPE at above-market prices.  The commodity price and interest rate risks associated with the loan repayment are hedged through a series of complex derivative transactions.   
+
+ Alpha was designed to address the disconnect between Dynegy's operating cash flow and net income - a consequence of mark-to-market accounting.  Consistent with this purpose, and despite Alpha's financing nature, Dynegy recorded as operating cash flow in its 2001 Form 10-K the Alpha-derived $300 million, comprising 37 percent of Dynegy's total 2001 operating cash flow. 
+
+ Alpha also provided a $79 million increase, in 2001, to Dynegy's net income.  The increase, flowing from a tax benefit built into the Alpha transaction, hinged on two factors.  First, to recognize the benefit, Dynegy was required to demonstrate a "non-tax business purpose."  This took the form of Dynegy's use of Alpha to redress the "disconnect," by enabling Dynegy to record $300 million in operating cash flow.  Second, Dynegy recognized the $300 million "losses" Alpha would generate in its latter phase and used it as an offset against its 2001 income, garnering thereby the $79 million net income enhancement, comprising 12 percent of Dynegy's total 2001 net income.   
+
+ Dynegy's ultimate restatement, negating Alpha's $300 million operating cash flow benefit, also negated the $79 million net income enhancement.  Accordingly, Dynegy restated its financial statements to reverse the net income enhancement.  Citigroup was aware of Dynegy's purpose in conducting Alpha, and was aware of Alpha's anticipated accounting treatment.  Citigroup was also aware that Dynegy sought to achieve a large Alpha-based net income enhancement through the Alpha-linked tax benefit.   
+
+ Citigroup arranged Alpha's $300 million funding by assembling a syndicate of approximately eight institutional lenders and then establishing a mechanism for the syndicate's funding of Alpha in the form of a "Credit-Linked Note" ("CLN") structure.  By means of the CLN structure, Dynegy accomplished the funding of Alpha without incurring any obligation to explain the various components of Alpha's complex structure to the syndicate members.  24    In addition to arranging the lending syndicate, Citigroup facilitated Alpha by other means:  by participating in the syndicate through contribution of $60 million of Citigroup's own funds to Alpha's financing; by assisting in hedging market risk to the lending syndicate through direct participation, as a party, in the Alpha hedge transactions; by helping attract certain financial institutions to make the requisite equity investment in the gas-trading SPE; by arranging for the physical supply of gas to the SPE, for purchase by Dynegy; and, finally, by participating in the drafting of the Alpha-related contracts and schedules.   
+
+ Alpha can be conceptualized as a flow-through matrix involving two SPEs, three interconnected loans, a gas purchase agreement, hedging transactions, and a linked tax benefit.  The first Alpha "loan" took the form of a $300 million capital contribution by an SPE, NGAI Funding, L.L.C. ("NGAI Funding"), to a limited partnership, DMT Supply - a gas trading partnership.  NGAI Funding's source of funding for its loan to DMT Supply was the Citigroup-assembled lending syndicate.  The second Alpha "loan" essentially routed to Dynegy the proceeds of the first loan.  Specifically, DMT Supply loaned $300 million to Dynegy, payable by Dynegy upon demand of DMT Supply.  By Alpha's April 2001 inception, Dynegy had received, indirectly, $300 million from the lending syndicate. 
+
+ The other integral component of Alpha was a five-year gas purchase contract ("Gas Contract") between DMT Supply (later subsumed by Dynegy) and the second Alpha SPE, ABG Gas Supply L.L.C. ("ABG Supply").  The Gas Contract is the mechanism for repaying the syndicate of lenders its $300 million loan to Dynegy.  Pursuant to the Gas Contract, which commenced in April 2001, DMT Supply bought natural gas from ABG Supply at  below-market  prices for the first nine months of the Gas Contract - for re-sale by DMT Supply on the open market at a profit. 
+
+ DMT Supply used the gas sale profits, approximately $300 million, generated during the first nine months of the Gas Contract to repay its loan to NGAI Funding, which, in turn, funneled the money back to the lending syndicate.  However, the lending syndicate did not at that point remove itself from the transaction with its $300 million intact.  Instead, it re-circulated the $300 million, in the form of a third Alpha "loan," consisting of monthly advances to ABG Supply over the first nine months of Alpha, to subsidize the losses ABG Supply sustained over those first nine months in selling gas to DMT Supply at a pre-determined $300 million discount.  Consequently, nine months into Alpha, the status of the transacting parties was as follows: Dynegy retained the $300 million it had received, indirectly, from the lending syndicate at Alpha's inception; DMT Supply had repaid its $300 million "loan" from NGAI Funding, which, in turn, forwarded the $300 million to the lending syndicate; ABG Supply had "borrowed" from the lending syndicate the $300 million the syndicate had received back from NGAI Funding, to subsidize ABG Supply's $300 million losses over Alpha's first nine months; and the lending syndicate was still owed the $300 million it loaned to ABG Supply. 
+
+ ABG Supply is repaying the loan from the lending syndicate over Alpha's remaining 51 months.  ABG Supply is accomplishing this by selling gas to Dynegy at a pre-determined $300 million total premium above the market price, generating $300 million in losses to Dynegy by the end of Alpha's five-year term, and $300 million in profits to ABG Supply.  ABG Supply will then transmit its profits over this second phase of Alpha to the lending syndicate, thereby satisfying ABG Supply's $300 million debt to the syndicate.  25   
+
+ Dynegy's treatment of the Alpha cash flow as operating cash flow did not conform to GAAP.  Under Financial Accounting Standard 95 ("FAS 95"), the cash flow associated with Alpha should have been classified as cash flow from financing activities - not operations.  26    The Alpha proceeds should have been classified as cash flow from financing activities for two additional reasons. 
+
+ First, the owners of ABG Supply did not maintain at risk at least 3 percent of their equity investment in ABG Supply.  In fact, as part of the transaction, the owners of ABG Supply avoided  all  commodity price risk by engaging in hedging transactions with Citigroup.  Consequently, ABG Supply, as an SPE, should have been consolidated with Dynegy in Dynegy's financial statements, and the syndicate's $300 million loan to ABG Supply - covering ABG Supply's losses during the first nine months of the Gas Contract - should have been reflected by Dynegy, on a consolidated basis, as cash flow from financing.  27    Second, Citigroup was a party in the "middle" of various back-to-back swap transactions with ABG Supply's parent holding company and Dynegy (the "swap counter parties").  These swap transactions included, at Citigroup's insistence, cross-termination provisions that relieved Citigroup of the obligation to perform in the event of default by either swap counter party.  28    The cross-termination provisions were also indicative of a financing, requiring Dynegy to record the Alpha-based proceeds as cash flow from financing, not operations.  
+
+ The following diagram illustrates the flow of Alpha loan proceeds.  
+
+ Project Alpha 
+
+    
+During the first 9 months, DMT Supply purchased gas from ABG Supply at below-market prices. During months 10 - 60, the lenders are repaid through above-market purchases by DMT Supply.    3. Legal Analysis 
+
+ Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 prohibit,  inter alia , engaging in a "course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."  Throughout the period described in this Order, Enron and Dynegy structured certain transactions whose purpose and effect was, among other things, to present the proceeds of these transactions as cash flow from operating activities when in economic reality they were proceeds of financing activities.  Enron and Dynegy also did not disclose that these transactions were financings.  As a result, Enron's and Dynegy's reported results of operations and financial condition presented a more favorable picture than was the case.  Specifically, among other things, Enron's and Dynegy's financial statements overstated Enron's and Dynegy's cash flows from operating activities and understated the amount of cash Enron and Dynegy had received in financing transactions from financial institutions.  Additionally, Enron's and Dynegy's financial statements overstated their net incomes.  As a further consequence of these transactions, neither Enron's and Dynegy's balance sheets nor their disclosures reflected all of the companies' obligations that were in the nature of debt.  Enron and Dynegy engaged in this conduct, among other reasons, in order to maintain and increase the market price of their securities. 
+
+ Section 21C of the Exchange Act provides that a person is a "cause" of another's violation if the person "knew or should have known" that his or her acts or omissions would contribute to such a violation.  Citigroup knew or should have known that its conduct would contribute to Enron's and Dynegy's violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.  Section 21C(e) of the Exchange Act authorizes the Commission to order Citigroup to disgorge any fees associated with its unlawful conduct. 
+
+ IV. 
+Findings 
+
+ Based on the foregoing, the Commission finds that Citigroup knew or should have known that the acts or omissions described in this Order would contribute to Enron's and Dynegy's violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-5.  Consequently, Citigroup is a cause of Enron's and Dynegy's violations within the meaning of Exchange Act Section 21C. 
+
+ V. 
+Acceptance of Citigroup's Offer of Settlement 
+
+ Citigroup has made an Offer of Settlement in order to resolve fully the Commission's investigation of Citigroup's involvement in executing structured finance transactions with Enron and executing Project Alpha with Dynegy.   
+
+ In determining to accept the Offer, the Commission considered certain remedial acts undertaken by Citigroup.  Specifically, in August 2002, Citigroup initiated a series of policies and procedures that support the goal of greater transparency in the disclosure of structured finance transactions.  Citigroup requires that all its public company clients commit to disclose promptly to the public the net effect of any financing transaction proposed to be executed by Citigroup if that transaction is material to the client and is intended not to be accounted for as debt on the client's financial statements.  Citigroup has further instituted new guidelines for the use of special purpose vehicles and the use of tax-sensitive financial products.  Citigroup has further taken steps to ensure that these new policies are implemented and carried out in a consistent manner by all business groups, and that senior management plays an ongoing role in monitoring compliance with these policies. 
+
+ In determining to accept the Offer, the Commission also considered that Citigroup cooperated with the Commission's investigation in a timely and comprehensive manner, including production of witnesses and documents without delay, responsiveness to other requests for information, and timely efforts to resolve this matter.   
+
+ VI. 
+Undertakings 
+
+ In accepting Citigroup's Offer of Settlement in this matter, the Commission has taken into consideration, and is relying upon, Citigroup's express agreement to undertake to make the following payments: 
+
+ A. Citigroup undertakes to make a payment of $48,500,000 as a penalty, in connection with its Enron-related conduct.  This payment shall be available for allocation in accordance with Section 308 of the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204 (2002) (hereinafter "Sarbanes-Oxley Act").   
+
+ B. This payment, plus $52,750,000 in disgorgement and prejudgment interest, stemming from its Enron-related conduct, described in Section VII(B) below, shall be deposited in the Registry of the Court for the United States District Court for the Southern District of Texas by wire transfer or certified check made payable to Clerk, United States District Court, in the amount of  $101,250,000.   See  Rule 611(b) of the Commission's Rule of Practice (hereinafter "Rule 611(b)") [17 C.F.R. Sec. 201.611(b)].  Such funds shall thereafter be distributed in the course of litigation pending in United States District Court for the Southern District of Texas, captioned  United States Securities and Exchange Commission v. Merrill Lynch Co., Inc., et al. , Civil Action No. H-03-0946 (hereinafter " SEC v. MLCO, et al. ").  Rule 611(b) [17 C.F.R. Sec. 201.611(b)].  Simultaneously, Citigroup shall transmit by facsimile or hand delivery to Andy Gould, Clerk's Office, United States District Court for the Southern District of Texas, a letter that describes the fact and purpose of the wire transfer or certified check, identifies the respondent Citigroup, and identifies the case name and number of  SEC v. MLCO, et al.   A copy of documentary proof of the wire transfer or certified check and a copy of the letter to Mr. Gould, shall be simultaneously transmitted by facsimile to Charles J. Clark, Assistant Director, Division of Enforcement, U.S. Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0703, (202) 942-9583 (facsimile).   
+
+ C. Citigroup undertakes to make a payment of $9,000,000 as a penalty, in connection with its Dynegy-related conduct.  This payment shall be available for allocation in accordance with Section 308 of the Sarbanes-Oxley Act.   
+
+ D. This payment, plus $9,750,000 in disgorgement and prejudgment interest, stemming from its Dynegy-related conduct, described in Section VII(C) below, shall be delivered into the Registry of the Court for the United States District Court for the Southern District of Texas by a wire transfer or certified check made payable to Clerk, United States District Court, in the amount of $18,750,000.  Rule 611(b) [17 C.F.R. Sec. 201.611(b)].  Such funds shall thereafter be distributed in the course of litigation pending in United States District Court for the Southern District of Texas, captioned  Securities and Exchange Commission v. Dynegy Inc. , Civ. No. H-02-3623 (S.D. Tex. 2002) (hereinafter "Dynegy litigation").  Rule 611(b) [17 C.F.R. Sec. 201.611(b)].  Simultaneously, Citigroup shall transmit by facsimile or hand delivery to Andy Gould, Clerk's Office, United States District Court for the Southern District of Texas, a letter that describes the fact and purpose of the wire transfer or certified check, identifies the respondent Citigroup, and identifies the case name and number of the Dynegy litigation.  A copy of documentary proof of the wire transfer or certified check and a copy of the letter to Mr. Gould, shall be simultaneously transmitted by facsimile to Spencer Barasch, Associate District Administrator, Division of Enforcement, U.S. Securities and Exchange Commission, Burnett Plaza, Suite 1900, 801 Cherry Street, # 18, Fort Worth, TX 76102-6882, (817) 978-2700 (facsimile).   
+
+ E. Citigroup represents that each of the amounts to be paid pursuant to the Order is not a specific corpus or separate identifiable asset derived from Citigroup's transactions with Enron, and will be paid out of the general corporate funds of Citigroup.  Citigroup further represents that this settlement shall not release or impair the claims, if any, that any other person or entity may have against Citigroup and its affiliates, nor shall this settlement constitute evidence of or any admission by Citigroup or its affiliates as to the validity or amount of any such claims.   
+
+ VII. 
+Order 
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement submitted by Citigroup. 
+
+  ACCORDINGLY, IT IS HEREBY ORDERED,  that: 
+
+ A. Citigroup is hereby ordered pursuant to Section 21C of the Exchange Act to cease and desist from committing or causing, within the meaning of Exchange Act Section 21C, any violation of, and any future violations of, Exchange Act Section 10(b) and Exchange Act Rule 10b-5; 
+
+ B. Citigroup is hereby ordered pursuant to Section 21C(e) of the Exchange Act to pay disgorgement and prejudgment interest, stemming from its Enron-related conduct, in the amount of $52,750,000.  Immediately upon entry of this Order, Citigroup shall deliver this payment into the Registry of the Court for the United States District Court for the Southern District of Texas in accordance with the procedures described in Section VI(B) above.  In accordance with Rule 611(b) [17 C.F.R. Sec. 201.611(b)], the procedures set forth in Section VI(B) above shall govern the distribution of any funds paid in accordance with this Order, rather than the general provisions set forth in Rules 610 through 620 [17 C.F.R. Sec. 201.610 through 620];   
+
+ C. Citigroup is hereby ordered pursuant to Section 21C(e) of the Exchange Act to pay disgorgement and prejudgment interest in the amount of $9,750,000, stemming from its Dynegy-related conduct.  Immediately upon entry of this Order, Citigroup shall deliver this payment into the Registry of the Court for the United States District Court for the Southern District of Texas in accordance with the procedures described in Section VI(D) above.  In accordance with Rule 611(b) [17 C.F.R. Sec. 201.611(b)], the procedures set forth in Section VI(D) above shall govern the distribution of any funds paid in accordance with this Order, rather than the general provisions set forth in Rules 610 through 620 [17 C.F.R. Sec. 201.610 through 620].     
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   1     The findings herein are made pursuant to the Offer that Citigroup has submitted and are not binding on any other person or entity in this or any other proceeding by the Commission.   
+
+   2     While these transactions took the form of commodity trades, investments in partnerships, and sales of assets, in each transaction, Citigroup made its decision to participate largely on the basis of its analysis of credit risk.   
+
+   3     Fair value accounting (sometimes referred to as mark-to-market accounting) generally refers to the practice of recording certain types of assets and liabilities at their current fair value rather than their historical cost, such that any changes in the fair value of those assets and liabilities are reflected as gains or losses for the reporting period in which the changes occurred. 
+
+   4    Enron and Citigroup formed a joint venture that purchased the pulp and paper assets that were the subject of Project Bacchus.  The terms of this joint venture reduced Citigroup's exposure to Enron by replacing a funded commitment with a mostly un-funded contingent commitment.  Specifically, Citigroup's investment in the joint venture - consisting of a relatively small cash investment and a contingent equity commitment - would be at risk only if the relevant pulp and paper assets lost their entire value. 
+
+   5     This type of transaction is referred to as a "prepay" because as originally developed it involved an immediate payment of funds by one party in return for the future delivery of a commodity by the counter-party. 
+
+   6     The net effect of the prepay structured transactions executed during the second quarter of 2001 also carried over to the third quarter of 2001 when reported net cash flow used in operations was $753 million (a negative amount in the statement of cash flows). 
+
+   7     In September 2002, the Commission issued a settled cease-and-desist order against Dynegy,  In the Matter of Dynegy Inc. , Securities Exchange Act of 1934,  Rel. No. 34-46537 , and filed a settled civil suit against the company in the Southern District of Texas, Houston Division,  SEC v. Dynegy Inc ., Civil Action No. H-02-3623 (S.D. Tex. 2002);  Lit. Rel. No. 17744  (Sep. 25, 2002).  The Commission made findings in the cease-and-desist order (and alleged in the civil complaint) that Dynegy committed securities fraud, among other violations, in connection with its failure to disclose and to account properly for Project Alpha.  In settlement of the Commission's enforcement action, Dynegy, without admitting or denying the Commission's findings, agreed to the issuance of the cease-and-desist order and paid a civil penalty in the related civil suit.  
+
+   8    The initial lender in the Project Nahanni transaction was CXC Incorporated, a AAA-rated asset securitization company administered by Citigroup but owned by independent third parties.  CXC raises funds by selling short-term commercial paper to third parties.  In Project Nahanni, Citigroup provided a liquidity funding commitment to CXC.  The purpose of the funding commitment was for Citigroup to fund the transaction, thus avoiding premature unwinding, if CXC was unable to raise enough funds in the commercial paper market.  An insurance company provided a AAA-rated surety bond to CXC in favor of Citigroup.   
+
+   9     Citigroup arranged for the third-party investors to make a three percent equity investment in Nahanni to avoid consolidation under the Generally Accepted Accounting Principles ("GAAP") guidance then in effect. 
+
+   10     The parties used T-bills with maturity of 120 days on the theory that they were non-cash "merchant investments."  To include sales of these T-bills in its cash from operating activities, Enron broadened the description of its "merchant investments" - set forth in the Consolidated Financial Statements accompanying Enron's 1999 Annual Report on Form 10-K - to include government securities with maturities of more than 90 days.  The broadening of the description of "merchant investments" made it appear that Enron invested in T-bills in the normal course of its merchant investment business which was described as "provid[ing] capital primarily to energy and communications-related businesses seeking debt or equity financing."   
+
+   11     Enron disclosed certain aspects of the Project Nahanni transaction in the notes to its 1999 Consolidated Financial Statements.  However, this disclosure, especially when combined with the broadened description of merchant investments, was incomplete and misleading.  While Citigroup was not involved with drafting Enron's disclosure, complete and candid disclosure of the way the Project Nahanni transaction used T-bills to create cash flow from operating activities would have defeated the purpose of the structure.   
+
+   12     The redemption of Nahanni's interest was only partial because the third-party investors' $15 million equity contribution had to remain invested and at risk throughout the term of the transaction to keep the structure in place. 
+
+   13     Citigroup charged Enron a one-time fee of $5 million to structure Project Nahanni.  In addition, Citigroup charged a program fee in connection with the loan to Nahanni and a return on the liquidity facility, which remained un-drawn during the transaction.   
+
+   14     To treat a transfer of assets as a sale under SFAS 125, the transferor must surrender control of those assets.  The transferor is considered to have surrendered control, under SFAS 125, if the transferred assets have been isolated from the transferor; the transferee has the unconstrained right to pledge or exchange the transferred assets or the transferee is a qualifying special-purpose entity and the holders of beneficial interests in that entity have the unconstrained right to pledge or exchange those interests; the transferor does not maintain effective control over the transferred assets through an agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity or an agreement that entitles the transferor to repurchase or redeem transferred assets that are not readily obtainable.  SFAS 125 has been superseded by Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement No. 125." 
+
+   15     Because Enron did not use a qualifying special purpose entity, it was required to apply other consolidation accounting rules to any entity to which the assets were transferred to determine whether that entity would have to be consolidated.   See  EITF Issue 96-20, "Impact of FASB Statement No. 125 on Consolidation of Special-Purpose Entities," and "A Guide to Implementation of Statement 125 on Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," Question 35.  
+
+ The accounting literature that applies to consolidation of non-qualifying special purpose entities requires among other things, that the majority owner of the entity be an independent third party who has made a substantial capital investment in the SPE.   See  EITF Abstracts, Appendix D, Topic D-14, and EITF Issue Nos. 90-15 and 96-21.  The minimum capital investment generally considered necessary under the then existing literature was three percent of capitalization.   See  EITF Issue No. 90-15, the Response to Question 3.  This minimum investment must remain at risk throughout the life of the SPE.   See  EITF Issue No. 90-15 and EITF Abstracts, Appendix D, Topic D-14. 
+
+   16     Enron and Citigroup formed this joint venture as part of a larger transaction, called Project Sundance ("Sundance"), that Enron designed to allow it to obtain off-balance sheet treatment for all of its pulp and paper assets.  Citigroup's funding in the Sundance joint venture included a $28 million equity investment that could be lost only if the assets Enron contributed to the Sundance joint venture lost their entire value, and an additional $160 million contingent equity commitment that Citigroup would be required to fund only if, among other things, the assets Enron contributed to the Sundance joint venture lost their entire value.  The net effect of Sundance was to replace Citigroup's $200 million exposure to Enron in Bacchus with a low-probability contingent-funding obligation.  In addition, Enron used Sundance to record a $20 million profit. 
+
+   17     Enron classified the equity interest as a "merchant investment."  As a result, the sale of the equity interest in these pulp and paper assets would generate cash flow from operating activities. 
+
+   18     Many significant aspects of Bacchus are not discussed in this Order because they are not relevant for purposes of this Order.  This Order does not address whether those aspects of the transaction were appropriate.  
+
+   19     While certain structural details of the other Enron-Citigroup transactions varied, all had the following characteristics: 
+
+ (1) The commodity price risk was transferred back to Enron; 
+
+ (2) Enron received an upfront payment that it immediately classified as cash from operating activities; 
+
+ (3) Citigroup received fixed installment payments over a specified period of time; 
+
+ (4) The installment payments were structured so as to provide a pre-determined return that was independent of any fluctuations in prices for the referenced underlying commodity; and 
+
+ (5) A third party was inserted in the structure in order for Enron to satisfy its auditors' criteria for treating prepay transactions as operating activities.  
+
+   20     As noted, in some of the transactions, other financial institutions participated as the necessary third party.  The role of those institutions was no different than the role of Delta: they participated solely to achieve the accounting treatment Enron sought.   
+
+   21     In connection with these transactions, Enron's auditors requested that Enron obtain a letter signed by Delta containing certain representations relating to Delta's status and operations.  The letter, the form and content of which were negotiated and approved by Enron's auditors, and which Citigroup helped draft and get executed, made the requested representations as follows:   
+
+ There is no restriction in the corporate documentation of [Delta] limiting the number of entities with which [Delta] may conduct business.  [Delta] has undertaken business with a number of entities. 
+
+ [Delta] has assets other than those acquired through transactions with Enron Corp. and its subsidiaries and affiliates (collectively "Enron"). 
+
+ [Delta] has unencumbered assets, which are available for application towards obligations owed to its creditors. 
+
+ These representations, while perhaps technically true, supported Enron's desired accounting treatment by ignoring the fact that Delta had little substance, concentrating instead on its form,  i.e. , the appearance that it was an independent entity. 
+
+   22     The offering memoranda specifically advised that the structure employed "blind-pool trusts" whereby investors would not know the exact nature of the trust investments.   
+
+   23     Enron prepared its statements of cash flows using a method that reconciled net income to the amount of net cash generated by (or used in) operations that indicated whether, on a net basis, Enron's cash inflows and outflows from operations were positive or negative;  i.e. , generating or using cash.  Enron's prepay transactions had the effect of overstating this balance - either by causing net cash  generated  by operating activities (a positive cash flow) to be higher or by causing net cash  used  in operating activities (a negative cash flow) to be less than what otherwise would have been reported.   
+
+   24     By investing in the Alpha CLN, the financial institutions assumed Dynegy credit risk.  To hedge that risk, Citigroup also entered into credit default swaps, whereby in the event of a Dynegy bankruptcy, Citigroup was required to compensate the institutions in an amount equivalent to the recovery of an unsecured creditor of Dynegy. 
+
+   25     The purchase price of the gas under the Gas Contract has a 86 percent variable component and 14 percent fixed component.  Specifically, for the first nine months, the 86 percent variable component was at market price, minus a pre-determined discount (i.e., NYMEX settlement price less a Base Period Price Adjustment).  For the remaining 51 months, the 86 percent variable component is to be at market price, plus a pre-determined premium (i.e., NYMEX settlement price plus a Term Period Price Adjustment).  For all 60 months, the remaining 14 percent is at a fixed price.   
+
+   26     Where certain cash receipts and payments may have aspects of different types of cash flow, "the appropriate classification shall depend on the activity that is likely to be the predominant source of cash flow for the item."   
+
+   27     ABG Supply's equity investors also hedged all interest rate risk associated with Alpha, by entering into interest rate swaps and credit default swaps with Citigroup.  The net effect of these swaps is that, in connection with Alpha, the only risk the ABG Supply equity investors face is the risk of Dynegy's default, in which event the equity owners' claims against Dynegy would be subordinate to claims of the CLN syndicate lenders.    
+
+   28     The cross-termination provisions evidence the fact that the swaps were not conducted in the ordinary course, but rather, to facilitate Alpha.  Dynegy's accounting advisors specifically told Dynegy representatives that the cross-termination provisions would require recording the Alpha-based proceeds as cash flow from financing.   
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diff --git a/raw/aaer/2003/AAER-1826.txt b/raw/aaer/2003/AAER-1826.txt
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+++ b/raw/aaer/2003/AAER-1826.txt
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+ Litigation Release No. 18263  / July 30, 2003 
+
+ Accounting and Auditing Enforcement  
+Release No.  1826 / July 30, 2003 
+
+ SEC Settles Financial Fraud Charges Against Raece Richardson  
+
+  Securities and Exchange Commission v. Richardson, et al. , Civil Action No. 1:02CV00426 (PLF) (D.D.C. March 2002) 
+
+ The Securities and Exchange Commission announced today that on July 10, 2003, the Honorable Paul L. Friedman, United States District Judge for the District of Columbia, entered a final judgment of permanent injunction and other relief as to Raece Richardson, formerly President of Freedom Surf, Inc. (now known as Freestar Technologies) in the Commission's accounting fraud action against Richardson and others.  Richardson, 39, is an Australian citizen living in Huntington Beach, California California. 
+
+ The Commission's Complaint (filed on March 6, 2002; See Litigation Release No. 17397) alleged that Richardson orchestrated a scheme to inflate Freedom Surf's assets with certain equipment located in Costa Rica and fraudulently valued at $5.18 million. During the relevant period, this equipment comprised virtually all of Freedom Surf's assets. Freedom Surf purportedly acquired the equipment in exchange for stock and a note in December 1999. Richardson had a friend of his fabricate and sign an appraisal, which valued the equipment at $5.18 million. This appraisal was then given to Freedom Surf's auditor, who failed to perform an audit and instead relied on the fabricated appraisal to issue an audit opinion for Freedom Surf's financial statements.  Subsequently, Freedom Surf reported the sale of the equipment in a sham transaction with another company controlled by Richardson. Freedom Surf included the fraudulent equipment valuation or the sham sale of the equipment in a registration statement, periodic reports, and other filings with the Commission between January and November 2000. 
+
+ Without admitting or denying the allegations of the complaint, Richardson consented to the entry of a final judgment which permanently enjoins him from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 12(g), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13, 13b2-1, and 13b2-2 thereunder.  The order also permanently bars Richardson from serving as an officer or director of any public company, and orders him to pay a civil monetary penalty of approximately $75,000 (the penalty in this case represents the balance of Richardson's assets that are frozen in the registry of the court for the United States District Court for the Southern District of Texas after the payment of a $100,000 penalty assessed against Richardson in a separate enforcement action in  SEC v. First Americap Corp, et. al. , Civil Action No. H 01-1153 (S.D. Tex.),  Lit. Release No. 16960  (April 12, 2001). 
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diff --git a/raw/aaer/2003/AAER-1832.txt b/raw/aaer/2003/AAER-1832.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9695d624dabdb05e9c8432a25ed8709168b3b06b
--- /dev/null
+++ b/raw/aaer/2003/AAER-1832.txt
@@ -0,0 +1,1524 @@
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+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No.  48296 / August 7, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+   Release No. 1832 / August 7, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+    File No.  3-11208 
+		
+     In the Matter of 
+
+ Cutter & Buck Inc., 
+
+ Respondent. 
+  
+ : : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC CEASE-AND-DESIST PROCEEDING, MAKING FINDINGS, AND ISSUING A CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that a public cease-and-desist proceeding be, and hereby is, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Cutter & Buck Inc. ("Cutter," the "Company," or "Respondent"). 
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Cease-and-Desist Proceeding, Making Findings, and Issuing a Cease-And-Desist Order ("Order").   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that:  
+
+ A. Summary 
+
+ 1. This matter involves false financial reporting by Cutter & Buck Inc., a Seattle-based manufacturer of high-end sportswear.  In the closing days of the fiscal year ended April 30, 2000, Cutter made substantial shipments to three distributors, recognizing a total of $5.7 million in revenue for the sales.  In fact, the purported distributors were acting only as stocking warehouses for Cutter, and thus revenue should not have been recognized.  Cutter retained full responsibility for finding customers to purchase the products, and the distributors had no obligation to pay for the goods until the products were sold to customers provided by Cutter.  When Cutter failed to find enough customers to purchase the products from the three distributors, the distributors returned the unsold goods to Cutter.  In order to conceal the improper distributor deals, former members of Cutter's management took steps to conceal the product returns. 
+
+ 2. As a result of the improper revenue recognition, Cutter artificially inflated its reported revenue by approximately 12% for the fourth quarter of Fiscal 2000 and 4% for the fiscal year. 
+
+   B. Respondent 
+
+ 3. Cutter & Buck Inc. is a Washington corporation headquartered in Seattle, Washington.  The Company designs and distributes upscale sportswear.  The Company's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act, and has been quoted on the Nasdaq Stock Market since the Company's 1995 initial public offering. 
+
+ C. Background 
+
+ 4. Cutter is an upscale sportswear company founded in 1990 that sells, among other things, logo-bearing sports shirts sold at golf tournaments and distributed at corporate events.  During the relevant period, the Company sold its products primarily through four channels:  golf pro shops and resorts, corporate accounts, specialty retail stores, and Company-owned retail stores.   
+
+ 5. For the fiscal year ended April 30, 2000, the Company reported revenue of $152.5 million and earnings of $10.6 million, an increase of 42% and 33% respectively over fiscal year 1999.  The Company reported revenue of $54.6 million for the fourth quarter, a 35% increase over the fourth quarter of Fiscal Year 1999. 
+
+ D. Cutter's Improper Revenue Recognition For Shipments To Warehouses 
+
+ 6. Since at least 1995, Cutter had a practice of shipping products in advance of the shipment date requested by the customer.  Though the practice originated out of legitimate business concerns, such as management of the Company's warehouse operations and the Company's desire to beat its competitors to the marketplace, in later years the Company engaged in early shipments primarily to meet analysts' revenue expectations.  By 2000, the practice had grown substantially, with the Company "early shipping" several million dollars in products each quarter.  As a consequence of essentially "borrowing" from the next quarter's sales, Cutter began each quarter with a sales deficit.  This was particularly problematic going into the fourth quarter of Fiscal Year 2000. 
+
+ 7. In April 2000, with the end of the fiscal year rapidly approaching, Cutter faced a revenue shortfall.  In order to make up for the shortfall, the Company shipped $5.7 million of goods to three purported distributors and recognized the revenue in the quarter ended April 30.  In actuality, these distributors acted as warehouses.  They were wholly reliant on Cutter to find customers to purchase the products, and the distributors had no ability or obligation to pay for the products until they were sold to the ultimate customers.  As a result, the revenue should not have been recognized. 
+
+    Origins of the distributor deals  
+
+ 8. Cutter first shipped goods to a distributor at the end of the fiscal year ended April 30, 1999.  At the time, the use of a distributor was viewed by sales personnel as a legitimate means of remedying historical shipment problems at the Company.  The Company's normal practice was to close its main warehouse at the end of each fiscal year for a physical inventory count, resulting in delayed shipments, some lost sales, and damaged customer relations. 
+
+ 9. In April 1999, Cutter shipped $774,000 of inventory to a distributor in Southern California and recognized revenue upon shipment.  Under the agreement with the distributor, Cutter would locate customers and forward orders to the distributor for fulfillment.  Moreover, Cutter did not pay commissions to its sales staff for the shipment to the distributor; rather, salespersons were paid commissions only when the distributors shipped the products to customers found by the salespersons.   
+
+ 10. By the end of Fiscal Year 1999, the distributor had returned about $200,000 in unsold merchandise to Cutter, and paid Cutter only for the products it had successfully sold. 
+
+    Expansion of the distributor shipments in April 2000  
+
+ 11. Notwithstanding its inability to move $200,000 of the $774,000 in inventory sold through its distributor during the prior year, Cutter determined to substantially expand its distributor program.  Facing a potential revenue shortfall, the Company shipped $5.7 million worth of inventory to three separate distributors in the last few days of Fiscal Year 2000.  The Company recognized revenue upon shipment. 
+
+ 12. None of the three distributors had the financial ability to pay for the volume of products Cutter shipped to them.  Nor, under their agreements with the Company, did the distributors have the ability or right to sell the products without Cutter providing customers to them.  A Cutter sales vice president verbally assured the distributors that they had no obligation to pay for any of the goods until customers located by Cutter paid the distributors.  One distributor received a written side letter from Cutter expressly providing:  "I promise you that you will not be expected to pay for product until we have sufficiently sold the merchandise [and] you have been paid for these invoices."  
+
+ 13. As had been the case the prior year, Cutter paid no commissions to its sales staff for the initial shipment to the distributors.  Instead, Cutter paid commissions to its salespersons only when the distributors shipped the products to customers found by the salespersons. 
+
+ 14. Under Generally Accepted Accounting Principles ("GAAP"), revenue cannot be recognized if the seller has a continuing obligation to perform.  Nor can revenue be recognized if the seller has no reasonable expectation of being paid.  Because Cutter had a continuing obligation to perform, and the distributors' obligation to pay for the goods was contingent on Cutter's providing customers for the products, the Company's recognition of revenue for the shipments was improper under GAAP. 
+
+    Returns from distributors  
+
+ 15. Cutter's sales force failed to deliver enough customers to the three distributors to fill the orders, and by Fall 2000 most of the inventory remained unsold.  Cutter arranged for the distributors to return approximately $3.8 million of unsold products to the Company.  In order to conceal the improper transactions from Cutter's outside auditors and shareholders, members of Cutter's management took steps to hide the unpaid receivables and disguise the magnitude of the product returns.  Among other things, former members of Cutter's management directed that the returns be spread over multiple sales divisions in the Company's accounting records (even though the entire shipment had originally been credited to the Company's corporate sales division). 
+
+ 16. Rather than restating its false financial statements from Fiscal 2000 to correct the improper revenue recognition, Cutter improperly deducted the returns from the revenue reported in Fiscal 2001, and reported false information about the magnitude and nature of the returns. 
+
+ E. Subsequent Events 
+
+ 17. In late July 2002, following a change in management, Cutter's new management learned about the improper distributor transactions.  The Company began an internal investigation in early August 2002.  The Company's Chief Financial Officer resigned from the Company, and the Company's controller was terminated.  On August 12, 2002, the Company announced that it would restate its financial statements for fiscal years 2000 and 2001.  The announcement caused Cutter's stock price to drop from $4.02 to $3.44, or 14%, the following day. 
+
+ 18. In October 2002, in its Form 10-K for the fiscal year ended April 30, 2002, the Company restated its audited financial statements for Fiscal Years 2000 and 2001.  The Company reported that the restatement resulted from the improper recognition of revenue for shipments to distributors in April 2000, as well as from the Company's practice of shipping products in advance of the customer's requested shipment date. 
+
+   F. Legal Conclusions 
+
+ 19. As a result of the above conduct, for the fiscal years ended April 30, 2000 and April 30, 2001, Cutter failed to file with the Commission accurate and complete reports, and filed reports that failed to include material information necessary to make its statements not misleading.  The improper recognition of revenue for the three distributor deals in April 2000 led to a 12% overstatement of revenue for the fourth quarter of Fiscal 2000 and a 4% overstatement for the fiscal year, and the subsequent product returns were improperly concealed in the Fiscal 2001 annual report.   
+
+ 20. In addition, the Company failed to make or keep books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets, and failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP. 
+
+ 21. Based on the foregoing, the Commission finds that the Company violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.   
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Respondent.  Accordingly, IT IS HEREBY ORDERED pursuant to Section 21C of the Exchange Act that Respondent Cutter shall cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ V. 
+
+ In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff .  
+
+ By the Commission. 
+
+    
+	 Jonathan G. Katz 
+      Secretary
+	 
+     
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diff --git a/raw/aaer/2003/AAER-1835.txt b/raw/aaer/2003/AAER-1835.txt
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+++ b/raw/aaer/2003/AAER-1835.txt
@@ -0,0 +1,1610 @@
+
+
+ 
+ 
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  48311 / August 8, 2003   
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.    1835 / August 8, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No.   3-11211
+
+        In the Matter of   
+  WARREN MARTIN, 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 Warren Martin ("Respondent" or "Martin") pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)].  1    In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings herein, except that he admits the jurisdiction of the Commission over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions, as set forth below.  2    II.
+
+  FACTS
+
+    On the basis of this Order and Respondent's Offer, the Commission finds that:
+
+  A.  Respondent 
+
+   Warren Martin , age 50, is a certified public accountant licensed in Virginia and Connecticut.  Martin joined Coopers and Lybrand in 1983 and became an audit partner on October 1, 1991.  In 1996, MicroStrategy, Inc.  3   ("MicroStrategy" or "the Company") became a client of Coopers and Lybrand, and Martin began to serve as the partner on that engagement.  Coopers and Lybrand merged with Price Waterhouse in July of 1998 to become PricewaterhouseCoopers ("PwC").  Martin continued as the MicroStrategy engagement partner until the Company's restatement in April of 2000.
+
+  B.  Summary 
+
+  On March 20, 2000, MicroStrategy announced that it intended to restate its financial results for the fiscal years 1998 and 1999.  MicroStrategy stock, which had reached a high of $333 per share only ten days previously, lost over 60% of its value, dropping from $260 per share to close at $86 per share.  The stock price continued to drop in the following weeks.  By April 13, 2000, after MicroStrategy announced that it would also restate its fiscal year 1997 financial results, the Company's stock closed at $33 per share.
+
+     The Company's eventual restatements reduced revenues over the 1997-1999 period by approximately $66 million of the $365 million it had initially reported.  Approximately $54 million, or 80%, of these restated revenues were in 1999.  The Company's reporting failures primarily derived from its premature recognition of revenue arising from the misapplication of Statement of Position 97-2 ("SOP 97-2") in connection with multiple element arrangements in which significant services or future products to be provided by MicroStrategy were not separable from the upfront sale of a license to MicroStrategy's existing software products.  Additional restatements resulted from arrangements in which MicroStrategy had not properly executed contracts in the same fiscal period that revenue was recorded from those contracts, as well as other accounting errors.
+
+  The restated financial results corrected consolidated financial statements of the Company for the years ended December 31, 1997, 1998, and 1999, and registration statements filed in connection with a June 1998 initial public offering and a pending public offering filed in February 2000 that was subsequently withdrawn.  
+
+  Martin served as the MicroStrategy engagement partner during the entire period covered by the restatements and caused PwC to issue the audit reports containing unqualified opinions filed with the Company's inaccurate financial statements.  Prior to the issuance of the audit reports, Martin did not develop sufficient competent evidentiary support for the critical revenue recognition issue, and failed to consider properly language in MicroStrategy's contracts that conflicted with the Company's revenue recognition.  He also failed to consider properly concerns raised by PwC personnel that should have alerted him to the audit failures.  
+
+  C.  Accounting For Software Sales 
+
+    Subsequent to December 31, 1997, MicroStrategy began recognizing revenue in accordance with SOP 97-2.  SOP 97-2 contains specific guidance on whether a company may recognize revenue from a software license sale at the time of the sale (that is, "immediately" or "upfront") or whether revenue must be deferred.  
+
+    Typically, arrangements with software companies consist of a number of elements, only one of which is the delivery of the actual software.  Modifying and customizing the software to customers' satisfaction are common additional elements of such arrangements.   For these multiple element arrangements, SOP 97-2 requires that the vendor have vendor specific objective evidence of fair value ("VSOE") for each of the delivered elements in order to recognize any upfront revenue.  VSOE is the specific price that a given vendor charges for each of the delivered elements when sold separately.  If one of the elements to be delivered as part of a multiple element arrangement involves future consulting services, even if VSOE is known for all elements including the services, no upfront revenue can be recognized if the services to be provided in the future are essential to the functionality of the delivered software.  This is based on a fundamental accounting concept that until the customer receives the essential value purchased, the vendor has not completed the earnings process.  
+
+    It is not relevant if the customer  may  use the software delivered at the outset of the arrangement.  What is relevant is the "functionality" that the customer is buying.  If the customer needs the services or modifications to effectively use the delivered software in the manner desired, all revenue must be deferred.  4    The concept that SOP 97-2 requires the functionality determination to be made from the customer's perspective is not controversial.  Indeed, the PwC User-Friendly Guide to Understanding Software Revenue Recognition states: 
+
+     A key factor in this analysis is the impact that the customization will have on the functionality of the software.  This analysis should be done from the  customer's  perspective,  not  that of the vendor.
+
+   (Emphasis added.)
+
+  D.  Departures from GAAP 
+
+     STRATEGY.COM 
+
+  In late 1998, MicroStrategy began developing an information network supported by MicroStrategy's software.  The network was initially known as Telepath but later renamed Strategy.com.  As conceived, the network would deliver personalized finance, news, weather, traffic, travel, and entertainment information to individuals through cell phones, fax machines, e-mails, and other devices.  For a fee, an entity could become a Strategy.com affiliate that could offer the service on a co-branded basis directly to its customers, and in turn share with MicroStrategy a percentage of the subscription revenues from end-users.  MicroStrategy completed several such arrangements between the fourth quarter of 1998 and the end of 1999.
+
+    The arrangements ranged from the relatively simple purchase of the right to offer customers access to the Strategy.com channels for a flat fee to much more complex transactions involving, in addition to an affiliation with MicroStrategy, a large scale commitment of consulting and development services to build custom information delivery systems.  With the exception of ShopKo Stores, Inc. ("ShopKo") and Sybase, Inc. ("Sybase"), all of the transactions discussed below included Strategy.com elements.  
+
+  Early on, Martin knew that MicroStrategy lacked VSOE for certain elements of Strategy.com transactions.  Indeed, the co-leader of PwC's Accounting Consulting Services used by PwC's engagement teams told Martin that the Company's lack of VSOE for these elements was an obstacle to upfront revenue recognition with respect to the transactions.  In addition, Martin knew of the Company's significant obligations in Strategy.com relationships as set forth in the Company's filings (as well as various contracts):  
+
+     The Strategy.com network leverages the MicroStrategy software platform and is organized around a suite of information channels.  The network currently operates a finance channel and plans to launch additional channels on subjects such as weather, news, politics, arts, travel and entertainment....Strategy.com also provides application maintenance, development, customer billing and support services for these channels, enabling affiliates to focus on their core businesses.
+
+   Since VSOE for the obligations described in the excerpt was not available, revenue from Strategy.com transactions should have been deferred.  Notwithstanding this evidence, Martin did not object to MicroStrategy's immediate recognition of all revenue obtained from the Strategy.com transactions as software license revenue.   
+
+   SHOPKO 
+
+   MicroStrategy's arrangement with ShopKo was the earliest transaction that signaled the Company's shift in focus from generating primarily software license revenue to also generating significant service revenue.  The Company's eventual restatement reversed the $4.5 million initially recognized for the ShopKo transaction in the fourth quarter of 1998, and recognized only $934,000, because the transaction had required MicroStrategy to provide software licenses, extensive consulting and development services that could not be accounted for separately.  
+
+  MicroStrategy's then CFO had informed Martin that the Company desired to structure the transaction in such a way that it could recognize the $4.5 million in contract revenue immediately.  In order to do so in accordance with GAAP, the software and services segments of the arrangement had to be separate and distinct, and all contract revenue had to be attributable to software.  However, even a casual reading of the ShopKo contractual documents revealed that the software and services were part of a single arrangement.  First, the various contractual documents cross-referenced the software and service elements at numerous points.  Second, the arrangement involved the licensing of MicroStrategy's software in object code form, as opposed to a "shrink wrapped" or "off the shelf" version.  Licensing of software in object code form is often an indication that the software is to be modified in some way prior to use, or otherwise used to develop a new application.  5    Third, according to the ShopKo transaction documents, the majority of the services to be provided by MicroStrategy as part of the arrangement between the two companies related to the implementation of ShopKo's "decision support environment" utilizing MicroStrategy's software.  In fact, Martin was aware at the time of the original audit of the transaction that at least a portion of the services that MicroStrategy would provide ShopKo related to its software.  This suggested some application of deferral accounting.  Martin, however, failed to consider properly this information and allowed MicroStrategy to recognize the entire $4.5 million fee received in the transaction as software license revenue, without allocating even a portion of the fee to the extensive service obligations.  
+
+  In addition, Martin allowed MicroStrategy to immediately recognize the entire $4.5 million transaction fee despite payment terms with ShopKo that extended beyond two years.  In doing so, he failed to consider properly the GAAP presumption that any licensing fee that is not due for more than 12 months is presumed not to be fixed or determinable.  6    The difference between the $4.5 million in revenue improperly recognized and the restated revenue for this transaction in the fourth quarter of 1998 was material to MicroStrategy's reported financial results for the quarter.
+
+   METROCALL 
+
+  The Metrocall contract was a $1 million transaction in the fourth quarter of 1998 that obligated MicroStrategy to provide services related to the development of "channels" that would disseminate information to Metrocall's customers.  MicroStrategy initially recognized the full amount of the contract in that quarter but later reversed the entry because it lacked VSOE of fair value for the services required under the arrangement.  Martin concluded during the 1998 year-end audit that any services and software exchanged as part of the arrangement were separate and distinct and, thus, MicroStrategy could immediately recognize all fees from the transaction as software license revenue.  However, Martin's conclusion failed to consider properly the fact that MicroStrategy did not grant a software license but rather a "services" license to Metrocall as part of the transaction.  He also failed to consider properly several contract provisions that indicated MicroStrategy's significant and ongoing service obligations under the contract.  For example:
+
+     [Metrocall] desires to acquire a license from MicroStrategy to market and sell personalized programming services developed by MicroStrategy....
+
+    MicroStrategy grants to [Metrocall] a non-transferable and non-exclusive (except as set forth herein) license to market and sell the  Services ....[emphasis added]
+
+    MicroStrategy shall form the Network to deliver the Services and provide maintenance and support of the Services, including customer service, telephone support and engineering support.  The Network shall provide the operational infrastructure necessary for the delivery of the Services, including all required hardware, information feeds, software and databases.
+
+    MicroStrategy shall make three Channels available under this Agreement:  a business channel, an investment channel and a news channel ("Initial Channels").  The Initial Channels shall be available by no later than November 30, 1999....
+
+   Despite this unambiguous contractual language, especially as to the "services" element of the contract, Martin improperly allowed MicroStrategy to immediately recognize the $1 million contract fee as software license revenue.  The $1 million was material to the Company's reported financial results for the quarter.
+
+               AMERITRADE and PRIMARK 
+
+    The MicroStrategy arrangements with Ameritrade Holding Corporation ("Ameritrade") and Primark Holding Corporation ("Primark") in the second and fourth quarters of 1999 similarly involved the delivery of information services to third party users.  Additionally, however, the arrangements obligated MicroStrategy to build proprietary infrastructures that would allow Ameritrade and Primark to deliver the information services independent of MicroStrategy.  The information services were to be powered with MicroStrategy software.  
+
+  MicroStrategy's restatement reversed nearly $8 million in revenue it recognized in the second and fourth quarters of 1999 and $5 million it recognized in the fourth quarter of 1999 in connection with the Ameritrade and Primark transactions, respectively, because the arrangements required the Company to provide significant services over time that were inseparable from the software it licensed in the transactions.  Both the Ameritrade and Primark contracts went into extensive detail regarding MicroStrategy's obligations in connection with building proprietary information services using the licensed software.  Those obligations unambiguously included modification of the software.  For example, the Ameritrade contract provided that:
+
+     MicroStrategy grants to Ameritrade a fully paid perpetual, worldwide, nonexclusive, irrevocable object code license to use, copy and  modify  and transmit the [Decision Support Systems ("DSS")] Any Interface Bundle (for internal use only) and DSS Infrastructure Enterprise Bundle (to support internal users  and  Ameritrade Customers).
+
+    (Emphasis added.)
+
+   The contract also provided that up to 360 man-months of services to be performed by MicroStrategy were included in the fee structure outlined in the contract.  The contract defined these services as, "[a]ny services, including software  modifications , installation, implementation and training, and  development  and compilation of the Telepath Financial Channel."  (Emphasis added.)
+
+  As in the case of Ameritrade, MicroStrategy granted Primark a license to use "the Software in object code form solely for the purpose of (i) internal data processing operations; (ii) for supporting and operating the [Premium Financial Services ("PFS")] in conjunction with MicroStrategy or (iii) with a service substantially similar to the PFS...."  As stated previously, a license to use software in object code form is often an indication that the software is to be modified in some way prior to use, or otherwise used to develop a new application.  In addition to granting the object code license, MicroStrategy also obligated itself to provide 18 "full time equivalency professionals" to build the PFS using its software.  Despite the foregoing, Martin allowed MicroStrategy to immediately recognize all contract fees as software license revenue.  In addition, Martin allowed MicroStrategy to recognize revenue from the Primark transaction in the fourth quarter of 1999 although the Company did not sign the contract until January 7, 2000.  The $8 million in revenue for the Ameritrade transaction and $5 million in revenue for the Primark transaction that MicroStrategy recorded in the second and fourth quarters of 1999 were material to the Company's financial results for those quarters.
+
+   SYBASE 
+
+    MicroStrategy's restatement reversed $5 million in revenue it recognized from a transaction with Sybase, in which the two companies essentially swapped software.  Consistent with GAAP, this transaction should have been accounted for as a barter transaction and should have resulted in no revenue being recognized until such time as the software was used by MicroStrategy internally or was sold to another partner.  7    Martin and the engagement team were told by MicroStrategy on two separate occasions that the Company would resell a portion of the Sybase software received in the swap.  Further, MicroStrategy's arrangement with Sybase made it evident that the Company would resell some of the Sybase software it received.  For example, the Sybase licensing agreement states,  inter alia :
+
+     This Agreement provides for [MicroStrategy] to (i) license certain Sybase Programs for internal use; (ii)  develop  and  distribute  Applications based upon the Sybase [Industry Warehouse Studios ("IWS") Programs; and (iii)  develop  and  distribute  Applications based upon Sybase Database Programs.
+
+    During the term, and subject to the terms, conditions and fees set forth in this Agreement, Sybase grants to [MicroStrategy] a non-exclusive, non-transferable, right to use and reproduce in the Territory an unlimited number of copies of the IWS Programs, and the Database Programs in object code form, solely for (i) [MicroStrategy's]  development, distribution, marketing  and support of [certain] Applications...in accordance with the terms of this Agreement; and (ii) [MicroStrategy's] business use.
+
+    (Emphasis added.)
+
+   On the basis of the foregoing, it was improper for Martin to allow MicroStrategy to record the fair value of all the software swapped in this barter transaction as revenue in the third quarter of 1999, prior to the Company's resale of the Sybase software it received in the swap.  The $5 million of revenue improperly recorded was material to the Company's reported financial results for the quarter.
+
+   NCR CORPORATION and EXCHANGE APPLICATIONS, INC. 
+
+    In the latter part of 1999, MicroStrategy separately signed $27.5 million and $65 million agreements with NCR Corporation ("NCR") and Exchange Applications, Inc. ("Exchange Applications") respectively, and immediately recognized a portion of the revenue from these transactions.  Each agreement was the largest ever concluded by MicroStrategy when it was signed.  The Company reported fees from the NCR transaction as revenue in the third quarter of 1999, although negotiations on the contract had not concluded and the contract had not been signed until the first day of the following quarter. Relying on a draft of the NCR contract, Martin issued a favorable opinion of the transaction's accounting.   He did so even though he had received the draft NCR contract on the 28 th  of September with the understanding that negotiations were ongoing.  
+
+  In addition, it was evident from language in both the NCR and Exchange Applications contracts that it was improper to recognize any upfront revenue on the transactions.  MicroStrategy's agreement with NCR granted a license to "all current and future generally available software products in MicroStrategy's product line."  The agreement with Exchange Applications granted a license to copy, market, sublicense, and distribute MicroStrategy software that it defined as "the entire MicroStrategy product suite which is made generally available to end users during the term of this [3.5 year] Agreement."  Because a company cannot provide VSOE for unspecified future products, SOP 97-2 requires the application of deferral accounting to arrangements containing unspecified future product obligations.  Thus, Martin improperly allowed MicroStrategy to immediately recognize fees allocated to software delivered pursuant to these arrangements, even though the arrangements required MicroStrategy to deliver additional future product.  The $17.5 million in revenue improperly recorded in connection with the NCR transaction in the third quarter of 1999, and the $14.1 million improperly recorded in connection with the Exchange Applications transaction during the fourth quarter, were material to the Company's reported financial results for those quarters.
+
+  E.  Departures from Generally Accepted Auditing Standards ("GAAS") 
+
+    Contrary to Martin's representations (made in audit opinion reports that he caused to be issued by PwC) that the 1998 and 1999 audits of MicroStrategy's financial statements were performed in accordance with GAAS, significant departures from GAAS contributed to the necessity for restatement, including Martin's failure to obtain sufficient competent evidential matter, his failure to maintain an attitude of professional skepticism, and his failure to act with due professional care.
+
+   Martin did not obtain sufficient competent evidential matter. 
+
+  GAAS required Martin, at a minimum, to develop sufficient competent evidential matter for his opinion regarding the customers' desired functionality for delivered software.   See  Statements on Auditing Standards No. 1 AU § 330.  Instead, Martin relied on what MicroStrategy told him the contracts meant.  The 1998 and 1999 MicroStrategy contracts audited by Martin ranked among the largest in the Company's history at the time.  Martin was aware of the consequences of recording the revenue from these transactions incorrectly.  He was aware that a crucial revenue recognition question surrounding the transactions involved whether the services provided by MicroStrategy as part of the arrangements were essential to the functionality of the delivered software.  Martin understood that the customer's desired functionality of the software was the most important factor in evaluating the software's functionality.  However, while he considered the relevant contracts to have been convoluted and self-contradictory, there is only one documented attempt to confirm the terms of a contract with the customer.  That confirmation, sent to Ameritrade, however, did not ask the important revenue recognition question regarding Ameritrade's desired functionality for the MicroStrategy software.  
+
+   Martin did not maintain an attitude of professional skepticism. 
+
+    An audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of professional skepticism.  The auditor neither assumes that management is dishonest nor assumes unquestioned honesty.  Rather, the auditor recognizes that conditions observed and evidential matter obtained, including information from prior audits, need to be objectively evaluated to determine whether the financial statements are free of material misstatement.   See  AU § 230.  8    Martin's conduct of the 1998 and 1999 MicroStrategy audits did not meet this standard.  He placed almost exclusive reliance on management's representations about the transactions that were being audited.  Besides the fact that the details of even MicroStrategy's largest transactions were either inadequately confirmed or not confirmed at all with its customers, management representations were apparently believed even when they contradicted other available information, including contract language, PwC staff  9  , and the press.  10    Martin's repeated reliance on management's representations in the face of contradictory information from multiple sources revealed a lack of professional skepticism that undoubtedly contributed to the failed audit.
+
+     Martin did not act with due professional care. 
+
+    GAAS requires that an auditor act with due professional care in the performance of the audit and the preparation of the report.  Due professional care imposes a responsibility upon the auditor to observe the standards of fieldwork and reporting.  The matter of due professional care concerns what the auditor does and how well he does it.   See  AU § 230.
+
+    The 1998 and 1999 MicroStrategy audits supervised by Martin were replete with omissions that demonstrated a lack of due professional care in carrying them out:  representations by management were not documented even when they contradicted the language of contracts; with one exception, confirmations were never sent to verify the details of even the largest transactions; and oral and written accounting guidance was not appropriately considered more than once without explanation.  
+
+  III.
+
+  LEGAL DISCUSSION
+
+    Rule 102(e) authorizes the Commission to "deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found... (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct...."  The rule defines improper professional conduct to mean, "[i]ntentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional standards."  A single instance of highly unreasonable conduct and repeated instances of unreasonable conduct also meet the definition of improper professional conduct.  By failing to obtain documentary evidence of transactional intent, failing to consider properly colleagues' concerns, and approving audits based on unprobed, untested representations by management, Martin engaged in improper professional conduct.   See Potts v. SEC , 151 F.3d 810, 811 (8 th  Cir. 1998) (upholding the Commission's 102(e) sanction based on finding that auditor engaged in reckless professional conduct because he failed to obtain documentary evidence, ignored red flags, and relied on unsupported management representations).  
+
+  IV.
+
+    Based on the foregoing, the Commission finds that Martin engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice.
+
+              V.
+
+  In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Martin's Offer. 
+
+    Accordingly, IT IS HEREBY ORDERED, effective immediately, that Martin is denied the privilege of appearing or practicing before the Commission as an accountant.
+
+    IT IS FURTHER ORDERED that after two (2) years from the date of this Order, Martin may request that the Commission consider his reinstatement by submitting an application (attention:  Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+      a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Respondent's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or 
+
+       an independent accountant.  Such an application must satisfy the Commission that:  (a) Martin, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); (b) Martin, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and (c) as long as Martin appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or equivalent organization, or associated with a member firm of the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+   IT IS FURTHER ORDERED that the Commission will consider an application by Respondent to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy.  However, if state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Martin's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+
+
+    By the Commission. 
+
+
+
+              Jonathan G. Katz
+             Secretary                
+  _______________________
+      1      Rule 102(e)(1)(ii) provides, in relevant part, that:
+ 
+ The Commission may...deny, temporarily or permanently, the privilege of appearing or practicing before it...any person who is found...to have engaged in...improper professional conduct.
+  
+      2      This matter is related to  SEC v. Michael Jerry Saylor, Sanjeev Kumar Bansal and Mark Steven Lynch  (Civ. Action No. 1: 00CV02995);  In the Matter of MicroStrategy, Inc.   (Admin. Proc. No. 3-10388),  In the Matter of Antoinette A. Parsons and Stacy L. Hamm  (Admin. Proc. No. 3-10389); and  In the Matter of Mark Steven Lynch  (Admin. Proc. No. 3-10406).
+
+      3       MicroStrategy is a Delaware corporation with principal offices in Vienna, Virginia.  From its IPO on June 11, 1999, to the present, MicroStrategy's common stock has been registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 and quoted on the NASDAQ National Market System.  The Company was incorporated in November 1989.  
+
+      4       Under Generally Accepted Accounting Principles ("GAAP"), revenue may be recognized at the time of sale only if an arrangement to deliver software or a software system does not require significant production, modification, or customization, provided the following four criteria are met: (i) there is persuasive evidence of the arrangement, (ii) delivery has occurred, (iii) the vendor's fee is fixed or determinable, and (iv) collectibility is probable.  
+
+      5      This fact is recognized by the PwC software revenue recognition manual that was available to Martin.  The manual states, "a critical factor in determining whether services are essential to the functionality of any other element of the software arrangement is whether the software is considered core [object code] software or off-the-shelf software....Arrangements involving a core software product generally do not qualify for separate accounting, because the services are considered essential to the functionality of the software...."   See   The User-Friendly Guide to Understanding Software Revenue Recognition  at page 147.  PwC 15639.
+
+      6      According to SOP 97-2, paragraph 28, "...if payment of a significant portion of the software licensing fee is not due until...more than twelve months after the delivery, the licensing fee should be  presumed  not to be fixed or determinable."  (Emphasis added).  
+
+      7       According to Paragraph 21a of Accounting Principles Board Opinion No. 29, no immediate revenue may be recognized when businesses swap inventory held for sale, if the inventory received in the swap is to be sold in the same line of business as the inventory given in the swap.  This is based on the principle that the earning process is not culminated until such time as the inventory received in a swap is used or resold.
+
+      8      "Auditors should be skeptical about the answers they receive from management.  Explanations received from an entity's management are merely the first step in an audit process, not the last.  Listen to the explanation, then examine or test it by looking at sufficient competent evidential matter.  The familiar phrase healthy skepticism should be viewed as a show-me attitude and not a predisposition to accepting unsubstantiated explanations."   See  AICPA Audit Risk Alert-1993, General Update on Economic Regulatory, Accounting and Auditing Matters.  Similar Audit Risk Alerts were issued for 1994 and 1995/1996 regarding auditor skepticism.
+
+      9      In addition to pointing out obstacles to upfront revenue recognition with respect to the Strategy.com transactions, the co-leader of the in-house Accounting Consulting Services used by the PwC engagement teams also pointed out the aspects of the Exchange Application arrangement in the final quarter of 1999 that were problematic for upfront revenue recognition.  Further, a senior manager of the MicroStrategy engagement team identified for Martin accounting guidance that contraindicated upfront recognition of revenue received for the Exchange Application arrangement.
+
+      10      On February 21, 2000, Forbes.com published an article on its website regarding MicroStrategy's explosive revenue growth.  The article, which later appeared in Forbes' March 6, 2000 print version, raised questions related to the appropriate accounting periods, as well as the barter aspects, of several MicroStrategy's transactions.  Martin was faxed a copy of the article on February 21 by MicroStrategy's controller.  Soon after receiving the fax, he requested a copy of the final NCR contract but never received it before causing PwC to issue an unqualified audit opinion.
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diff --git a/raw/aaer/2003/AAER-1859.txt b/raw/aaer/2003/AAER-1859.txt
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No. 48480 / September 11, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT  
+    Release No. 1859 / September 11, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+    File No. 3-11255 
+		
+        
+
+In the Matter of 
+  
+NVIDIA CORPORATION,       
+  
+
+Respondent   
+     
+    : : : : : : : : : :   
+
+   ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934       I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against Nvidia Corporation ("Nvidia" or "Respondent").   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings   herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order") as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that:  
+
+ A. Respondent 
+
+ Nvidia Corporation is a Delaware corporation headquartered in Santa Clara, California, that develops and markets graphics processors and media and communications devices.  Nvidia's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is quoted on   the NASDAQ Stock Market. 
+
+ B. Summary 
+
+  This matter involves false financial reporting by Nvidia Corporation ("Nvidia" or the "Company"), a developer and marketer of graphics processors and media devices located in Santa Clara, California.  In April 2002, Nvidia restated its financial results for the first quarter of its fiscal year ended January 31, 2001, (the quarter ended April 30, 2000), as well as other periods.  The restatement revealed that Nvidia had overstated its financial results for the quarter, primarily due to one transaction with a supplier, which is described below.  As a result of that transaction, Nvidia's originally reported gross profit was overstated by 6.4%, net income by 15.3%, and diluted earnings per share by 14.8%. 
+
+ Nvidia issued the restatement in part because it had inflated its quarterly results by entering into an agreement with a supplier that allowed Nvidia to reduce its costs by more than $3 million during the April 30, 2000 quarter, in exchange for Nvidia's agreement to repay that amount through higher prices on other products in a future period.  By recording the cost reduction, but not the corresponding agreement to pay higher prices in the future, Nvidia inflated its results for the quarter ended April 30, 2000 and allowed the Company to exceed the consensus analysts' estimates for earnings, income, and product gross  margin.  1   
+
+ C. Nvidia's Conduct During the Quarter Ended April 30, 2000 
+
+    1. Nvidia's Financial Performance Is Below Plan  
+
+ In February 2000, the beginning of Nvidia's first quarter of fiscal year 2001, Nvidia's internal forecasting indicated that the Company was not on target to meet the consensus external expectations of stock market analysts regarding earnings per share, revenue, and gross margin.  In order to address this anticipated shortfall, Nvidia's senior management immediately focused the Company on reducing costs for the quarter in order to improve Nvidia's net income and gross margin. 
+
+    2. To Meet Expectations for the Quarter, Nvidia Agrees with a Supplier to Lower Nvidia's Costs In Exchange For an Agreement to Pay Higher Prices on Future Generation Products  
+
+ Nvidia's single largest source of costs during fiscal year 2001 was for money due to the companies that manufactured and packaged Nvidia's graphics chips.  Accordingly, in order to address its earnings shortfall, Nvidia negotiated with one of those companies ("Nvidia's Supplier") to reduce costs by approximately three million dollars for the quarter ended April 30, 2000.   
+
+ In March 2000, Nvidia employees held meetings and made several requests to its supplier to reduce costs for the current quarter.  These employees communicated with Nvidia's CFO to ensure that the amount of cost savings sought from Nvidia's supplier was directly correlated to the amount required to address the forecasted gross margin shortfall for the quarter.  However, Nvidia's supplier was unwilling to grant the cost savings without receiving something in return.  Accordingly, on March 30, 2000, Nvidia's supplier made a written proposal which offered to grant Nvidia credits during the current quarter in the amount of $3 million for costs owed by Nvidia to the supplier, in return for Nvidia agreeing "to re-pay the $3M back to [Nvidia's supplier] in August 2000 by means of" higher prices on future generation products.   
+
+ The Nvidia employee who received this proposal immediately forwarded it via e-mail to Nvidia's CFO who responded by return email: 
+ 
+     "[We] can not sign this or have this in print.  Will wipe out the credit in Q1.  [N]eed to arrange this separately and trust us to abide by it."   
+ 
+ The CFO apparently was concerned that having the agreement in print would make it plain that the credits to Nvidia were contingent on Nvidia's promise to repay the supplier in the future.  In accordance with generally accepted accounting principles ("GAAP"), and specifically Statement of Financial Accounting Standards No. 5, paragraph 8, such an explicit agreement to repay the costs by paying higher prices on future products created a liability that Nvidia would have to record.  Since the recording of the liability would offset the credits, the deal would provide no net benefit to Nvidia's quarterly financial results.  Thus, Nvidia's CFO directed the Nvidia employee to separate the arrangement into two separate agreements. 
+
+ In the first of the two separate agreements, which was signed on April 3, 2000 by an Nvidia employee at the direction of the CFO, Nvidia agreed to pay increased prices to the supplier in August 2000 in the total amount of $3,299,000.  In the second of the separate agreements, signed by the supplier on April 4, 2000, the supplier granted credits and cost waivers to Nvidia in the amount of $3.3 million for the April 30, 2000 quarter.  Neither agreement makes reference to the other.  However, Nvidia's supplier only agreed to grant the credits and cost waivers to Nvidia based on Nvidia's promise to repay the reduced costs through higher prices in the future.  Nvidia's CFO received copies of both agreements. 
+
+    3. Nvidia Incorrectly Accounts for the Transactions with its Supplier, and Files a Materially False Form 10-Q for the Quarter Ended April 30, 2000  
+
+ At the close of its first quarter ended April 30, 2000, Nvidia recorded on its books the credits granted by the April 4 th  supplier agreement, but did not make any offsetting entry for the agreement to pay higher prices in August 2000.  In early May 2000 during the quarterly review by Nvidia's independent auditors, Nvidia presented the April 4 th  agreement as support for taking the $3.3 million cost reduction.  However, Nvidia did not present to the auditors the April 3 rd  agreement to pay higher prices.  As a result, Nvidia inflated its gross income by recording the credits but not the corresponding agreement to repay the credits.   
+
+ On May 16, 2000, Nvidia issued a press release reporting record financial results for the quarter ended April 30, 2000.  The reported results exceeded consensus external forecasts for revenue, income, earnings per share, and gross margin.  On June 14, 2000, Nvidia filed with the Commission its Form 10-Q for the quarter ended April 30, 2000.  Among the record financial results reported, Nvidia highlighted the "substantial growth in gross profit and gross profit margin" for the quarter.  By including the $3.3 million in reduced costs from Nvidia's supplier but omitting any corresponding deduction for the agreement to reimburse the same amount, the press release and the Form 10-Q were false and misleading when made. 
+
+ On April 29, 2002, following an internal investigation by its audit committee, Nvidia restated its financial results for the quarter ended April 30, 2000.  The previously recognized $3.3 million in cost reduction from Nvidia's supplier was reversed.  The restatement revealed that, as a result of the transaction described above, as originally reported, Nvidia's gross profit was overstated by 6.4%, net income by 15.3%, and diluted earnings per share by 14.8%. 
+
+ D. Legal Conclusions 
+
+ As described in Parts III(B) through (C) above, in the first quarter of fiscal year 2001, Nvidia engaged in accounting misconduct intended to boost the Company's financial results.  As a result, Nvidia's Form 10-Q for the period ended April 30, 2000, which was filed with the Commission and disseminated to investors, as well as Nvidia's press release on May 16, 2000, were materially false and misleading.  In addition, the Company failed to maintain books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets and failed to maintain a system of internal accounting controls sufficient to permit the preparation of financial statements in conformity with GAAP. 
+
+ Based on the foregoing, the Commission finds that the Company violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+
+ IV. 
+
+ In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by the Respondent and cooperation afforded the Commission staff, after the staff had raised issues concerning Nvidia's books and records. 
+
+ V. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Nvidia's Offer. 
+
+ Accordingly, it is hereby ORDERED that: 
+
+ Respondent Nvidia shall cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20 and 13a-13 thereunder. 
+
+ By the Commission. 
+
+
+ Jonathan G. Katz 
+Secretary 
+
+   
+
+    1     Nvidia's restatement covered the last three quarters of fiscal year 2000, fiscal year 2001, and fiscal year 2002.  As a result of the restatement, the Company's total net income for the entire period increased by approximately $1.3 million.  The Company, through its audit committee, determined that the increased prices reflected in a April 3, 2000 letter agreement (described below) were not, in fact, paid in the third quarter of fiscal year 2001 or subsequently.  As a result, the restatement did not include adjustments reflecting any such payments. 
+
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diff --git a/raw/aaer/2003/AAER-1861.txt b/raw/aaer/2003/AAER-1861.txt
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+
+
+ 
+ 
+   
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+     
+     SEC.gov | Stephen D. Price 
+     
+     
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+              Stephen D. Price
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+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No.  48485 / September 11, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+    Release No.  1861 / September 11, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+    File No.   3-11257 
+		
+        
+
+In the Matter of 
+  
+STEPHEN D. PRICE,       
+  
+
+Respondent   
+     
+    : : : : : : : : : :   
+
+   ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 21C OF THESECURITIES EXCHANGE ACT OF 1934,MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER      I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Stephen D. Price ("Price" 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 purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except 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 Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").   
+
+ III. 
+
+ FACTS 
+
+ On the basis of this Order and the Respondent's Offer, the Commission finds that: 
+
+ A. Respondent 
+
+ Stephen D. Price, age 31, resides in Bronxville, New York.  Between 1999 and 2001, Price was the Vice President of Business Development for CAIS Internet, Inc. ("CAIS"), an Internet networking company.  In that capacity, Price worked closely with CAIS's senior management to identify possible acquisition candidates and strategic business partners.  Price also worked with CAIS's salespeople to assist in software, services, and product sales. 
+
+ B. Relevant Entities 
+
+ CAIS was, during the relevant time, a Delaware corporation with its principal place of business in Washington, D.C.  CAIS's securities were registered with the Commission pursuant to Section 12(g) of the Exchange Act.  After its initial public offering in May 1999, CAIS's stock traded on the Nasdaq National Market under the ticker symbol CAIS.  In 2000, CAIS's stock reached a high of approximately $43 per share.  In 2001, the company filed for bankruptcy protection, and is now known as Ardent Communications, Inc.  Ardent's securities are quoted on the pink sheets under the symbol ARDTQ, and trade at less than a penny per share. 
+
+ Logic Solutions, Inc. ("Logic") is a privately-held software consulting company whose principal offices are located in Ann Arbor, Michigan. 
+
+ C. Summary 
+
+ This matter involves improper conduct by Price in causing CAIS to materially overstate its financial results for the third quarter ended September 30, 2000.  On September 29, 2000, Price arranged a $1,012,500 sale of merchandise to Logic, which accounted for about 9% of CAIS's reported revenue for the quarter.  In connection with this sale, Price entered into an oral side agreement with Logic, which allowed it to return the merchandise if CAIS did not make an investment in Logic within 60 days.  Price knew that Logic could not pay for the merchandise without the investment from CAIS.   
+
+ In December 2000, Logic returned the merchandise after CAIS decided not to invest.  Because of Logic's right of return, CAIS should not have recorded the revenue in the third quarter ended September 30, 2000 under Generally Accepted Accounting Principles.  Price's failure to inform CAIS's senior management and internal accountants about the side agreement caused CAIS to materially overstate its financial results and file a false and misleading Form 10-Q with the Commission.  As a result, Price violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and was a cause of CAIS's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+
+ D. The Contingent Sale to Logic Solutions 
+
+ In 2000, CAIS was a provider of high-speed Internet network services and a manufacturer of stand-alone Internet computer kiosks and software.  CAIS operated two wholly-owned subsidiaries, CAIS Software Solutions Inc., and Business Anywhere USA Inc.  CAIS Software, based in San Diego, developed software and other computer products that were incorporated into the Internet kiosks.   
+
+ In early 2000, Price met the President of Logic, who at the time was seeking a venture capital investor.  By September 2000, Price began discussing possible business ventures between CAIS and Logic.  On or about September 22, 2000, Price received an e-mail from Logic requesting that CAIS invest $3.5 million in the company.  The e-mail also suggested that, if CAIS made the investment, Logic would purchase $1.5 million worth of Internet kiosks from CAIS.  Specifically, the e-mail stated: "If you can commit to the funding to Logic that we have discussed we can commit to purchase and transfer your kiosks."  
+
+ Within a week, Price visited Logic's office in Michigan to discuss the proposal.  While there, Price agreed to arrange a $3-4 million investment if Logic purchased $1 million of CAIS Internet kiosks.  Price also agreed that Logic could use the money from CAIS's investment to pay for the kiosks.   
+
+ On September 29, Logic's Chief Financial Officer signed a purchase order to buy 110 CAIS Internet kiosk units for $1,012,500.  Although CAIS normally required customers to pay for merchandise within 30 days, Price amended the purchase order to allow Logic 60 days to pay for the equipment, knowing that Logic would not have the money to pay for the kiosks until the proposed investment was finalized.  Price believed that 60 days would be enough time to close the transaction and supply Logic with the money to pay CAIS.  On the same day, CAIS shipped the equipment and recorded the $1,012,500 sale.  When Logic submitted the purchase order, Price knew that Logic would not pay for the kiosks without the proposed investment from CAIS. The purchase order and the associated documents, however, did not refer to any investment by CAIS, nor to Logic's right to return the equipment in the event that CAIS failed to provide funding. 
+
+ During October 2000, before CAIS filed its Form 10-Q with the Commission, CAIS's CFO heard a rumor that Logic did not intend to pay CAIS for the kiosk equipment.  The CFO questioned Price about the rumor, and Price told him that Logic would pay for the equipment under the terms set forth in the purchase order.  Price failed to tell the CFO that Logic could not pay for the kiosks without CAIS's investment and would return the merchandise if the investment did not occur.  Moreover, Price specifically told the CFO that there were no contingencies preventing CAIS from recording the sale in the third quarter. 
+
+ At the end of October, the President of Logic sent an e-mail to Price asking about the status of CAIS's proposed investment in Logic.  Logic's President emphasized the need for the investment and proposed that CAIS acquire ten percent of Logic.  Regarding the kiosk purchase, he wrote: 
+ 
+   The other thing that I want to clarify is that our [agreement to purchase] the Kiosks hinges on the investment itself. . . .  Only if the investment actually happens, [does it] make sense for us to take [possession of the Kiosks].  If there is no agreement in sight any time soon, we have to talk about how to [return] those Kiosks back to you.  
+ 
+ The following day, Price responded: "I received your e-mail.  I will try to call you by the end of the week to discuss."  In a subsequent phone call, Price told Logic's President that he believed CAIS would make the investment, but it would take some more time to complete the deal. 
+
+ On November 6, CAIS issued a press release announcing its results for the third quarter ended September 30, 2000.  CAIS reported total net revenues of $11,082,000.  The reported results included $1,012,500 of revenue from the sale to Logic, which accounted for approximately 9% of CAIS's revenue for the quarter. 
+
+ On November 14, 2000, Price traveled to Michigan and met with Logic's President and others to negotiate the terms of CAIS's possible investment.  At the meeting, Price and Logic's President again confirmed that if CAIS did not invest in Logic, Logic could return the kiosks without paying for the equipment.  1    On that same day, CAIS filed a Form 10-Q with the Commission for the quarter ended September 30, 2000.  CAIS included the Logic sale in its reported numbers, increasing its revenue and accounts receivable by $1,012,500.  
+
+ Later in November, senior management of CAIS informed Price that the company did not have enough cash to make an investment in Logic.  On December 5, after learning that CAIS would not make an investment, Logic's CFO sent Price a notice canceling the purchase order and terminating the September 29 kiosk purchase.  In the notice, Logic's CFO asked CAIS to confirm that "other than returning the equipment [Logic] will have no further obligation under the Agreement or the Order Form attached thereto."  Price signed the letter agreement on behalf of CAIS, and permitted Logic to return the equipment.  2   
+
+ In connection with the sale to Logic, CAIS's recognition of revenue was in contravention of Generally Accepted Accounting Principles.  Specifically, Statement of Financial Accounting Standards No. 48,  Revenue Recognition Where Right of Return Exists,  precludes revenue recognition on sales to resellers where the buyer is not obligated to pay the seller or where the buyer lacks the financial ability to pay apart from financing provided by the seller.  Here, Price's promised investment and acknowledgement that Logic could return the equipment if the funding did not materialize prohibited CAIS from recognizing the revenue from the Logic sale in the third quarter ended September 30, 2000.  Thus, CAIS overstated its revenue and filed a materially false and misleading Form 10-Q with the Commission. 
+
+ IV. 
+
+ LEGAL ANALYSIS 
+
+ A. Price Violated Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 
+
+ Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraudulent conduct in connection with the purchase or sale of securities.  Violations of Section 10(b) and Rule 10b-5 occur when an issuer makes material misstatements or omits material information in periodic reports filed with the Commission, including financial statements, and trading thereafter occurs in the issuer's securities.   SEC v. Texas Gulf Sulphur , 401 F.2d 833, 860-862 (2d Cir. 1968),  cert. denied , 394 U.S. 976 (1969);  SEC v. Great American Indus. , 407 F.2d 453 (2d Cir.),  cert. denied , 395 U.S. 920 (1968).  A fact is material if there is a "substantial likelihood that the . . . fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available."   TSC Indus. v. Northway, Inc. , 426 U.S. 438, 449 (1976).  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).  Evidence of scienter - an intent to deceive or defraud - is required to establish a violation of Section 10(b) and Rule 10b-5.   Aaron v. SEC , 446 U.S. 680, 691 (1980).  That showing can be satisfied by evidence of reckless behavior by the person charged.   Rolf v. Blyth Eastman Dillon & Co. , 570 F.2d 38, 44 (2d Cir. 1978),  cert. denied , 439 U.S. 1039 (1978). 
+
+ As a result of the conduct described above, Price violated these antifraud provisions because he knew that CAIS would record $1,012,500 from the sale to Logic as revenue in the third quarter even though he entered an oral side agreement allowing Logic to return the equipment if CAIS did not make the investment.  Price concealed the side agreement from senior management at the company as well as its internal accountants.  As a result of Price's knowing conduct, CAIS overstated its revenue, accounts receivable and net income for the third quarter ended September 30, 2000 and filed a materially false and misleading Form 10-Q with the Commission.  
+
+ B. Price Was a Cause of CAIS's Violations of the Reporting and Recordkeeping Provisions of the Exchange Act 
+
+ Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of registered securities to file with the Commission quarterly reports prepared in conformity with the requirements of the Commission's rules and regulations.  Courts have held that it is implicit in this requirement that the information provided be accurate and contain no material misrepresentations or omissions.  Section 13(b)(2)(A) of the Exchange Act requires issuers of securities to make and keep books, records and accounts which accurately and fairly reflect their transactions and the dispositions of their assets.  In addition, Rule 12b-20 of the Exchange Act requires that these periodic reports contain all information necessary to ensure that the statements made in them are not materially misleading.  A violation occurs when a materially false statement is filed.   SEC v. Kalvex, Inc.,  425 F. Supp. 310, 316 (S.D.N.Y. 1975).  Because CAIS incorrectly recorded the revenue from the Logic sale and filed materially false and misleading financial statements in its third quarter 2000 Form 10-Q, it violated Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.   
+
+ Section 21C of the Exchange Act provides that the Commission may order any person who is or was a cause of a violation of any provision of the Exchange Act, due to an act or omission the person knew or should have known would contribute to the violation, to cease and desist from committing or causing such violations.  Price, by concealing the existence of the oral side agreement he negotiated with Logic, caused CAIS to file false and materially misleading financial statements with the Commission and to violate the reporting and recordkeeping provisions of the Exchange Act. 
+
+ C. Price Violated Section 13(b)(5) of the Exchange Act and Exchange Act Rules 13b2-1 and 13b2-2  
+
+ Section 13(b)(5) of the Exchange Act prohibits knowingly falsifying an issuer's books, records, or accounts or circumventing its internal controls.  Rule 13b2-1 of the Exchange Act prohibits any person from, directly or indirectly, falsifying or causing to be falsified any book, record or account subject to Section 13(b)(2)(A).  Rule 13b2-2 of the Exchange Act prohibits directors and officers from, directly or indirectly, making or causing materially false or misleading statements to an accountant in connection with an audit or the preparation of Commission filings.  Due to Price's concealment of the contingent nature of the Logic sale from CAIS's senior management and internal accountants, CAIS's books and records did not properly account for the contingent nature of the sale.  As a result, Price violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder. 
+
+ V. 
+
+ FINDINGS 
+
+ Based on the foregoing, the Commission finds that Price violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and was a cause of CAIS's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+
+ VI. 
+
+ ORDER 
+
+ Accordingly,  IT IS HEREBY ORDERED , pursuant to Section 21C of the Exchange Act, that Respondent Stephen D. Price cease and desist from committing or causing any violations and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.   
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+   
+
+    1     This conversation was memorialized in a November 20 e-mail from Logic's President to Price: "There is no [illusion] that if somehow this investment does not happen, we will return all the equipment[ ] that we have received."  Price responded: "I got your e-mail.  I am fine with it." 
+
+   2     Because CAIS reversed the sale on its books in the fourth quarter of 2000, its year-end financial results were correct.  CAIS, however, did not restate its third quarter results. 
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 48543 / September 25, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1872 / September 25, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-11270
+
+   COMMISSION ISSUES ORDERS ALLEGING THAT AUDITORS VIOLATED RULES OF PRACTICE BY ALTERING AND DELETING AUDIT WORKING PAPERS 
+
+  The Commission announced today that it has instituted administrative proceedings against Thomas C. Trauger, a former audit partner with Ernst & Young, LLC ("E&Y"), and Michael Mullen, an E&Y audit manager.  
+
+  The Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") alleges that Trauger, assisted by Mullen and a third senior manager, altered E&Y's working papers for the fiscal year 2000 audit of E&Y client NextCard, Inc. The alterations and deletions were made months after the audit had been completed and the working papers had been signed and archived.  NextCard was a publicly-traded, San Francisco-based issuer of credit cards over the Internet.  The Order alleges that Trauger directed Mullen to make changes to the NextCard working papers and delete information from them.  He also instructed another senior manager to destroy documents inconsistent with the changes he was directing, and the senior manager complied in part.  The alterations and deletions made it appear as though E&Y had thoroughly considered all of the appropriate issues and available facts relating to NextCard's allowance for loan losses ("allowance") and NextCard's securitization of receivables.  The Order further alleges that the alterations and deletions were in response to the October 2001 announcement by NextCard that the Office of the Comptroller of the Currency ("OCC") and Federal Deposit Insurance Corporation ("FDIC") were requiring NextCard's bank subsidiary, NextBank, to revise certain accounting treatments affecting the allowance and securitizations.  After altering the working papers, Trauger, Mullen and the senior manager provided the altered documents to E&Y's legal department for production in response to a subpoena from the OCC and later subpoenas from the FDIC and SEC. 
+
+  A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations in the Order are true, to provide respondents an opportunity to dispute the allegations, and to determine what, if any, remedial action is necessary and appropriate against Trauger and Mullen pursuant to Rule 102(e) of the Commission's Rules of Practice.
+
+  The Commission directed that an Administrative Law Judge should issue an initial decision in this matter within 300 days from the date of service of the Order.
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diff --git a/raw/aaer/2003/AAER-1875.txt b/raw/aaer/2003/AAER-1875.txt
new file mode 100644
index 0000000000000000000000000000000000000000..298f3d9273fdb518b536a8c3e4c2b9b4080c85ef
--- /dev/null
+++ b/raw/aaer/2003/AAER-1875.txt
@@ -0,0 +1,1507 @@
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48549 / September 26, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1875 / September 26, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11274 
+
+        
+
+In the Matter of 
+  
+ANALYTICAL SURVEYS, INC.,      
+  
+Respondent.   
+
+     
+    : : : : : : : : : :   
+
+   ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934      I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Analytical Surveys, Inc. ("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 it and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 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:  
+
+  Respondent  
+
+ 1. Respondent was incorporated in Colorado in 1981.  From 1997 to 2002, Respondent had facilities in several states, with its headquarters in Indianapolis, Indiana.  Throughout the time period covered in this Order, Respondent's securities were registered with the Commission under Section 12(g) of the Exchange Act, and Respondent filed periodic reports with the Commission.   
+
+  Background  
+
+ 2. Respondent provides computerized map systems to customers under long-term contracts.  When Respondent won the bidding on a contract, its bid would become the contract price.  As part of formulating the bid, Respondent would estimate the production costs, or estimated total direct costs, it expected to incur to complete work on the contract.   
+
+ 3. From 1998 to 2000, Respondent recognized revenue on the contracts using the percentage of completion method on a cost-to-cost basis.  Under the method, which is appropriate under Generally Accepted Accounting Principles ("GAAP") and described in American Institute of Certified Public Accountants ("AICPA") Statement of Position 81-1, revenue should be recognized as work on a contract progresses.  Specifically, a company may recognize revenue by calculating the direct costs incurred to date as a percentage of the estimated total direct costs, and multiplying this figure by the contract price.  This method may be expressed as the following formula:    
+
+  (Direct costs incurred to date · Estimated total direct costs) x Contract price = Recognizable revenue  
+
+ The estimated total costs of the contract must be based on current information and analyzed periodically to ensure that the estimate is accurate.  
+
+ 4. On or about October 1, 1998 through on or about December 31, 1999, Respondent recognized excessive revenue on long-term contracts through several improper methods.  In some instances, when Respondent incurred direct costs on a contract equal to the total estimated costs to complete the contract, and when additional work was still needed to finish it, Respondent improperly charged future direct costs associated with that contract either to an overhead account or to a second contract.  By allocating future direct costs to overhead or to a second contract, Respondent was able to improperly recognize all of the revenue associated with the first contract, even though work still remained.  Additionally, by allocating future direct costs to a second contract, Respondent improperly recognized additional revenue on the second contract when the work performed related to the first contract and did not reflect progress on the second contract.  In other instances, Respondent artificially lowered the total estimated cost to complete a contract after work had begun, which allowed Respondent to recognize revenue earlier on that contract than would properly be allowed.  As a result of these improper methods, Respondent's revenue and earnings were inflated.  The inflated figures were included in the fiscal 1999 Forms 10-Q that Respondent filed with the Commission in February, May, and August 1999.   
+
+ 5. In November 1999, Respondent issued a press release claiming revenue of $117.1 million and net earnings of $11.4 million for the fiscal year ended September 30, 1999.  In late December 1999, Respondent's management decided to reduce these figures.  Respondent then filed a Form 10-K (annual report) for fiscal 1999.  Although the annual report reduced the revenue (from $117.1 million to $113.5 million) and net earnings (from $11.4 million to $9.3 million) that Respondent had announced in the November press release, the new figures were still inflated.     
+
+ 6. In January 2000, the audit committee of Respondent's board initiated a comprehensive review of contracts to determine whether Respondent needed to restate the figures in the annual report.  In March 2000, Respondent filed an amended annual report with annual revenue of $103.2 million, down from the $113.5 million reported in December and the $117.1 million claimed in November.  The amended annual report also reduced net earnings to $2.8 million, down from $9.3 million reported in December and $11.4 million claimed in November.  These reductions affected all four quarters of fiscal 1999.  Overall, between November 1999 and March 2000, Respondent reduced its reported revenue by roughly 12%, and its net earnings by roughly 75%. 
+
+ 7. During the time of the events described above, individual employees of Respondent frequently changed estimates of total direct costs with no review by others and no written record of the reason for the change.  Also, each of Respondent's facilities was supposed to review its direct cost estimates monthly, but one facility essentially stopped conducting reviews in or about 1998.  Respondent's accounting staff did not regularly review charges to overhead or fluctuations in cost estimates for propriety and accuracy.  Respondent had no internal audit function. 
+
+ 8. As a result of the conduct described above, Respondent violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, which require reporting companies to file accurate and complete periodic reports with the Commission, to make and keep books, records, and accounts that in reasonable detail accurately and fairly reflect the transactions of the company, and to devise and maintain a system of internal accounting controls which provides reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP.   
+
+  Respondent'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 sanctions agreed to in Respondent's Offer. 
+
+  Accordingly, it is hereby ORDERED : 
+
+ Pursuant to Section 21C of the Exchange Act, that Respondent cease and desist from committing any violations and any future violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+By the Commission.
+ Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+
+ 
+ 
+ Footnotes 
+footnotes header optional
+
+  1    Rule 102(e)(3)(i) provides, in relevant part, that:  The 
+Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from 
+appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any 
+court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from 
+violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and 
+regulations thereunder.  -->
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diff --git a/raw/aaer/2003/AAER-1876.txt b/raw/aaer/2003/AAER-1876.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f937ffa1e8e3a7e74140cf38654a2bb9ebebbaf2
--- /dev/null
+++ b/raw/aaer/2003/AAER-1876.txt
@@ -0,0 +1,1371 @@
+
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+ LITIGATION RELEASE NO. 18370 / September 29, 2003
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO.  1876/ September 29, 2003
+
+   SEC SETTLES ACCOUNTING FRAUD CASE AGAINST FORMER PRESIDENT OF OAKGRIGSBY, INC. 
+   Securities and Exchange Commission v. James C. Horne  (United States District Court for the Northern District of Illinois, Civ. No. 00-C-5935)
+
+  The Securities and Exchange Commission announced today that, on September 12, 2003,  an Illinois federal court entered, by consent, an order permanently enjoining defendant James C. Horne, of Lake Bluff, Illinois, from future violations of the antifraud, periodic reporting, books and records and internal accounting controls provisions of the federal securities laws.  The order also holds Horne liable for disgorgement and interest totaling almost $100,000, but waives payment of all but $20,000, and does not impose a penalty, based on Horne's sworn representations and other documents submitted concerning his financial condition.  At the time of the conduct at issue, Horne was the president of OakGrigsby, Inc., a Sugar Grove, Illinois company that was a division of Oak Industries, Inc., headquartered in Waltham, Massachusetts.
+
+  The Commission's complaint, filed on September 27, 2000, alleged that, between July 1995 and January 1997, defendants Horne and Matthew R. Welch, the former controller of OakGrigsby, conspired to fraudulently conceal OakGrigsby's operating expenses such as salaries, shipping and travel.  OakGrigsby's results were consolidated with those of other Oak divisions and incorporated into Oak's periodic Commission filings and press releases.  As a result of Horne and Welch's actions, Oak's income per share for the fourth quarter of 1995 and for the first three quarters of 1996 were materially overstated.  According to the Complaint, the defendants were, at least in part, motivated to undertake the scheme in order to ensure that OakGrigsby met specified earnings targets, which allowed Horne to earn a bonus of $55,000 for 1995.  The disgorgement ordered by the Court was of Horne's 1995 bonus. Welch has previously settled the Commission's action.
+
+  The Commission's complaint charged Horne with, and the Court permanently enjoined Horne from, violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder (antifraud provisions), Exchange Act Rule 13b2-1 (prohibiting falsification of issuer books and records), and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder (issuer reporting, books and records and internal accounting controls provisions). The order, entered by the Honorable Ronald A. Guzm n, held Horne liable for disgorgement of $55,000, plus prejudgment interest of $39,574, or a total of $94,574, but waived payment of all but $20,000 based on Horne's financial condition.  For further information, see Litigation Release Nos. 16734 and 17165.
+
+  
+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2003/AAER-1879.txt b/raw/aaer/2003/AAER-1879.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0240db03cf98fe31ab3558bffafdb3a88f6afcf9
--- /dev/null
+++ b/raw/aaer/2003/AAER-1879.txt
@@ -0,0 +1,1509 @@
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+              Loren D. Pfau
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+ SECURITIES ACT OF 1933 
+Release No. 8295 / September 29, 2003 
+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48559 / September 29, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1879 / September 29, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No.  3-11278 
+
+        
+
+In the Matter of 
+  
+LOREN D. PFAU,      
+  
+Respondent.   
+
+     
+    : : : : : : : : : :   
+
+   ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER      I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Loren D. Pfau ("Respondent" or "Pfau").  1     
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except that Respondent has admitted the Commission's jurisdiction over him and over the matters set forth herein, Respondent has consented to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order") as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  2   that:  
+
+ 1. Qwest Communications International, Inc. ("Qwest"), a telecommunications company based in Denver, Colorado, provides broadband Internet communications, data, and multimedia services on a national and global basis, as well as wireless services, local telecommunications, telephone directory services, and related services in a 14-state local service area.   
+
+ 2. Qwest's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and the company is obligated to file reports on Forms 10-K and 10-Q.  Qwest common stock is traded on the New York Stock Exchange.  Qwest filed quarterly and annual reports through and including the quarter ended March 31, 2002.  Qwest registered exchange offerings by filing Forms S-4 with the Commission on January 17, 2001, July 12, 2001, and October 30, 2001.  On December 5, 2001, April 30, 2002, and June 28, 2002, Qwest filed Forms S-8 registration of securities to be offered to employees in employee benefit plans.  On February 5, 2002, Qwest filed a Form S-3 registration statement for face amount certificate companies.  On April 9, 2002, Qwest filed a Form S-3A registration statement for face amount certificate companies.  On October 31, 2001 and November 5, 2001, Qwest filed Forms SC TO-I and SC TO-I/A, tender offer statements by issuer for securities to be offered to eligible employees.  Many of the stock offering materials incorporated by reference Qwest's financial statements filed with the Commission. 
+
+ 3. Pfau, age 43, a resident of Evergreen, Colorado, was employed by Qwest from April 1998 to July 2003.  From December 2000 through June 2001 ("the relevant period"), Pfau was a director of business development in the Qwestlink business unit, which was Qwest's construction unit responsible for building fiber-optic cable networks.  During the relevant period, Pfau was engaged in sales of Qwest fiber-optic cable or "dark fiber" to other telecommunications providers.   
+
+ 4. During the relevant period, Qwest publicly announced agressive revenue projections.  In the final days of each quarter, Qwest used Indefeasible Right of Use ("IRU") agreements to sell dark fiber from its telecommunications network as one means to meet revenue targets.  An IRU is an irrevocable right to use a specific amount of fiber capacity for a specified time period.   
+
+ 5. Qwest accounted for IRUs as sales-type leases and recognized revenue upon Qwest's delivery and its customer's acceptance of the dark fiber.  By doing so, Qwest recognized nearly the entire amount of IRU revenue "up-front" at the time of contract execution rather than over the life of the IRU agreement.  Qwest employees and management commonly referred to IRU sales as "gap fillers," in other words, a means to make up the shortfall between the aggressive revenue projections as publicly announced by Qwest senior management and the actual revenue earned by Qwest.   
+
+ 6. During the relevant period, Pfau was involved in the negotiations of three IRU transactions for the sale of dark fiber.  In each of the three IRU transactions, the purchasers of Qwest dark fiber required the ability to exchange or "port" the dark fiber-optic cable purchased for different fiber-optic cable at a later date.  
+
+ 7. With respect to each of the three IRU transactions, Pfau knew or was reckless in not knowing that, under generally accepted accounting principles ("GAAP"), providing a buyer the right to port under an IRU agreement defeated the up-front revenue recognition sought by Qwest.  In each instance, Pfau knew also that Qwest's corporate accountants, who reviewed all IRU agreements to determine the propriety of recognizing revenue up-front, would have questioned such up-front revenue treatment had the IRU agreements contained any reference to portability.   
+
+ 8. Pfau circumvented Qwest's internal accounting controls to assist in generating up-front revenue for Qwest.  In each of the three IRU transactions, Pfau engaged or assisted in providing secret verbal or e-mail side agreements which allowed the purchasers the right to port at a later date.  Pfau intended the side agreements to conceal from Qwest's corporate accountants and outside auditors the purchasers' ability to port so that up-front revenue recognition would not be impeded.  
+
+ 9. Qwest improperly recognized $15.1 million in revenue for the quarter ended March 31, 2001, and $11.5 million for the quarter ended June 30, 2001.  By engaging in the above-described conduct, Pfau was a cause of Qwest filing quarterly reports in the first and second quarters of 2001, and its annual report for 2001, which contained materially false information.   
+
+ 10. Section 17(a) of the Securities Act makes it unlawful to employ any device, scheme, or artifice to defraud in the offer or sale of any securities.  Section 10(b) of the Exchange Act and Rule 10b-5 prohibit the misrepresentation of or misleading omission of material facts in connection with the purchase or sale of securities.  By engaging in the conduct described in paragraphs III.6. through III.9. above, Pfau was a cause of Qwest's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. 
+
+ 11. Section 13(a) of the Exchange Act requires all issuers with securities registered under Section 12 of the Exchange Act to file periodic and other reports with the Commission containing such information as the Commission's rules prescribe.  Pursuant to Section 13(a), the Commission promulgated Rules 13a-1 and 13a-13 that require issuers to file annual and quarterly reports, respectively.  In addition, Rule 12b-20 requires that reports contain such further material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading.  As a result of the conduct described in paragraphs III.6. through III.9. above, Pfau was a cause of Qwest's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. 
+
+ 12. Section 13(b)(2)(A) of the Exchange Act states that every Section 12 registrant must "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer."  Rule 13b2-1 provides that no person shall, directly or indirectly falsify or cause to be falsified, any book, record, or account subject to Section 13(b)(2)(A).  As a result of the conduct described in paragraphs III.6. through III.9. above, Pfau committed violations of Rule 13b2-1 of the Exchange Act, and was a cause of Qwest's violations of Section 13(b)(2)(A) of the Exchange Act. 
+
+ 13. Section 13(b)(5) of the Exchange Act provides that:  "No person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account described in [Section 13(b)(2)]."  By engaging in the conduct described in paragraphs III.6. through III.9. above, Pfau committed violations of Section 13(b)(5) of the Exchange Act.  
+
+  Respondent's Cooperation  
+
+ 14. In determining to accept the Offer, the Commission considered Respondent's cooperation afforded the Commission staff .  
+
+  Undertakings  
+
+ 15. Respondent undertakes to cooperate with the Commission staff in preparing for and presenting any civil litigation or administrative proceeding concerning any transaction or related transaction that is the subject of the Order.  Respondent understands that if he fails to comply with these undertakings, the Commission reserves the right to reopen this proceeding and reconsider the appropriateness of the Order imposed. 
+
+ 16. In determining whether to accept the Offer, the Commission has considered these undertakings.   
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanction agreed to in Respondent Pfau's Offer. 
+
+ Accordingly, it is hereby ORDERED that Respondent cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  
+
+ Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+
+    1    This matter is related to a civil action, U.S. Securities and Exchange Commission v. Loren D. Pfau, which will be filed simultaneously and in which Pfau has consented to pay a $25,000 penalty.  
+
+  2    The findings herein are made pursuant to Respondent's Offer and are not binding on any other person or entity in this or any other proceeding. 
+By the Commission.
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diff --git a/raw/aaer/2003/AAER-1880.txt b/raw/aaer/2003/AAER-1880.txt
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+
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+ 
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+     SEC.gov | Adam S. Richards 
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48570 / September 30, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1880 / September 30, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11284 
+
+              
+In the Matter of 
+  
+ADAM S. RICHARDS, CPA,      
+  
+Respondent.   
+           
+    : : : : : : : : : : : : :   
+
+   ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS      I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Adam S. Richards ("Respondent" or "Richards") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings and the findings contained in Section III.3. below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+
+ 1. Richards, age 34, is a resident of Oak Park, California.  In June 2000, Richards joined Homestore, Inc. ("Homestore") as a Senior Analyst and was promoted to Manager of Financial Planning in February 2001.  As a manager, he reported to the Director of Financial Planning.  During 2001, Richards managed the forecasting for the Strategic Alliances Group ("SAG") and served as a point person for providing a finance perspective on the various SAG deals.  Richards is a CPA licensed in California, however his license was inactive during his tenure at Homestore.   
+
+ 2. Homestore is, and at all relevant times was, a Delaware corporation with its principal place of business in Westlake Village, California.  Homestore is an Internet provider of residential real estate listings and related content.  Homestore's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and trades on the Nasdaq SmallCap Market. 
+
+ 3. On September 18, 2003, the Commission filed a complaint against Richards in  SEC v. Sophia Kabler, et al. , in the United States District Court for the Central District of California (the "Court") (Civil Action No. 03-6726 JFW (VBKx)).  On September 24, 2003, the Court entered a Final Judgment of Permanent Injunction and Other Relief Against Defendant Adam S. Richards ("Judgment") which (a) permanently enjoins Richards from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; and (b) orders Richards to pay $1,770 in disgorgement, $124 in prejudgment interest, and a $10,000  civil penalty.  Richards consented to the entry of the Judgment without admitting or denying any of the allegations in the complaint.  
+
+ 4. The Commission alleged that Richards participated in a fraudulent scheme to inflate Homestore's revenue throughout the first three quarters of 2001.  The complaint alleged that Homestore engaged in round-trip sales transactions that were improperly recognized as revenue.   Specifically, Homestore, through Richards and others, overstated revenue in the first quarter by $15,000,000, or 16%, by $22,445,000, or 21%, in the second quarter, and by $8,965,000, or 8%, in the third quarter.  The complaint further alleged that Richards helped implement the scheme and took steps to hide the true nature of these round-trip transactions from Homestore's auditors.   
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Richards's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that:   
+
+ Richards is suspended from appearing or practicing before the Commission as an accountant. 
+
+ Jonathan G. Katz 
+Secretary 
+
+   
+
+   1    Rule 102(e)(3)(i) provides, in relevant part, that: 
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. 
+
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diff --git a/raw/aaer/2003/AAER-1881.txt b/raw/aaer/2003/AAER-1881.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f10c5d3ea6098b203234f05b051e7c399cb0ffbf
--- /dev/null
+++ b/raw/aaer/2003/AAER-1881.txt
@@ -0,0 +1,1493 @@
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48571 / September 30, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1881 / September 30, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11285 
+
+        
+
+In the Matter of 
+  
+SCOTT MILLER, CPA,      
+  
+Respondent.   
+
+     
+    : : : : : : : : :  
+
+   ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS      I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Scott Miller pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice,  1   and such proceedings are hereby instituted.   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Miller 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, Miller 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 Miller's Offer, the Commission finds that:  
+
+ 1. Miller, age 44, is and has been a certified public accountant licensed to practice in the state of Nevada.  Miller served as Chief Accounting Officer and Senior Vice President of Finance of PurchasePro, Inc. ("PurchasePro") during the period relevant to the conduct described herein and continuing until August 2001. 
+
+ 2. PurchasePro was, at all relevant times, a Nevada corporation with its principal place of business in Las Vegas.  PurchasePro provided Internet business-to-business electronic-commerce software and services.  At all relevant times, PurchasePro's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and traded on the NASDAQ National Market.   
+
+ 3. On September 24, 2003, a final judgment was entered against Miller in the civil action entitled  Securities and Exchange Commission v. Scott Miller , No. 03-1202-A, in the United States District Court for the Eastern District of Virginia.  The final judgment, among other things, permanently enjoined him from future violations of Exchange Act Sections 10(b) and 13(b)(5) and Exchange Act Rules 10b-5 and 13b2-2. 
+
+ 4. The Commission's complaint in the civil action alleged, among other things, that Miller participated in the preparation of financial statements that, in contravention of generally accepted accounting principles ("GAAP"), materially overstated PurchasePro's revenues for the first quarter of its 2001 fiscal year by including revenue from a contract as to which the parties never reached an agreement and the services were not performed.  The complaint further alleged that Miller misled PurchasePro's outside accountants in connection with their review of PurchasePro's financial statements for the quarter by failing to provide them with material facts that called into question the authenticity and performance of the contract.  Finally, the complaint alleged that Miller circumvented PurchasePro's internal accounting controls during the quarter, and later withheld, destroyed, and attempted to destroy several documents and electronic files that were subject to a Commission subpoena.     
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Miller's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+
+ Miller is suspended from appearing or practicing before the Commission as an accountant.   
+
+By the Commission.
+
+ Jonathan G. Katz 
+Secretary 
+
+   
+
+   1    Rule 102(e)(3)(i) provides, in relevant part, that: 
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. 
+
+   
+
+ 
+ 
+ Footnotes 
+footnotes header optional
+
+  1    Rule 102(e)(3)(i) provides, in relevant part, that:  The 
+Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from 
+appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any 
+court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from 
+violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and 
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diff --git a/raw/aaer/2003/AAER-1899.txt b/raw/aaer/2003/AAER-1899.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ccc92f65d4c913956ba7ec1f009072438779ac31
--- /dev/null
+++ b/raw/aaer/2003/AAER-1899.txt
@@ -0,0 +1,1452 @@
+
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+ 
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+     SEC.gov | Peter C. Ferraro and William G. Stayduhar 
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+              Peter C. Ferraro and William G. Stayduhar
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+        Peter C. Ferraro and William G. Stayduhar
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+ Securities Exchange Act of 1934 
+Release No. 48654 / October 17, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No.  1899 / October 17, 2003 
+
+ Administrative Proceedings 
+File No. 3-9045 
+
+       In the Matter of  
+ Peter C. Ferraro, CPA 
+       Respondent. 
+   
+  : : : : : : : :  
+  ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND 
+PRACTICE BEFORE THE COMMISSION  
+AS AN ACCOUNTANT    
+    On July 24, 1996, Peter C. Ferraro, CPA ("Ferraro"), was denied the privilege of appearing or practicing before the Commission as an accountant for two years as a result of settled public administrative proceedings instituted by the Commission against Ferraro pursuant to Rule 102(e) of the Commission's Rules of Practice.  1    This order is issued in response to his application for reinstatement to appear and practice before the Commission as an independent accountant and as an accountant responsible for the preparation or review of financial statements required to be filed with the Commission. 
+ Ferraro, a CPA in the state of Pennsylvania, performed audit work leading to the issuance of unqualified audit reports on the fiscal year 1991 and 1992 financial statements of Sulcus Computer Corporation ("Sulcus").  Ferraro was the engagement partner in charge of the Sulcus audits.  The original order alleged that Ferraro engaged in improper professional conduct by failing to conduct the 1991 and 1992 Sulcus audits in accordance with GAAS.  Specifically, he failed to obtain sufficient competent evidential matter to afford a reasonable basis for his firm's opinions on Sulcus' financial statements, failed to assess properly whether the company's financial statements were fairly presented in conformity with GAAP, and failed to exercise due professional care in the performance of the audits.  The original order alleged that Sulcus failed to comply with GAAP, in that it overstated its financial results by improperly accounting for a series of acquisitions completed during 1991 and 1992. 
+ In his capacity as an independent accountant, Ferraro has undertaken to remain either a member or associated with a member firm of the SEC Practice Section of the American Institute of Certified Public Accountants ("AICPA") or equivalent organization, and to comply with all applicable SEC Practice Section or equivalent organization requirements.  In connection with any service as an accountant responsible for the preparation or review of financial statements of a public company to be filed by the Commission, Ferraro has undertaken to have his work reviewed by the independent audit committee of any registrant for which he works or in some other manner acceptable to the Commission while practicing before the Commission in this manner. 
+ On the basis of information supplied, representations made, and undertakings agreed to by Ferraro, it appears that (1) Ferraro has complied with the terms of the July 24, 1996 order denying him the privilege of appearing or practicing before the Commission as an accountant, (2) that no information has come to the attention of the Commission relating to his character, integrity, professional conduct or qualifications to practice before the Commission that would be a basis for adverse action against Ferraro pursuant to Rule 102(e) of the Commission's Rules of Practice, and (3) Ferraro's undertaking to have his work reviewed by the independent audit committee of any future employer, or in some other manner acceptable to the Commission, in his practice before the Commission as a preparer or reviewer of financial statements required to be filed with the Commission is in the public interest.  Therefore, it is accordingly, 
+ ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that Peter C. Ferraro, CPA, is hereby reinstated to appear and practice before the Commission as an accountant. 
+
+ 
+
+ By the Commission. 
+
+ Jonathan G. Katz
+ Secretary 
+
+     1   See Accounting and Auditing Enforcement Rel. No. 804,  In the Matter of Peter C. Ferraro, CPA, and William G. Stayduhar, CPA , July 24, 1996. 
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diff --git a/raw/aaer/2003/AAER-1909.txt b/raw/aaer/2003/AAER-1909.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9c6bda04c2c2784a6a6e8d3c5fa5a72b5bdd73f6
--- /dev/null
+++ b/raw/aaer/2003/AAER-1909.txt
@@ -0,0 +1,1368 @@
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+ Former SEC Commissioner J. Carter Beese, Jr. to Oversee Stock Portion of the Distribution Fund  
+
+  Securities and Exchange Commission v. WorldCom Inc., Civil Action No. 02-CV-4963       (SDNY) (JSR)   
+
+ The Securities and Exchange Commission announced that on November 7, 2003, the Honorable Jed S. Rakoff, United States District Judge, issued an Order appointing former SEC Chairman Richard C. Breeden, who is currently serving as WorldCom's court-appointed Corporate Monitor, to be the Distribution Agent to supervise the distribution of the SEC's civil penalty judgment against WorldCom.  The SEC obtained the civil penalty judgment pursuant to a settlement approved by Judge Rakoff on July 7, 2003.  ( Litigation Release No. 18219 ).  Also on November 7, 2003, Judge Rakoff appointed former SEC Commissioner J. Carter Beese, Jr., to be the Equity Manager to oversee the stock portion of the distribution fund. 
+
+ The Court's selections of Mr. Breeden as Distribution Agent and Mr. Beese as Equity Manager are the first steps in the Fair Fund distribution process for the SEC's civil penalty judgment.  Future steps include WorldCom's payments into the distribution fund and the SEC's submission of a formal distribution plan to the District Court.  These future steps are scheduled to take place at or around the time WorldCom emerges from bankruptcy court protection.  After the District Court approves a distribution plan, the Distribution Agent will commence the process of identifying eligible investor claimants and processing claims for payment from the distribution fund. 
+
+ WorldCom, which is now doing business under the MCI brand name, filed for bankruptcy court protection on July 21, 2002.  On October 31, 2003, the Bankruptcy Court approved the company's plan of reorganization.  The Commission staff anticipates that the plan will become effective within a few months, resulting in WorldCom's emergence from bankruptcy court protection.  Because WorldCom was in bankruptcy reorganization, the SEC's settlement of its claims for civil penalties was reviewed and approved by both the District Court and the Bankruptcy Court.  (Litigation Releases Nos.  18219  and  18277 ). 
+
+ The SEC's civil penalty judgment against WorldCom provided that WorldCom was liable for a civil penalty in the amount of $2,250,000,000.  It further provided that, in the event of confirmation of a plan of reorganization of WorldCom by the Bankruptcy Court - which occurred on October 31, 2003 - WorldCom's obligation to the SEC shall be satisfied by the company's payment of $500,000,000 in cash and its transfer of common stock in the reorganized company having a value of $250,000,000, on the effective date of its plan of reorganization.  Under the terms of the settlement, the funds paid and the common stock transferred by WorldCom to satisfy the SEC's judgment will be distributed to investor victims of the company's fraud, pursuant to Section 308 (Fair Funds for Investors) of the Sarbanes-Oxley Act of 2002.  Additional information regarding the Fair Fund distribution of WorldCom's civil penalty is available on the Commission's website. 
+
+ The Commission's investigation into the events surrounding the WorldCom fraud is continuing. 
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diff --git a/raw/aaer/2003/AAER-1910.txt b/raw/aaer/2003/AAER-1910.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1910.txt
@@ -0,0 +1,1443 @@
+
+
+ 
+ 
+   
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+ 
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+     SEC.gov | Rita J. McConville and Kevin M. Harris 
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+        Rita J. McConville and Kevin M. Harris
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+ Securities Exchange Act of 1934 
+Release No.  48770 / November 12, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No.  1910 / November 12, 2003 
+
+ Administrative Proceeding 
+Release No.  3-11330 
+
+ In the Matter of Rita J. McConville and Kevin M. Harris  
+
+ The Commission today instituted cease-and-desist proceedings against Rita J. McConville, the former chief financial officer ("CFO") of Akorn, Inc., and cease-and-desist proceedings and administrative proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice against Kevin M. Harris, another former Akorn CFO (collectively, "Respondents").  McConville is a resident of Hawthorn Woods, Illinois.  Harris is a resident of Rolling Meadows, Illinois. 
+
+ The Division of Enforcement alleges that McConville and Harris made false statements concerning Akorn's financial condition and caused Akorn to carry on its books at least $7 million in accounts receivable which were, at best, significantly impaired or, at worst, completely uncollectable.  Had Akorn appropriately recorded a reserve for these receivables, it would have posted a $2 million loss for its fiscal year ended December 31, 2000, rather than the $2 million profit it claimed in its 2000 Form 10-K.  The Division alleges that McConville engaged in accounting fraud by drafting or reviewing statements regarding accounts receivable in Akorn's Form 10-K for the fiscal year ended December 31, 2000 that McConville had no reasonable basis to believe were accurate or in accordance with generally accepted accounting principles.  Moreover, the Division alleges that McConville knowingly failed to implement a system of internal controls, caused Akorn's books and records to be false, lied to auditors, and caused Akorn's reporting violations with regards to the company's 2000 Form 10-K.  The Division also alleges that Harris lied to auditors and caused and willfully aided and abetted Akorn's reporting violations in regard to the status of Akorn's accounts receivable as represented in both the 2000 Form 10-K and first quarter 2001 Form 10-Q. 
+
+ The Commission instituted these proceedings against Respondents to determine whether:  (a) the allegations against Respondents are true and to afford Respondents an opportunity to establish any defense to such allegations; (b) pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), McConville should be ordered to cease and desist from committing or causing any violations and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and from causing any violations or any future violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; (c) pursuant to Section 21C of the Exchange Act, Harris should be ordered to cease and desist from committing or causing any violations and any future violations of Rule 13b2-2 under the Exchange Act and causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; (d) pursuant to Section 21C(e) of the Exchange Act, Respondents should be ordered to pay disgorgement; and (e) pursuant to Rule 102(e)(1)(iii) of the Commission's Rules of Practice, Harris should be censured or denied, temporarily or permanently, the privilege of appearing or practicing before the Commission. 
+
+ A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e)(1)(iii) of the Commission's Rules of Practice ("Order") are true, to provide the Respondents an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate in the public interest.  The Commission directed that an administrative law judge shall issue an initial decision in this matter within 300 days from the date of service of the Order. (Rel. No. 34-48770, AAE Rel. No. 1910) 
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diff --git a/raw/aaer/2003/AAER-1919.txt b/raw/aaer/2003/AAER-1919.txt
new file mode 100644
index 0000000000000000000000000000000000000000..04450dcaad4faf66079cfffeea606eae48225e6f
--- /dev/null
+++ b/raw/aaer/2003/AAER-1919.txt
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+     SEC.gov | Sam Leopold, Richard R. Ross, Phillip D. Teal, James T. Montrose, Norman B. Cowgill, Jay S. Ozer, and Bradley J. Schmidt 
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+              Sam Leopold, Richard R. Ross, Phillip D. Teal, James T. Montrose, Norman B. Cowgill, Jay S. Ozer, and Bradley J. Schmidt
+           
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+     
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+        Sam Leopold, Richard R. Ross, Phillip D. Teal, James T. Montrose, Norman B. Cowgill, Jay S. Ozer, and Bradley J. Schmidt
+       
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+	 
+	 STYLING'S FORMER CEO, CFO AND CHIEF ACCOUNTING OFFICER SETTLE ACTION 
+	 SEC SUES TWO FORMER ARTHUR ANDERSEN AUDITORS FOR FRAUD 
+	 
+	
+ On December 3, 2003, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Columbia, alleging that the principal executive officers of Styling Technology Corporation ("Styling"), including its former chairman and CEO, Sam Leopold, and its former CFO, Richard R. Ross, engaged in an extensive financial fraud between 1997 and 1999 by inflating the company's reported earnings in its filings with the Commission.  The Commission's Complaint also alleges that two of the company's auditors engaged in the fraud by recklessly causing their accounting firm, Arthur Andersen LLP, to issue an unqualified audit report on Styling's 1998 year-end financial statements and by failing to object to false and misleading statements in Styling's 1999 first and second quarter reports. 
+ The Commission's Complaint alleges that, beginning in 1997, Styling began to record false revenue from certain sales transactions, including ones that involved nothing more than the transfer of product to an overseas warehouse.  It also alleges that the fraudulent booking of sales increased significantly during 1998, when the manager of Styling's Body Drench division, Phillip D. Teal, began systematically booking projected sales for the entire year in the current quarter--a practice that culminated at year-end in the recording of revenue from the mere shipment of millions of dollars of product between two company-controlled warehouses.  According to the Complaint,  Styling's vice president of operations, Norman B. Cowgill, approved these year-end transactions.  The Commission's Complaint alleges that, at least one month prior to the filing of Styling's 1998 annual report on Form 10-K, Leopold, Ross, Cowgill and James T. Montrose, the company's former chief accounting officer, knew, or were reckless in not knowing, the nature and extent of the fraudulent sales at Body Drench, yet took no steps to correct the company's improperly recorded accounts receivable.  Leopold, Ross and Montrose, have consented to the entry of permanent injunctions on all of the legal violations alleged against them, without admitting or denying the allegations of the Commission's Complaint. 
+ The Commission also alleges that Styling's fraudulent accounting practices continued through the first two quarters of 1999, when the company improperly booked millions of dollars of sales.  In June 1999, it charges, Styling attempted to cover up its fraud by writing off $5.1 million of uncollectible accounts receivable and attributing the lost revenue to a strategic business decision. 
+ The Commission further alleges that two former Arthur Andersen auditors, Jay S. Ozer and Bradley J. Schmidt, recklessly failed to detect the fraudulent sales at Styling during 1998.  It  alleges that, despite encountering a number of red flags at Styling, Ozer, the engagement partner on the audit, and Schmidt, the audit manager, failed to ensure that the audit was conducted in accordance with generally accepted auditing standards and recklessly caused Arthur Andersen to render an unqualified audit report on Styling's 1998 financial statements.  Ozer and Schmidt, the Commission alleges, also knew or were reckless in not knowing that Styling's statements concerning the $5.1 million write-off in its second quarter report were false and misleading. 
+ The Complaint alleges that all of the defendants violated or aided and abetted violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and aided and abetted violations of Section 13(a) of the Exchange Act and the rules thereunder, and that defendants Leopold, Ross, Teal, Montrose, Cowgill and Schmidt violated or aided and abetted violations of the internal control provisions of the Exchange Act, Section 13(b), and various rules thereunder.  It seeks permanent injunctions and civil penalties from each defendant and seeks disgorgement of certain bonuses paid to Leopold and Ross and an order barring each of them from serving as officers and directors of any public company. 
+ Three of Styling's officers, Leopold, Ross and Montrose, have consented to the entry of permanent injunctions on all of the legal violations alleged against them, without admitting or denying the allegations of the Commission's Complaint.  In addition, Leopold has agreed to pay $225,000 in disgorgement and pre-judgment interest and $100,000 as a civil penalty.  Ross has agreed to pay $100,000 in disgorgement.  Both Leopold and Ross have consented to the entry of orders barring them from serving as officers and directors of any public company.  Montrose was not ordered to pay any penalty, based on sworn financial statements and other documents submitted to the Commission. 
+
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diff --git a/raw/aaer/2007/AAER-2531.txt b/raw/aaer/2007/AAER-2531.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7a530224f7278c51b7aebe1dc4effc4f3c270799
--- /dev/null
+++ b/raw/aaer/2007/AAER-2531.txt
@@ -0,0 +1,106 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  55039 / January 3, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2531 / January 3, 2007 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11714 
+ 
+In the Matter of  
+David A. Hori, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT  
+ 
+On October 20, 2004, David A. Hori ("Hori") 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)(1)(ii) of the 
+Commission's Rules of Practice.
+1  This order is issued in response to Hori’s application for 
+reinstatement to appear and practice before the Commission as an accountant. 
+Hori was found to have engaged in improper professional conduct in connection with 
+performing the reviews and audits of the financial statements filed by Gemstar-TV Guide 
+International, Inc. (“Gemstar”) from the quarter ended September 30, 1999 through the fiscal 
+year ended March 31, 2002.  During this time, Hori was employed as a senior manager for 
+KPMG, LLP and participated in the audits and reviews of the financial statements of Gemstar.  
+As a senior manager, Hori failed to exercise professional care and skepticism, failed to obtain 
+sufficient competent evidential matter and over-relied on Gemstar’s management representations 
+with respect to the audits and reviews of Gemstar’s financial statements.  In addition, Hori failed 
+to take appropriate action to correct disclosures that did not comply with GAAP and were 
+inconsistent with Gemstar’s financial statements.  Finally, Hori failed to render accurate audit 
+reports. 
+Hori has met all of the conditions set forth in his suspension order and, in his capacity as 
+an independent accountant, has stated that he will comply with all requirements of the 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2125 dated October 20, 2004.  Hori was permitted, 
+pursuant to the order, to apply for reinstatement after eighteen months upon making certain showings. 
+Commission and the Public Company Accounting Oversight Board, including, but not limited to 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards.  In his 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, Hori 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.   
+  
+Hori is currently subject to probation under the California Board of Accountancy that is 
+scheduled to end in April, 2008.  Failure to abide by the terms of his probation could result in the 
+revocation of Hori’s CPA license pending notice and an opportunity to be heard by the 
+California Board of Accountancy.  Hori has attested that he will notify the Commission if he is 
+found to have violated the terms of the probation.  He also has attested that he understands that 
+the revocation of his CPA license could result in the revocation of the reinstatement of his 
+privilege to appear or practice before the Commission as an accountant. 
+ 
+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 Hori, it appears that he has complied with the terms of the October 20, 2004 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 Hori, by undertaking to have his work reviewed by the independent audit committee of 
+any company for which he works, or in some other manner acceptable to the Commission, in his 
+practice before the Commission as a preparer or reviewer of financial statements required to be 
+filed with the Commission, and that Hori, by undertaking to comply with all requirements of the 
+Commission and the Public Company Accounting Oversight Board, including, but not limited to, 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards, in his practice before the Commission as an independent accountant has shown 
+good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ 
+ 
+ 
+                                                 
+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 
+David A. Hori, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant. 
+ 
+By the Commission. 
+ 
+ 
+ 
+ 
+Nancy M. Morris  
+Secretary  
+ 
+ 3
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2533.pdf b/raw/aaer/2007/AAER-2533.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..5e7f8ef483febf8e53bb4372d6f43eb40819e6e5
Binary files /dev/null and b/raw/aaer/2007/AAER-2533.pdf differ
diff --git a/raw/aaer/2007/AAER-2533.txt b/raw/aaer/2007/AAER-2533.txt
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@@ -0,0 +1,156 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55054 / January 8, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2533 / January 8, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12523 
+      
+ 
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+    David A. Monaghan , CPA,   : 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 David 
+A. Monaghan (“Respondent” or “Monaghan”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.
+1   
+ 
+II. 
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public  interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.C. 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:  
+ 
+A. Monaghan, age 38, is and has been a cert ified public accountant holding an inactive 
+license to practice in the State of Missouri.  Monaghan served as the Vice President of Finance, the 
+most senior financial officer for Northwestern Services Group, Inc., (“NSG”), formerly a wholly 
+owned subsidiary of Northwestern Corporation (“Northwestern”), from January 2001 until June 
+2002.  Monaghan served as the Vice President of Financial Planning and Reporting for NSG from 
+June 2002 through July 2003.  
+ 
+B. Northwestern was, at all relevant times, a Delaware corporation with its principal 
+place of business in Sioux Falls, South Dakota.  Northwestern, through NSG, operated a public 
+utility business serving the Upper Midwest region.  Northwestern Communications Solutions 
+(“NCS”) was an operating division of NSG through June 2002.  At all relevant times, 
+Northwestern’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. 
+ 
+C. On December 14, 2006 a final ju dgment was entered against Respondent, 
+permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, 
+and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and 
+aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act 
+and Rules 12b-20, 13a-1 and 13a-11 thereunder, in the civil action entitled Securities and 
+Exchange Commission v. Bart A. Thielbar et al., Civil Action Number 06-4253 in the United 
+States District Court for the District of South Dakota.   
+ 
+D. The Commission’s Complaint alleged, among other things, that Respondent 
+fraudulently participated in misstating the financial statements of NCS.  The Commission’s 
+Complaint further alleged that after consolidation, these misstatements resulted in Northwestern 
+materially overstating its income for the quarter ended December 31, 2001, as reported in its 
+annual report on Form 10-K for the fiscal year ended December 31, 2001.  Specifically, the 
+Complaint alleged that Respondent instructed his subordinates to improperly reclassify 
+unsubstantiated assets to goodwill rather than making appropriate charges to the income 
+statement. 
+ 
+ 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’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondent 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.   
+ 
+      
+ 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. 
+ 
+ 
+ 
+       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/2007/AAER-2534.txt b/raw/aaer/2007/AAER-2534.txt
new file mode 100644
index 0000000000000000000000000000000000000000..540875e16ada1c894794bc72c9449d993beeb6a1
--- /dev/null
+++ b/raw/aaer/2007/AAER-2534.txt
@@ -0,0 +1,155 @@
+ 
+ 
+ UNITED STATES  OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55055 / January 8, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2534 / January 8, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12524 
+      
+ 
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+    Cary B. Griswold, CPA,   : 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 Cary B. 
+Griswold (“Respondent” or “Griswold”) 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 her and the subject matter of these 
+proceedings, and the findings contained in Section III.C. 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:  
+ 
+A. Griswold, age 29, obtained her certificat e as a certified public accountant in March 
+2001, and obtained her permit to practice in the state of South Dakota on July 1, 2002.  She served 
+as the primary staff accountant for Northwestern Communications Solutions (“NCS”), an operating 
+division of a subsidiary of Northwestern Corporation (“Northwestern”), from April 2001 until 
+August 2003.   
+ 
+B. Northwestern was, at all relevant times, a Delaware corporation with its principal 
+place of business in Sioux Falls, South Dakota.  Northwestern, through a wholly owned former 
+subsidiary, operated a public utility business serving the Upper Midwest region.  At all relevant 
+times, Northwestern’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. 
+ 
+C. On December 14, 2006 a final ju dgment was entered against Respondent, 
+permanently enjoining her from future violations of Section 13(b)(5) of the Exchange Act and Rule 
+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. Bart A. Thielbar et al.
+, Civil Action 
+Number 06-4253 in the United States District Court for the District of South Dakota.   
+ 
+  D. The Commission’ s Complaint alleged, among other things, that Respondent, at the 
+direction of her supervisors, participated in misstating the financial statements of NCS.  After 
+consolidation, these misstatements resulted in Northwestern materially overstating its income or 
+materially understating its loss in its annual report on Form 10-K for the fiscal year ended 
+December 31, 2001, and in its quarterly reports on Form 10-Q for the first two quarters of fiscal 
+year 2002.  The Complaint alleged that the Respondent improperly reclassified unsubstantiated 
+assets to goodwill rather than making appropriate charges to the income statement.  In addition, 
+the Complaint alleged that Respondent improperly recorded revenue for transactions before 
+ 3
+NCS had arrangements with customers, and recorded revenue prematurely before the revenue 
+was earned. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondent is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After two years from th e 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 register ed 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 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 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.   
+ 
+ 4
+      
+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 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/2007/AAER-2535.pdf b/raw/aaer/2007/AAER-2535.pdf
new file mode 100644
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diff --git a/raw/aaer/2007/AAER-2535.txt b/raw/aaer/2007/AAER-2535.txt
new file mode 100644
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--- /dev/null
+++ b/raw/aaer/2007/AAER-2535.txt
@@ -0,0 +1,154 @@
+ 
+ 
+ UNITED STATES  OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55056 / January 8, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2535 / January 8, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12525   
+      
+ 
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+   Jana L. Quam, CPA,   : 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 Jana L. 
+Quam (“Respondent” or “Quam”) 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 her and the subject matter of these 
+proceedings, and the findings contained in Section III.C. 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:  
+ 
+A. Quam, age 49, is and has been a certified public accountant holding an inactive 
+license to practice in the State of South Dakota.  She served as Controller of Northwestern Services 
+Group, Inc., (“NSG”), formerly a wholly owned subsidiary of Northwestern Corporation 
+(“Northwestern”), from June 1999 until June 2002. 
+ 
+B. Northwestern was, at all relevant times, a Delaware corporation with its principal 
+place of business in Sioux Falls, South Dakota.  Northwestern, through NSG, operated a public 
+utility business serving the Upper Midwest region.  Northwestern Communications Solutions 
+(“NCS”) was an operating division of NSG through June 2002.  At all relevant times, 
+Northwestern’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. 
+ 
+C. On December 14, 2006 a final ju dgment was entered against Respondent, 
+permanently enjoining her from future violations of Section 13(b)(5) of the Exchange Act and Rule 
+13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-11 thereunder, in the civil 
+action entitled Securities and Exchange Commission v. Bart A. Thielbar et al.
+, Civil Action 
+Number 06-4253 in the United States District Court for the District of South Dakota.   
+ 
+  D. The Commissi on’s Complaint alleged, among other things, that Respondent 
+participated in misstating the financial statements of NCS.  After consolidation, these 
+misstatements resulted in Northwestern materially overstating its income for the quarter ended 
+December 31, 2001, as reported in its annual report on Form 10-K for the fiscal year ended 
+December 31, 2001.  Specifically, the Complaint alleged that Respondent, at the direction of her 
+supervisor, instructed her subordinate to improperly reclassify unsubstantiated assets to goodwill 
+rather than making appropriate charges to the income statement.  
+ 
+ 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’s Offer. 
+ 
+ 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 th e 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 register ed 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 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 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 her state CPA license is 
+current and she 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/2007/AAER-2539.pdf b/raw/aaer/2007/AAER-2539.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..8d19a8fdd423afd452444369d0a256ebf373d54e
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diff --git a/raw/aaer/2007/AAER-2541.txt b/raw/aaer/2007/AAER-2541.txt
new file mode 100644
index 0000000000000000000000000000000000000000..515bb52e3f633d9e34860bdfbeec036e7f62cdcb
--- /dev/null
+++ b/raw/aaer/2007/AAER-2541.txt
@@ -0,0 +1,108 @@
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55100 / January 12, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2541 / January 12, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12536 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  Glenn E. Glasshagel,   : 102( e)(3)(i) OF THE COMMISSION’S 
+      :  RULES OF PRACTICE, MAKING 
+       : FINDINGS, AND IMPOSING  
+  Respondent.   : REMEDIAL SANCTIONS  
+      :         
+      :  
+____________________________________ :   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deem s it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Glenn 
+E. Glasshagel (“Respondent” or “Glasshagel”) 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”) whic h 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 enjoin ed 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 violati on 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 jurisd iction over him and the subject matter of these 
+proceedings, and the findings contained in S ection 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 as to 
+Glenn E. Glasshagel (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Responde nt’s Offer, the Commission finds that:  
+ 
+1. Glasshagel, age 60, was a certified public accountant licensed to practice in the 
+States of California and Illinois until 2001.  Glasshagel served as Chief Financial Officer, Principal 
+Financial Officer and Principal Accounting Officer of Roadhouse Grill, In c. (“Roadhouse”) from 
+1998 until he resigned during approximately July 2000. 
+ 
+2. Roadhouse, a Florida co rporation with its corporat e headquarters in Pompano 
+Beach, Florida, is a restaurant chain.  At all relevant times, Roadhouse was an issuer subject to the 
+reporting requirements of Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”).  
+Roadhouse was listed on the NASDAQ National Market from November 1996 until July 2001, 
+when NASDAQ halted quotations in Roadhouse’s stock after the company delayed the filing of its 
+Form 10-K for the fiscal year ended April 29, 2001.  In May 2002 , Roadhouse was delisted from 
+NASDAQ. 
+ 
+3. On July 15, 2005, the Commission filed a complaint against Glasshagel in the 
+United States District Court, Sout hern District of Florida.  [ SEC v. Glenn E. Glasshagel , Civil 
+Action No. 05-61159-Cooke].  On October 31, 2006, the court entered an order permanently 
+enjoining Glasshagel, by consent, from future vi olations of Sections 10(b) and 13(b)(5) of the 
+Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations 
+of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 
+13a-13 thereunder.  The Court also barred Glasshag el from serving as an officer or director 
+pursuant to Section 21(d)(2) of the Exchange Act. 
+ 
+ 4. The Commission’s complaint alleged, amon g other things, that from at least 1999 
+through 2000, Glasshagel violated the federal securities laws when he fraudulently manipulated 
+Roadhouse’s income by (1) making improper ad justments to the company’s expense accounts 
+and (2) recognizing fictitious revenue.  Glassh agel’s financial chicanery violated Generally 
+Accepted Accounting Principles and materially misrepresented Roadhouse’s net income in 
+financial statements filed w ith the Commission during fiscal  years 1999 and 2000.  This 
+overstatement of net income a llowed Roadhouse to meet or exceed an outside analyst’s 
+estimates.  As a result of Glas shagel’s misconduct, Roadhouse overstated its net income by at 
+least 5% for the fiscal year ended April 25, 1999, and by approximately 35% for the fiscal year 
+ended April 30, 2000.   
+ 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 Glasshagel’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondent Glasshagel is suspended from appearing or practicing before the 
+Commission as an accountant.   
+ 
+ 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/2007/AAER-2542.txt b/raw/aaer/2007/AAER-2542.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d048a418c0bc4c0b7cdd97e8ac00704a704ea4fb
--- /dev/null
+++ b/raw/aaer/2007/AAER-2542.txt
@@ -0,0 +1,1399 @@
+
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+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19969 / January 17, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2542 / January 17, 2007 
+
+  SEC v. James Charles Blue, Randy Cook and Victor Campbell , United States District Court for the District of Colorado, Civ. Action No. 07-CV-00095 REB-MEH  (D.C. January 16, 2007) 
+
+ SEC Files Financial Fraud Action Against Three Former Senior Executives of United Agri Products, a Former Subsidiary of ConAgra Foods, Inc. 
+
+ The Commission yesterday filed a civil action charging James Charles Blue, the former President and Chief Operating Officer of ConAgra Agri Products Companies, Randy Cook, the former President of North America Operations of United Agri Products ("UAP"), and Victor Campbell, UAP's former Controller, with participating in a fraudulent scheme to overstate UAP's operating results in 1999 and 2000.  The Commission's complaint alleges that the defendants' conduct at UAP, a former subsidiary of ConAgra Foods Inc., caused ConAgra to file with the Commission, and release to the public, materially false and misleading financial statements which were included in its annual reports for 1999 and 2000.  As discussed below, defendants Blue and Campbell have agreed to settle this matter without admitting or denying the allegations in the complaint. 
+
+ The Commission's complaint includes the following allegations: 
+  Blue, Cook and Campbell participated in a series of fraudulent accounting practices that included:  (1) the improper recognition of revenue from deferred delivery sales and associated rebates from its suppliers; (2) the failure to record bad debt expenses when realized; and (3) the improper recognition of revenue from advance vendor rebates.     
+
+ The defendants' misconduct caused ConAgra to materially overstate its income before income taxes by $46.7 million in fiscal 1999 and $48.5 million in fiscal 2000, an overstatement of approximately 7.35% and 7.85%, respectively.   At ConAgra's Agricultural Products' segment level, the defendants' misconduct caused that segment's reported operating profit to be overstated by 16.36% in fiscal 1999, and 34.97% in fiscal 2000.     
+
+ As a result of their misconduct, Blue, Cook and Campbell benefited by obtaining inflated bonus compensation.  Cook also received additional inflated compensation through his participation in a profit-based compensation plan.   
+  The Commission's complaint alleges that by engaging in this conduct, the defendants violated the antifraud, internal controls and books and records provisions of the federal securities laws (Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5 and 13b2-1), and aided and abetted violations of the reporting, 
+books and records, and internal controls provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20 and 13a-1).  Defendant Cook also aided and abetted violations of the antifraud provisions of the federal securities laws (Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5). 
+
+ Without admitting or denying the allegations in the complaint, Blue and Campbell have consented to the entry of final judgments that enjoin them from violating the federal securities laws described above.  Blue also has agreed to pay a total of $622,087, which includes $336,362 in disgorgement, plus $175,725 of prejudgment interest thereon, and an $110,000 civil penalty.  Campbell has agreed to pay $96,893 in disgorgement, plus $51,181 of prejudgment interest thereon, and a $50,000 civil penalty, for a total payment of $198,074.  The settlement terms are subject to court approval.  
+
+ As to Cook, the Commission's complaint seeks a permanent injunction against future violations, an officer-and-director bar, and civil penalties.  The complaint also seeks to have Cook divest all unexercised stock options, and to disgorge all ill-gotten gains along with prejudgment interest. 
+
+ The Commission's investigation in this matter is continuing. 
+
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diff --git a/raw/aaer/2007/AAER-2543.txt b/raw/aaer/2007/AAER-2543.txt
new file mode 100644
index 0000000000000000000000000000000000000000..634950648210b92783f482cddf4324051c17690d
--- /dev/null
+++ b/raw/aaer/2007/AAER-2543.txt
@@ -0,0 +1,152 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55133 / January 19, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2543 / January 19, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12542
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ DOUGLAS WACHTEL   : 102(e) OF THE COMMISSION’S RULES OF 
+ (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 Douglas 
+Wachtel (“Respondent” or “Wachtel”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+ 
+II. 
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without  preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.B.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. Wachtel, age 42, was at  all relevant times prior to February 2004 a certified 
+public accountant licensed to practice in the State of California.  He served as Controller of 
+NextCard, Inc. (“NextCard” or the “Company”) from 1998 to 2003. 
+ 
+ 2. NextCard was, at all relevant times,  a Delaware corporation with its principal 
+place of business in San Francisco, California.  NextCard was engaged in the business of issuing 
+credit cards over the Internet.  At all relevant times, NextCard’s common stock was registered with 
+the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange 
+Act”), and traded on the NASDAQ National Market.  NextCard declared bankruptcy in November 
+2002. 
+ 
+ 3. On September 28, 2004,   the Commission filed a complaint against Wachtel 
+and others entitled SEC v. Lent, et al., (Civil Action No. 04-4088 (N.D. Cal.).  On October 27, 
+2006, the court entered an order permanently enjoining Wachtel, by consent, from future violations 
+of Section 17(a) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Exchange 
+Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 13(a) and 
+13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Wachtel was 
+also ordered to pay disgorgement, prejudgment interest and civil money penalties totaling $93,223. 
+ 
+  4. The Commission’s Co mplaint alleged, among other things, that Wachtel 
+and the other defendants, all former officers of NextCard, engaged in a fraudulent scheme which 
+resulted in NextCard filing materially false and misleading financial statements in the 
+Company’s annual report on Form 10-K for the fiscal year ended December 31, 2000, and in the 
+company’s quarterly reports on Form 10-Q for the first two quarters of fiscal year 2001.  The 
+Complaint alleged that Wachtel and the other defendants failed to disclose several changes in 
+NextCard’s accounting policies, including:  (1) the reclassification of certain credit losses as 
+fraud losses; and (2) changes in NextCard’s policy for calculating its loan loss reserve.  
+According to the Complaint, as a result of these undisclosed accounting policy changes, 
+investors were misled and denied material information concerning the rising levels of losses on 
+NextCard’s credit card portfolio. 
+ 
+ 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 Wachtel’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+  A. Wachtel is suspended from appear ing or practicing before the Commission 
+as an accountant.   
+ 
+  B. After 5 years from the date of th is order, Respondent may request that 
+the Commission consider his reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he/she works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+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 
+ 4
+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 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/2007/AAER-2544.txt b/raw/aaer/2007/AAER-2544.txt
new file mode 100644
index 0000000000000000000000000000000000000000..41c883a4f0eb40b4bfd8386d61e5ae31382e0afa
--- /dev/null
+++ b/raw/aaer/2007/AAER-2544.txt
@@ -0,0 +1,1461 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
+
+     
+     
+     SEC.gov | Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith; Carl A. Allen; Donald Childers; John Crowder; Chris Jakubek; John King; Steve LeBarron; Patrick Penderghast; Frank Riggio; and Richard Vecchia 
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+              Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith; Carl A. Allen; Donald Childers; John Crowder; Chris Jakubek; John King; Steve LeBarron; Patrick Penderghast; Frank Riggio; and Richard Vecchia
+           
+     
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+        Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith; Carl A. Allen; Donald Childers; John Crowder; Chris Jakubek; John King; Steve LeBarron; Patrick Penderghast; Frank Riggio; and Richard Vecchia
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19975 / January 22, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2544 / January 22, 2007 
+
+  SEC v. Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith , Civil Action No. 07-120 (D.D.C.) (January 18, 2007) 
+
+  SEC v. Carl A. Allen , Civil Action No. 07-132 (D.D.C.) (January 18, 2007) 
+
+  SEC v. Donald Childers , Civil Action No. 07-131(D.D.C.) (January 18, 2007) 
+
+  SEC v. John Crowder , Civil Action No. 07-130 (D.D.C.) (January 18, 2007) 
+
+  SEC v. Chris Jakubek , Civil Action No. 07-129 (D.D.C.) (January 18, 2007) 
+
+  SEC v. John King , Civil Action No. 07-128 (D.D.C.) (January 18, 2007) 
+
+  SEC v. Steve LeBarron , Civil Action No. 07-127 (D.D.C.) (January 18, 2007) 
+
+  SEC v. Patrick Penderghast , Civil Action No. 07-126 (D.D.C.) (January 18, 2007) 
+
+  SEC v. Frank Riggio , Civil Action No. 07-125 (D.D.C.) (January 18, 2007) 
+
+  SEC v. Richard Vecchia , Civil Action No. 07-121 (D.D.C.) (January 18, 2007) 
+
+ SEC Charges Thirteen Individuals With Aiding and Abetting Financial Fraud at U.S. Foodservice 
+
+ 
+
+ The Securities and Exchange Commission filed enforcement actions late last week against thirteen individuals alleging they aided and abetted a massive financial fraud by signing and returning materially false audit confirmations sent to them by the auditors of the U.S. Foodservice, Inc. subsidiary of Royal Ahold (Koninklijke Ahold N.V.). All of the individuals charged, Carl Allen, Gary Bell, Donald Childers, John Crowder, Joseph Grendys, Anthony Holohan, Chris Jakubek, John King, Steve LeBarron, Patrick Penderghast, Frank Riggio, Michael Smith, and Richard Vecchia, were employees of or agents for vendors that supplied U.S. Foodservice. 
+
+ The Commission's complaints allege that U.S. Foodservice personnel contacted vendors and urged them to sign and return the false confirmation letters. In some cases U.S. Foodservice pressured the vendors; in other cases they provided side letters to the vendors assuring the vendors that they did not owe U.S. Foodservice the amounts reflected as outstanding in the confirmation letters. The letters clearly stated that the confirmations were being used in connection with the annual audit and the letters directed the defendants to return the confirmations directly to the company's auditors.  
+
+ Each of the individuals aided and abetted the fraud by signing and sending to the company's independent auditors confirmation letters that they knew materially overstated the amounts of promotional allowance income paid or owed to U.S. Foodservice. The amounts overstated in the confirmations were often inflated by millions of dollars and by more than 100%. 
+
+ Allen, Childers, Crowder, Jakubek, King, LeBarron, Penderghast, Riggio, and Vecchia have each agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to permanent injunctions and payment of a $25,000 penalty. The SEC will litigate a contested action against the remaining individuals.  
+
+ The complaints allege that U.S. Foodservice engaged in a scheme to report earnings equal to or greater than its targets, regardless of the company's true performance. U.S. Foodservice inflated its promotional allowance income by at least $700 million for fiscal years 2001 and 2002 and thereby caused Ahold to report materially false operating and net income for these periods. The annual audit confirmation process at U.S. Foodservice was systematically corrupted to help keep the fraud from being discovered. 
+
+ Related Actions 
+
+ The SEC has now filed actions against 30 individuals alleging they aided and abetted the same financial fraud by signing and returning materially false audit confirmations. Litigation Release No.  19034  (January 13, 2005), Litigation Release No.  19454  (November 2, 2005), and Litigation Release No.  19721  (June 7, 2006). For additional related actions see Litigation Release  19961  (January 8, 2007), Administrative Release No.  34-53326  (February 16, 2006), Litigation Release No.  19031  (January 11, 2005), Litigation Release No.  18929  (October 13, 2004), and Litigation Release No.  18797  (July 27, 2004). 
+
+ 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 Complaints in this matter:  Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith   Carl A. Allen   Donald Childers   John Crowder   Chris Jakubek   John King   Steve LeBarron   Patrick Penderghast   Frank Riggio   Richard Vecchia  
+
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diff --git a/raw/aaer/2007/AAER-2545.txt b/raw/aaer/2007/AAER-2545.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5fad9e0cdb20ca9fcda1b97d2953ff0044cd44a8
--- /dev/null
+++ b/raw/aaer/2007/AAER-2545.txt
@@ -0,0 +1,158 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55149 / January 23, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2545 / January 23, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12544 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+SUZANNE BROWN, CPA 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING ADMINISTRATIVE 
+PROCEEDINGS PURSUANT TO RULE 102(e) 
+OF THE COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS 
+  
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Suzanne 
+Brown, CPA (“Respondent” or “Brown”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules 
+of Practice.1
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings  
+herein, except as to the Commission’s jurisdiction over her and the subject matter of these 
+proceedings, and the findings contained in Section III.4 below, which are admitted, Respondent 
+                                                 
+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.  
+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. Suzanne Brown, age 40, is and has been a certified public accountant licensed to 
+practice in the State of Pennsylvania.  She served as Corporate Controller of U.S. Foodservice, Inc. 
+(“USF”) in its Columbia, Maryland headquarters.  Brown joined USF in July 1998, and served as 
+an Assistant Controller until her promotion to Controller in late 2001.   
+ 
+ 2. Royal Ahold (Koninklijke Ahold N.V. ) (“Ahold”) is a publicly-held company 
+organized in the Netherlands with securities registered with the Commission pursuant to Section 
+12(b) of the Securities Exchange Act of 1934 (“Exchange Act”).  Ahold’s common stock trades in 
+the United States on the New York Stock Exchange under the symbol AHO as evidenced by 
+American Depositary Receipts. 
+ 
+ 3. USF, a foodservice and distribution company wi th headquarters in Columbia, 
+Maryland, is a wholly-owned subsidiary of Ahold. 
+ 
+4. On January 11, 2007, a fina l judgment was entered against Brown, permanently 
+enjoining her from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 
+10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13b2-2 thereunder, in the civil 
+action entitled Securities and Exchange Commission v. Suzanne Brown, Civil Action Number 07-
+0038, in the United States District Court for the District of Columbia.  Brown was also ordered to 
+pay a $100,000 civil penalty. 
+ 
+5. The Commission’s complaint alleged,  among other things, that Brown and 
+executives of USF engaged in a large-scale fraud that, for fiscal years 2001 and 2002, materially 
+overstated income by approximately $700 million in Commission filings and other public 
+announcements.  The Complaint further alleged that Brown, in conjunction with USF executives, 
+made or directed others to make entries, including releases of reserves and accruals, in USF’s 
+books and records that she knew, or was reckless in not knowing, were false, without basis in fact, 
+and did not comply with Generally Accepted Accounting Principles.  The Complaint also alleged 
+that Brown, in conjunction with USF executives, provided Ahold’s independent auditors with false 
+and/or misleading information in connection with their reviews and audit of USF’s financial 
+statements. 
+ 
+   
+ 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 Brown’s Offer. 
+ 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Brown is suspended from appearin g or practicing before the Commission as 
+an accountant. 
+ 
+ B. After five (5) years from the date of this Order, Respondent may request 
+that the Commission consider 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 pe rson responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such an 
+application must satisfy the Commission that Respondent’s work in 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 pu blic 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; and  
+ 
+  (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 her re sponsibility, as long as Respondent 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards. 
+ 
+ C. The Commission will consider an a pplication by Respondent to resume 
+appearing or practicing before the Commission provided that 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 
+ 3
+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. 
+ 
+ 
+  Nancy M. Morris 
+  Secretary 
+  
+ 4
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2547.txt b/raw/aaer/2007/AAER-2547.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4878f958a280b4e87b6dc8ac10292758a66ffeed
--- /dev/null
+++ b/raw/aaer/2007/AAER-2547.txt
@@ -0,0 +1,1406 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19982 / January 29, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2547 / January 29, 2007 
+
+  SEC v. MBIA Inc. , 07 Civ. 658 (JGK) (SDNY), January 29, 2007 
+
+ MBIA to Pay $50 Million to Settle Securities Fraud Charges for Misuse of Reinsurance Contracts 
+
+ 
+
+ On January 29, 2007, the Securities and Exchange Commission announced today that it filed a settled civil action in the United States District Court for the Southern District of New York alleging securities fraud charges against MBIA Inc., one of the nation's largest insurers of municipal bonds, arising out of a sham reinsurance transaction that was restated in 2005, which the Company had previously entered into to avoid having to recognize a $170 million loss. MBIA suffered the loss when, in 1998, the Allegheny Health, Education and Research Foundation ("AHERF") defaulted on bonds guaranteed by MBIA and MBIA was forced to make good on its guarantee. MBIA addressed analyst concerns about its expected losses on the AHERF bonds by representing that it had obtained reinsurance to cover them. In fact, MBIA had agreed through concessions on other reinsurance agreements to compensate the reinsurers for the losses they were certain to incur on the AHERF contracts. The improper use of the reinsurance contracts enabled MBIA to convert what would otherwise have been the company's first-ever quarterly loss into a profit and reverse the decline in MBIA's stock price. 
+
+ Under the settlement, MBIA consents to the entry of a final judgment directing it to pay a $50 million penalty plus $1 in disgorgement and, in a related administrative proceeding, consents to a cease-and-desist order and to retain an independent consultant to examine a number of other specified transactions to which MBIA was a party. 
+
+ The Commission's complaint, filed today, alleges that MBIA learned in 1998 that AHERF would default on $256 million of municipal bonds that MBIA had guaranteed, which would have resulted in MBIA's first-ever quarterly loss. To mask the financial effect of this loss, MBIA's then-senior management devised a scheme to obtain reinsurance that would cover the entire net present value of the anticipated loss, or about $170 million, for a nominal premium. The effect was to offset the entire $170 million loss MBIA recorded in the third quarter with a roughly equivalent reinsurance recovery, thus converting a loss in the quarter to an apparent gain. 
+
+ The AHERF reinsurance consisted of three contracts under which the reinsurers agreed to provide coverage of up to $170 million for the AHERF loss. In order to pass scrutiny with MBIA's accountants and obtain their approval for the desired accounting treatment, these contracts were written as if it was unclear whether the reinsurers would have to pay out under them. In fact, however, MBIA and the reinsurers knew that the reinsurers would be called upon to pay, making the $170 million received by MBIA from the reinsurance companies ineligible for reinsurance accounting. 
+
+ MBIA reimbursed the reinsurers for the $170 million they paid to MBIA by entering into other reinsurance agreements on hundreds of millions of dollars of future MBIA business. Although the reinsurers undertook some risk under these other agreements, they were nevertheless reimbursed for their payments to MBIA on the AHERF contracts because the other agreements entailed so much premium and so little risk to the reinsurers. 
+
+ In addition, MBIA secretly entered a side agreement with one of the reinsurers whereby it orally agreed to re-assume virtually all of the risk given to the reinsurer on the future business, leaving the reinsurer with all the premiums and virtually no risk. 
+
+ In March 2005, MBIA restated $70 million related to these agreements, after an internal investigation concluded that it appeared likely that the oral side agreement existed. In November 2005, MBIA restated the remaining $100 million. 
+
+ In connection with the settlement, MBIA has agreed, without admitting or denying the allegations in the Commission's complaint, to pay a $50 million penalty, plus $1 in disgorgement. In a related administrative proceeding, MBIA has agreed, without admitting or denying the Commission's findings, to the issuance of a cease-and-desist order that requires MBIA to cease and desist from further violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11,13a-13, and 13b2-1 thereunder, and to comply with various undertakings, including an undertaking to retain an independent consultant to examine a number of specified transactions. The corporate penalty in this case was negotiated before the Commission issued its Statement Concerning Financial Penalties ( http://www.sec.gov/news/press/2006-4.htm ). The Commission has therefore elected not to apply that Statement to this corporate penalty. 
+
+ The Commission acknowledges the assistance of the New York Attorney General in connection with this matter. 
+
+ 
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+   SEC Complaint in this matter ;  Administrative Proceeding No. 33-8776  
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diff --git a/raw/aaer/2007/AAER-2548.txt b/raw/aaer/2007/AAER-2548.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fc480798ec7dae3bd1989313e4e3624079416339
--- /dev/null
+++ b/raw/aaer/2007/AAER-2548.txt
@@ -0,0 +1,780 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No.  8776 / January 29, 2007 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55184 / January 29, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2548 / January 29, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12551 
+In the Matter of 
+MBIA Inc., 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT 
+OF 1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+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 MBIA Inc. (“MBIA”). 
+II. 
+In anticipation of the institution of these proceedings, MBIA 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 it and the subject matter of these proceedings, which are 
+admitted, MBIA consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 
+Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities 
+Act of 1933 and Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+III. 
+On the basis of this Order and MBIA’s Offer, the Commission finds1 that: 
+SUMMARY 
+1. This proceeding arises out of a fraudulent transaction that MBIA executed to mask 
+the true financial impact of a massive loss it suffered on its guarantee of municipal bonds.  In 1998, 
+MBIA learned that it would have to make good on its guarantee of $256 million of bonds issued by 
+a set of hospitals owned by the Allegheny Health, Education and Research Foundation 
+(“AHERF”), which had defaulted.  The default would have resulted in the first quarterly loss in 
+MBIA’s corporate history.  To counter the potential negative market reaction, senior MBIA 
+executives devised a scheme to obtain retroactive reinsurance that would cover the entire net 
+present value of the anticipated loss, or about $170 million, for a nominal premium.  The effect of 
+the transaction was to offset the entire $170 million loss MBIA recorded on its income statement in 
+the third quarter of 1998 with a roughly equivalent reinsurance recoverable, thus masking the 
+AHERF loss and converting a quarterly loss into a gain.  The transaction was a sham. 
+2. MBIA entered into three purported reinsurance contracts under which the reinsurers 
+agreed to provide retroactive coverage of up to $170 million for the AHERF loss (the “excess of 
+loss” or “reinsurance” contracts).  The excess of loss contracts were written as if it was unclear 
+whether the reinsurers would have to provide the full amount of the agreed upon coverage, and 
+MBIA’s files were likewise papered to make this appear to be the case.  This purported uncertainty 
+about the extent of the reinsurers’ payout to MBIA was critical to the desired accounting.  To the 
+extent that the reinsurers’ payments under the excess of loss contracts were not expected to vary 
+significantly, such payments could not be treated as reinsurance for accounting purposes, and 
+MBIA would not be able to mask the effect of the AHERF loss on its income statement by 
+offsetting the reinsurance recoveries against the loss.  In fact, MBIA expected that the reinsurers 
+would be called upon to pay out under the excess of loss contracts. 
+3. Because the reinsurers expected to pay out under the reinsurance contracts, they 
+protected themselves against loss on the transaction by entering into separate agreements by which 
+MBIA agreed to cede to them future business (the “quota share contracts”).  The quota share 
+contracts, which covered a significant percentage of MBIA’s portfolio, ceded to the reinsurers 
+hundreds of millions of dollars in premiums on future business.  Although the ceding contracts did 
+not on their face constitute compensation to the reinsurers (because the reinsurers were undertaking 
+some limited risk associated with the ceded premiums), in substance, they were compensation, 
+because the contracts ceded so little risk associated with the amount of premium received.  Indeed, 
+in the case of one reinsurer, which had agreed to pay $70 million of MBIA’s AHERF loss, MBIA 
+ceded $101 million in net premiums (representing $13 billion of underlying insurance risk), but 
+then secretly agreed to re-assume all but $13 million of the risk in an oral side agreement, leaving 
+The findings herein are made pursuant to MBIA's Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding. 
+2
+1 
+the reinsurer with all the ceded premium and virtually no risk. With respect to the other two 
+reinsurers, which each paid $50 million of the AHERF loss, MBIA ceded a tremendous volume of 
+business based upon a formula that virtually assured that the reinsurers would be repaid in full for 
+their payments under the excess of loss contracts, even taking into account the risk they would be 
+undertaking on the ceded business.   
+4. In September 2004, the reinsurer with the oral side agreement sued MBIA to 
+enforce the side agreement. The lawsuit led to an investigation by the Audit Committee of 
+MBIA’s Board of Directors, which concluded, in March 2005, that “it appears likely that such an 
+[oral side] agreement” existed, and resulted in MBIA’s restatement of its consolidated financial 
+statements for the years 1998 through 2003.  However, MBIA restated only the $70 million of 
+reinsurance associated with the side agreement.  It did not restate the remaining $100 million, 
+which was improperly accounted for and which had been the subject of numerous misleading press 
+releases and periodic filings. 
+5. As a result of the foregoing conduct, MBIA, directly and indirectly, has violated 
+Sections 17(a) of the Securities Act of 1933 (“Securities Act”), and Sections 10(b), 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rules 
+10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-1 thereunder. 
+RESPONDENT 
+6. MBIA Inc. is a Connecticut corporation headquartered in Armonk, New York.  
+Through its principal operating subsidiary, MBIA Insurance Corporation (“MBIA Corp.”), the 
+company is a leading financial guarantor and provider of specialized financial services.  MBIA 
+Corp. has a financial strength rating of Triple-A from Moody’s Investors Service, Standard & 
+Poor’s Ratings Services, Fitch Ratings, and Rating and Investment Information, Inc.  MBIA’s 
+common stock trades on the New York Stock Exchange and it files periodic reports with the 
+Commission pursuant to Section 13 of the Exchange Act. 
+OTHER RELEVANT ENTITIES 
+7. AHERF is a nonprofit operator of hospitals in Pennsylvania.  In 1996, MBIA 
+guaranteed $256 million of bonds issued by a set of AHERF-owned hospitals known as the 
+Delaware Valley Obligated Group (“AHERF bonds”).  
+8. Axa Re Finance (“Axa”) is an indirect subsidiary of Axa SA, an insurance group 
+and asset management company headquartered in Paris, France.  Axa SA’s American Depository 
+Receipts trade on the New York Stock Exchange under the symbol AXA.  One of Axa SA’s 
+primary subsidiaries is Axa Re, which focuses on the property and catastrophe reinsurance 
+business.  Axa is a wholly-owned subsidiary of Axa Re that was formed in 1997 to expand Axa 
+Re’s presence in the financial guarantee markets.  
+9. Muenchener Rueckversicherungs-Gesellschaft AG (“Munich”) is a German 
+corporation whose core businesses are reinsurance, primary insurance and asset management.  
+3
+
+ 10. Zurich Reinsurance (North America), Inc. (“Zurich”), was, at the relevant time, 
+a subsidiary of Zurich Financial Services Group, a Switzerland-based insurance and financial 
+services company.  Zurich is now known as Converium Reinsurance (North America) Inc., and is 
+part of Converium Holding AG, an independent international multi-line reinsurer with 
+headquarters in Switzerland. 
+MBIA Engaged in a Fraudulent Scheme to Mask the Effect of the  
+AHERF Loss On Its Earnings 
+11. The AHERF loss was a significant event for MBIA.  Not only was it the first 
+sizeable loss in its history, but the loss exceeded MBIA’s unallocated loss reserves by about $100 
+million and was the subject of intense market concern.  MBIA designed the AHERF reinsurance 
+transaction specifically to address the anticipated market reaction by masking the effect of the loss 
+on earnings.  Ultimately, MBIA achieved the desired income statement effect by entering into an 
+excess of loss contract and one or more quota share contracts with each of three reinsurers, the key 
+monetary terms of which are summarized below. 
+ Cou nterparty Excess of Loss Coverage Quota Share Contract  
+       G ross Premiums
+ Munich  $50 million   $98 million 
+        ($28 million to be 
+        paid in fourth quarter 1998) 
+Axa   $50 million   $97 million 
+($60 million to be paid 
+        by March 31,1999) 
+Zurich   $70 million   $145 million ($101.5 million net)      
+Total: $170 million coverage $340 million gross ceded premium 
+12. The quota share contracts were carefully devised to fully compensate the reinsurers 
+for the amounts they expected to pay under the excess of loss contracts.  In addition, they were 
+structured and documented so as to pass scrutiny by MBIA’s auditor.  Specifically, certain aspects 
+of the quota share contracts were changed or omitted and made the subject of separate, and in some 
+instances secret, side deals.  
+4
+
+MBIA’s Business: Writing to a “Zero-Loss” Standard 
+13. MBIA, primarily through its subsidiary MBIA Corp., is and was at all relevant 
+times, engaged in providing financial guarantee insurance for municipal and other government 
+bonds and for structured finance obligations.  Financial guarantee insurance provides an 
+unconditional and irrevocable guarantee of payment, when due, of the principal and interest or 
+other amounts owing on insured obligations.  The value of MBIA’s guarantee is dependent on its 
+credit rating, which historically has been Triple-A.  That Triple-A rating in turn is dependent on 
+MBIA’s financial condition and its ability to control its losses. 
+14. Because MBIA underwrites to a “zero loss” standard, the chance of a loss on 
+account of a default on the issues it guarantees is, by design, typically small.  According to MBIA,  
+“[e]very transaction [the company] look[s] at is structured to a no-loss standard to avoid losses 
+even under the worst probable case scenario.”  Therefore, although a loss, even a significant one, 
+was possible, the company operated using a business model that assumed there would be no such 
+losses, and at the relevant time, its history demonstrated that such losses were rare. 
+The AHERF Loss and Its Effect on MBIA’s Stock Price 
+15. In 1996, the AHERF bonds were issued, with MBIA’s guarantee.  The AHERF 
+bonds were not general obligation bonds backed by tax revenues.  By the spring of 1998, it was 
+apparent that AHERF was in financial distress and that MBIA would have to make good on its 
+guarantee.  As a result, the investment community was concerned about the possible negative 
+impact on MBIA resulting from its AHERF exposure.  This concern was exerting downward 
+pressure on MBIA’s stock price, which fell from a high of $77.94 in April 1998 to a low of $67.62 
+on June 15, 1998. 
+16. On July 21, 1998, AHERF filed for bankruptcy protection, and MBIA issued a 
+press release stating that the AHERF bankruptcy would have no impact on its earnings because 
+“the company’s unallocated loss reserve [of approximately $75 million] will be sufficient to meet 
+anticipated losses.”  The market remained concerned, and MBIA’s stock price continued to fall.  
+On September 2, 1998, AHERF announced that its 1997 financial statements would be restated and 
+should not be relied upon.  By September 10, 1998, the price of MBIA’s stock had fallen to 
+$46.30. 
+17. It was in this context that senior MBIA executives negotiated and executed the 
+excess of loss and quota share contracts, for the purpose of masking the effects of the AHERF loss 
+on MBIA’s earnings and thus allaying the market’s concern.  The contracts were negotiated, 
+structured, and documented by MBIA’s then-chief executive officer and chairman of the board 
+(“CEO”) and its then-chief financial officer and later special assistant to the chairman (“CFO”). 
+18. MBIA first announced a reinsurance solution during an investor call on September 
+11, 1998, and the news had an immediate positive impact on MBIA’s stock price.  By the close of 
+business on September 11, the price had climbed to $52.09 from $46.30 the day before.  
+Ultimately, in a September 29, 1998 press release, MBIA announced that it had obtained $170 
+5
+
+ 
+million in reinsurance for its anticipated AHERF loss and that as part of the reinsurance 
+agreements it had “entered into strategic business relationships with highly rated reinsurers to 
+provide them with future business.”  MBIA did not identify the reinsurers or provide details of the 
+“strategic business relationships.”  After the issuance of this press release, and through the filing of 
+MBIA’s third quarter earnings release and Form 10-Q in mid-November, MBIA’s stock price 
+recovered so that by year end it was trading in the mid-$60s. 
+19. The July press release and the September conference call and press release were 
+deliberately or recklessly misleading.  When the July release was issued, MBIA’s own internal 
+analysis was that the AHERF loss would likely exceed its unallocated loss reserves.  When MBIA 
+announced in the September conference call and the September press release that the loss would be 
+covered by reinsurance, it knew that the excess of loss contracts were not agreements subject to 
+reinsurance accounting but were in substance loans, and that the “strategic business relationships” 
+were mechanisms designed to fully compensate the reinsurers for the amounts they had paid under 
+the excess of loss contracts. 
+The Terms of the AHERF “Reinsurance” Arrangement and  
+the Applicable Accounting Principles          
+20. The essence of the reinsurance arrangement was that Munich, Axa and Zurich each 
+agreed to “reinsure” a portion of the AHERF loss retroactively, i.e., to pay MBIA for a loss that it 
+had already incurred, in return for premiums on future MBIA business.  The reinsurance 
+arrangements took the form of excess of loss contracts, which were organized into three layers, 
+with Munich bearing responsibility for the first $50 million of the AHERF loss, Axa responsible 
+for a second $50 million layer, and Zurich responsible for a third $70 million layer.  (In an excess 
+of loss reinsurance contract, a reinsurer pays its insured when the insured’s loss is in “excess” of a 
+set amount.)  In return, MBIA agreed to pay the three insurers a nominal premium for the excess 
+of loss contracts, and agreed to provide the reinsurers with, or “cede,” future business, with total 
+gross premiums of $340 million, under quota share contracts.  (In a typical quota share contract, 
+the reinsurer takes on a percentage of risk for a percentage of the premium, minus the expenses of 
+the company providing, or “ceding,” the risk and associated premiums.) 
+21. To achieve the desired accounting treatment, which would permit MBIA to offset 
+the $170 million AHERF loss with the $170 million reinsurance gain in the third quarter, MBIA 
+knew that the excess of loss contracts had to transfer insurance risk on the date they were agreed 
+upon. The applicable GAAP is Statement of Financial Accounting Standards Number 113, 
+Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts ("FAS 
+113"). Paragraph 9 of FAS 113 sets out the requirements for transferring insurance risk:  
+a. The reinsurer assumes significant insurance risk under the reinsured 
+portions of the underlying insurance contracts[; and]  
+b. It is reasonably possible that the reinsurer may realize a significant loss from the 
+transaction. 
+6
+
+A reinsurer shall not be considered to have assumed significant insurance risk under the 
+reinsured contracts if the probability of a significant variation in either the amount or 
+timing of payments is remote.    
+22. In addition, even if there had been sufficient variability as to the timing and amount 
+of payments under the excess of loss contracts, to qualify for reinsurance accounting MBIA knew 
+that it also had to be “reasonably possible that the reinsurer[s] [might] realize a significant loss on 
+the transaction.”  To make that determination, the reinsurer's exposure and compensation on all the 
+applicable agreements had to be considered.  FAS 113, according to FASB Staff Implementation 
+Guide on FAS 113, requires that:  
+[F]eatures of the contract or other contracts or agreements that directly or indirectly 
+compensate the reinsurer or related reinsurers for losses be considered in evaluating 
+whether a particular contract transfers risk.  Therefore, if agreements with the reinsurer or 
+related reinsurers, 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. (See EITF Topic No. D-34, question 13) 
+If, as was the case, it was not reasonably possible that the reinsurers would realize a significant loss 
+on the arrangement, the payments under the excess of loss contracts could not be treated as 
+reinsurance but rather would have to be accounted for as deposits. 
+23. In fact, the AHERF reinsurance arrangement failed the FAS 113 test because 
+MBIA knew that its estimate of the loss was at least the amount of the reinsurance coverage, and 
+each reinsurer expected to pay the full amount of its commitment.  That fact alone meant that the 
+arrangement could not be treated as reinsurance, even when combined with the quota share 
+contracts. And because the quota share contracts were designed to compensate the reinsurers for 
+their payments under the excess of loss contracts, it was not reasonably possible that the reinsurers 
+would realize a significant loss on the excess of loss contracts.   
+MBIA’s Misleading Announcements About the Impact of AHERF 
+24. On July 20, 1998, just one day before AHERF filed for bankruptcy protection, 
+MBIA’s surveillance department, which was responsible for preparing loss estimates for senior 
+management, prepared a memorandum advising MBIA’s president on reserving alternatives and 
+press strategy regarding AHERF.  The memo stated: 
+We think $95-100MM – half way between the (highly unlikely) best case [of $57 
+million] and the much more likely worst stress case [of $136 million] is an 
+appropriate starting point.  We would expect that it is more likely than not we 
+would have to ratchet the loss estimate up over the estimated two years it will take 
+for the bankruptcy case to play out.  On the other hand, the presence of four current 
+bidders may give us a better outcome than currently expected.  Accordingly, 
+choosing a half-way number seems like a reasonable course at this point.    
+7
+
+25. The president and the CEO rejected the surveillance department’s recommendation 
+for a $95-$100 million reserve.  They did so because the figure exceeded MBIA’s unallocated loss 
+reserves, a fact that they did not want to disclose to the market.  If MBIA announced its actual 
+estimate of the loss, it would have had to disclose in its Form 10-Q for the second quarter, which 
+was being prepared at the time, that the company expected its loss on AHERF to exceed its 
+unallocated loss reserve.   
+26. On July 21, MBIA issued a press release, approved by the president and the CEO, 
+which stated that MBIA expected that its unallocated loss reserve (then approximately $75 million) 
+would “be sufficient to meet anticipated losses from the bankruptcy filing,” without any 
+explanation of that conclusion.  As a result, according to the release, “the company [did] not expect 
+losses from this insured credit to affect its earnings.”  
+27. The July 21 press release was false because it implied that MBIA’s exposure on 
+AHERF was less than $75 million, when in fact the company’s own surveillance department was 
+anticipating a loss perhaps as much as $136 million, and was recommending a reserve amount of 
+$95-100 million, far in excess of $75 million.  
+28. On August 4, 1998, MBIA issued its second quarter earnings release.  In the 
+release, the CEO was quoted as saying that the company’s unallocated loss reserves “will be 
+adequate to handle the AHERF loss.”  This statement was restated essentially verbatim in MBIA’s 
+Form 10-Q for the quarter ended June 30, 1998, filed on August 14, 1998, in a note on subsequent 
+events meriting mention. This statement was also incorporated in a prospectus MBIA filed on 
+September 28, 1998 in connection with a $150 million debenture offering, and in a later filing.  
+The CEO had no reasonable basis to make such a statement because MBIA had no estimate of loss 
+other than the surveillance department’s suggested reserve of $95-100 million.  
+29. On September 1, the day before MBIA entered into the excess of loss contracts with 
+Munich and Axa, MBIA senior executives received a briefing on the status of AHERF from the 
+surveillance department.  At that briefing, they were told that “[a]t expected Ch. 11 auction sales 
+ranges of $500-650 [million], MBIA will suffer a [net present value] loss of $100-150 [million] on 
+[its AHERF bond] exposure of $256 million net.” Thus, by the eve of September 2, 1998, the 
+earliest date by which MBIA claims to have reached agreements in principle to the purported 
+reinsurance agreements with Munich and Axa, MBIA’s loss estimates had climbed to 
+approximately $100-150 million.   
+30. On September 11, 1998, MBIA held a conference call for the stated purpose of 
+addressing “the sharp and precipitous decline in MBIA’s stock price over the last two weeks.”  That 
+call, which had over 250 participants from major investment banks and institutional investors, 
+specifically addressed, among other things, the AHERF situation.  On the call, the president and the 
+CEO made several statements about reinsurance the company was in the process of arranging to 
+cover its AHERF exposure, including the following: 
+8
+
+!	 “we have been making arrangements, not yet finalized, in the reinsurance marketplace 
+which at very little cost has the effect of more than doubling the general loss reserve.”    
+!	 although the AHERF situation was “fluid,” MBIA “continue[s] to believe that after the 
+arrangements we are making as to reinsurance .  .  .  , the unallocated reserve that we 
+have at present will cover any losses that will be incurred by MBIA as a result of 
+[AHERF.]”   
+!	 MBIA “did not believe there would be any earnings impact from [AHERF.]”   
+31. The statements in paragraph 30 were false because MBIA knew that the excess of 
+loss contracts were not agreements subject to reinsurance accounting but were in substance loans. 
+32. The statements by MBIA’s senior executives had the desired effect on the market.  
+MBIA’s stock price rose 12.4% over the previous day’s close of $46.30 to $52.03, and remained in 
+the $50s through the end of September.  
+The Negotiations with the Reinsurers 
+33. The quota share contracts ultimately reached with the reinsurers took advantage of 
+the unusually low-risk, high-return nature of the financial guarantee business.  MBIA’s business 
+model, based on a “zero loss” underwriting standard, was exceedingly profitable.  Historically, 
+most of MBIA’s insureds, such as municipalities, other government entities and private issuers of 
+structured finance obligations, were able to make all principal and interest payments from reliable 
+sources of revenue, such as general tax revenues and private consumer receipts.  Moreover, unlike 
+traditional insurance, the entire amount of the premium on most municipal and other government 
+entity guarantee insurance is paid up front, when the policy is written.  Thus, in ceding business to 
+the reinsurers, MBIA was in reality ceding an expected profit stream on a low-risk business. 
+34. Moreover, to make certain that the reinsurers would be reimbursed through the 
+quota share contracts, MBIA agreed to modify its usual ceding commission, which is the amount 
+the ceding insurer (MBIA) typically charges a reinsurer for ceding business.  The “ceding 
+commission” is typically a fixed percentage of the gross premium ceded.  MBIA’s standard ceding 
+commission was 32.5%; that is, MBIA usually retained 32.5% of the gross premiums it ceded to its 
+reinsurers. But in the quota share contracts with Munich and Axa, MBIA used a sliding scale 
+commission.  For both Munich and Axa, MBIA agreed to lower its standard ceding commission 
+from 32.5% to 17.5%, depending on the amount of losses the companies incurred on the risks they 
+assumed. The sliding scale commission was a mechanism to help protect the profit that the 
+reinsurers expected from the quota share contracts. 
+35. MBIA’s auditor reviewed the Munich and Axa quota share contracts to determine 
+whether it was “reasonably possible that the reinsurer [might] realize a significant loss from the 
+transaction,” when the excess of loss contract was combined with the quota share contract.  The 
+auditor advised MBIA senior executives that its quota share contracts with Munich and Axa as 
+initially proposed did not pass the FAS 113 test.  As a result, the agreements were changed and 
+certain aspects were made the subject of separate agreements. 
+9
+
+The Negotiations with Munich 
+36. The negotiations with Munich began in late July, 1998.  From the beginning, 
+Munich assumed that it would be paying the full $50 million on the excess of loss contract.  As a 
+result, the negotiations focused on the quota share contracts and making certain that Munich would 
+be fully reimbursed.  Under the initial quota share proposal, MBIA was to cede $98 million in 
+premiums to Munich with a sliding scale commission.  MBIA also agreed that the premiums would 
+be ceded on a facultative basis – that is that Munich could choose from among the business MBIA 
+sought to cede to it, unlike a typical quota share contract in which the contract identifies the types 
+of risk the reinsurer has agreed to accept and the insurer has agreed to cede, but does not allow the 
+reinsurer to reject any risk of the type agreed upon.  By having the right to select only the risks it 
+wanted, Munich minimized its risk even further.    
+37. MBIA’s auditor rejected the initial proposal because “the way it is currently 
+structured there is no reasonable chance that [Munich] would lose money.”  The auditor indicated 
+that in order to pass the risk transfer requirements, the premium ceded under the quota share 
+contract with a sliding scale could not be more than $70 million.   
+38. Because they knew that $70 million would not be sufficient compensation for 
+Munich, the MBIA senior executives proposed that MBIA and Munich enter into two agreements, 
+the first for $70 million, which the auditor had indicated would pass the FAS 113 test, and a second 
+that ceded $28 million in additional premiums.  This second quota share agreement did not have a 
+sliding scale, but provided that all premiums would be paid before the end of 1998.  With that 
+feature, the two contracts effectively achieved the objective of providing adequate compensation to 
+Munich. And under the analysis MBIA’s auditor employed, there was virtually no chance that 
+Munich would lose money on the deal. 
+The Negotiations with Axa 
+39. MBIA also began to negotiate the quota share contract with Axa in July.  By the 
+end of August, Axa expected that it would have to pay at least $30 million of its excess of loss 
+contract. Axa also knew, however, that there was a substantial chance that it may need to pay the 
+full $50 million due under the excess of loss contract.   
+40. To ensure that Axa would be fully compensated in either event, MBIA and Axa 
+agreed that MBIA would cede $60 million in premiums with a sliding scale commission under the 
+excess of loss contract.  Of this $60 million, $23 million was to be ceded by March 30, 1999.  In 
+addition, senior MBIA and Axa executives proposed what they referred to as a “gentlemen’s 
+agreement,” which initially had a “springing quota share” feature, as well as a sliding scale 
+commission. Under the “gentlemen’s agreement,” MBIA agreed to cede an additional $37 million 
+in premiums if Axa had to pay more than $30 million on the excess of loss contract. 
+41. The MBIA and Axa senior executives had planned not to memorialize this 
+“gentlemen’s agreement.”  However, MBIA’s auditor learned about the “gentlemen’s agreement,” 
+and initially said that the arrangement could be part of the written contract.  But after reviewing a 
+10
+
+draft of the quota share agreement with the “springing” provision included, it said that such a 
+provision could not be part of the written contract. 
+42. Axa and MBIA therefore entered into a quota share contract for $60 million.  On 
+that basis, MBIA’s auditor approved reinsurance accounting for the reinsurance arrangement with 
+Axa. 
+43. MBIA and Axa also entered into the “gentlemen’s agreement” that the auditor had 
+rejected. This oral side agreement provided Axa with an additional $37 million in premiums, also 
+with a sliding scale commission.  By the time the agreement was memoralized in December 1998, 
+the “springing” feature was dropped, because it was known that Axa would have to pay the full 
+$50 million under the excess of loss contract.  It was also agreed that the entire $37 million was to 
+be ceded by the end of the month.  Consequently, of the $97 million in total premiums ceded to 
+Axa, $60 million was to be ceded by March 30, 1999.    
+The Announcement of the Reinsurance Solution and Its Impact on Earnings 
+44. On September 29, 1998, the bankruptcy court conducted an auction of AHERF’s 
+assets. The auction resulted in gross proceeds of $345 million.  From this amount, MBIA later 
+claimed that it was able to estimate a $170 million net loss on AHERF.  Also on September 29, 
+MBIA issued a press release entitled “MBIA Announces Exposure to Bankrupt Pennsylvania 
+Hospital Group to be Covered by Reinsurance Agreements; Expects no Impact on Earnings.”  In 
+the press release, MBIA announced that it had “obtained $170 million of reinsurance that it expects 
+will cover anticipated losses arising from [AHERF].”   
+45. The September 29 release was false.  On September 2, the earliest date by which 
+MBIA claims to have reached agreements in principle with Munich and Axa for excess of loss 
+coverage on the first $100 million of its AHERF exposure, MBIA and the reinsurers knew that the 
+best estimate of MBIA’s loss was at least $95 to $100 million.  Because there was no uncertainty 
+as to the amount the reinsurers would pay, the excess of loss contracts did not transfer any risk 
+under FAS 113. Moreover, the reinsurers expected to be fully compensated for their payouts, 
+which also precluded reinsurance accounting under FAS 113.   
+The Trouble with Zurich and the Secret Side Agreement 
+46. After MBIA issued the September 29 press release, the purported deal between 
+MBIA and Zurich collapsed as a result of issues raised by MBIA’s auditor. This ultimately led to 
+significant changes in the written contracts, and to the secret side agreement between Axa and 
+MBIA relating to Zurich. 
+47. The negotiations with Zurich began in August.  By September 28, Zurich and 
+MBIA had exchanged a draft that provided both excess of loss coverage on AHERF and a quota 
+share feature.  The most prominent feature of the initial draft was that the agreement limited 
+Zurich’s exposure by capping its losses on the quota share contract. 
+11
+
+48. By mid–to–late October, MBIA’s auditor advised that for the company to obtain 
+the desired accounting treatment, the caps on Zurich’s losses on the quota share had to be removed.  
+However, MBIA senior executives knew that Zurich would not accept more risk.       
+49. Thus, by that time, there was no Zurich deal.  However, in its September 29 press 
+release, MBIA had already told the market that it had three reinsurers lined up to reimburse it for 
+losses relating to AHERF. Accordingly, the CFO, with the CEO’s knowledge and approval, set 
+about salvaging the Zurich layer of the excess of loss by arranging for another reinsurer to assume 
+the bulk of  Zurich’s risk on the quota share.   
+50. As it happened, the unraveling of the Zurich deal coincided with a planned 
+gathering for MBIA and Axa senior executives at a resort in Portugal, which occurred from 
+October 26 through 28.  The CEO and CFO attended for MBIA, and Axa’s CEO and Chief 
+Operating Officer attended along with its chairman, who was also the chairman and CEO of Axa’s 
+parent company. 
+51. In Portugal, the CFO approached Axa about assuming Zurich’s risk under the quota 
+share contract for a nominal premium.  Axa said it would only do so if another reinsurer could be 
+found to relieve it of that risk as it built on Axa’s books, because even if the chance of paying out 
+on those risks was low, Axa would be required to post reserves against the potential risk.  During 
+or shortly after the Portugal trip, the CFO and CEO assured Axa that MBIA would relieve Axa of 
+the risk it had agreed to take on from Zurich.  This side agreement was not reduced to writing and 
+was not disclosed to MBIA’s auditor. 
+52. In addition to the side agreement, Axa’s agreement to take on Zurich’s risk under 
+the quota share contract resulted in three additional agreements because Zurich’s payment under 
+the excess of loss contract was to be funded by Interpolis Reinsurance Services, Ltd., a Dutch 
+reinsurer. In exchange, Zurich gave to Interpolis the bulk of premiums it received from MBIA 
+under the quota share contract, and Interpolis agreed to take on Zurich’s risk from $13 million to 
+$163 million.  Axa took on this entire risk from Interpolis, through two separate agreements, one 
+covering the risk from $13 million to $88 million, and the second covering the risk from $88 
+million to $163 million. In addition, Axa entered into a contract with Zurich under which it 
+assumed Zurich’s risk above $163 million.  In return, Axa received $1 million in premium for each 
+agreement, for a total of $3 million.  In other words, Zurich and Interpolis retained $99 million in 
+net premiums and retained only $13 million of the risk associated with those premiums, in 
+exchange for the $70 million they provided MBIA to cover for the AHERF loss.  Axa, on the other 
+hand, assumed all the risk above $13 million for only $3 million in premium.  
+53. In short, the Zurich reinsurance arrangement involved limited transfer of risk to 
+Zurich. Under the secret side agreement with MBIA, the risk under the quota share contract was 
+transferred back to MBIA, except for $13 million that was more than covered in full by the 
+premiums that Zurich and Interpolis retained.  In addition, by the time the deal was reached, there 
+was no uncertainty or variability as to Zurich’s payment under the excess of loss contract, because 
+it was known by then that Zurich would have to pay the full amount of its commitment. 
+12
+
+ 
+MBIA Created a Paper Trail to Justify Reinsurance Accounting 
+54. In order to obtain the auditor’s approval for the desired accounting treatment, 
+MBIA senior executives created a paper trail to justify the reinsurance accounting.  This paper trail 
+included several affirmative misrepresentations about the agreements, including but not limited to 
+the following: 
+(a) 	 First, MBIA represented that its estimate of its AHERF loss on the date on 
+which it reached the reinsurance arrangements with Munich, Axa, and 
+Zurich was less than the amount of excess of loss coverage agreed upon.  
+Specifically, MBIA represented its estimate of loss at the time the 
+reinsurance agreements were reached was $0-$117 million.  This 
+representation was false.  By September 2, 1998, the earliest date by which 
+MBIA claims the Munich and Axa agreements were purportedly in place, 
+MBIA’s surveillance department had estimated a loss of at least $95-100 
+million, and possibly as high as $150 million.  The representation was also 
+false with regard to Zurich because the deal that was in place in September 
+was not the deal MBIA and Zurich ultimately entered into in October.  By 
+the time that deal was entered into, the AHERF loss was known to be at 
+least $170 million. 
+(b) 	 Second, the CEO and the CFO provided a letter for the auditor’s files representing 
+that MBIA had “an agreement in principal [sic]” with Zurich, and that “[t]he 
+principal terms were agreed to on September 22nd with the understanding that 
+certain refinements needed to be made to comply with standard reinsurance and 
+accounting practices.” The CEO and CFO each knew when they signed the 
+representation letter that the agreement ultimately reached with Zurich was 
+fundamentally different than the one that was contemplated in September, and they 
+knew that the auditor was unaware of the side agreement in which MBIA 
+effectively agreed to take back all but $13 million of the risk it had ceded to Zurich 
+under the quota share agreement.   
+MBIA’s Misleading Financial Statements 
+55. MBIA recorded the $170 million Munich, Axa, and Zurich agreed to pay under the 
+excess of loss contracts as a receivable in the third quarter of 1998, and its consolidated financial 
+statements for the third quarter of 1998 and for the 1998 fiscal year included the entire amount as 
+income. 
+56. In its November 3, 1998 earnings release, the company stated: “MBIA expects that 
+any anticipated losses arising from [its AHERF exposure] will be fully covered by reinsurance.  As 
+a result, the company’s third quarter earnings have not been affected by the bankruptcy.”  The 
+release was filed on Form 8-K on November 4.   
+13
+
+57. In its Form 10-Q for the quarter ended September 30, 1998, which was filed on 
+November 16, 1998, MBIA stated that it had recorded “$198 million of reinsurance recoverables” 
+for the AHERF loss, which included the $170 million receivable from Munich, Axa, and Zurich.   
+58. The recoverable under the purported reinsurance contracts, net of the nominal 
+premium on those contracts, thus offset virtually the entire reported AHERF loss, which was 
+recorded as an expense for the quarter.  As a result, MBIA reported net income of approximately 
+$100 million for the third quarter and $432 million for the year ended December 31, 1998, and 
+diluted earnings per share of $1.08 and $4.32 for the respective periods. 
+59. MBIA’s financial statements and the above-quoted representations in its releases 
+and filings were false and misleading because it was improper to recognize the $170 million as 
+income and because MBIA did not disclose material facts that would have given the true picture of 
+the transaction.      
+60. MBIA made these representations despite the fact that the CEO and CFO knew, or 
+recklessly disregarded, that reinsurance accounting for the AHERF reinsurance arrangement was 
+improper because there was no risk transfer under the excess of loss agreements and the reinsurers 
+expected to be fully compensated for their payments under the excess of loss contracts by the quota 
+share arrangements. 
+61. The AHERF reinsurance arrangement had a material and substantial impact on 
+MBIA’s reported earnings.  Had the transaction been accounted for properly, as a financing, the 
+$170 million receivable under the excess of loss contracts would not have been reported as income 
+in 1998. The income statement effect was substantial: it would have resulted in at least $100 
+million less pre-tax income for the full year 1998 and, in the third quarter, would have resulted in 
+MBIA’s first quarterly loss.  As a result of its fraudulent accounting for the recovery under the 
+excess of loss contracts, MBIA was able to report that it “continu[ed] [its] unbroken streak of 
+double-digit increases since [it] became a public company in 1987,” as the company touted in its 
+Annual Report for 1998. 
+MBIA Continued to Misrepresent Its Results for 1998 
+62. MBIA’s misleading financial results for the 1998 third-quarter and fiscal year were 
+republished in subsequent filings made in 1999, 2000, and 2001 and continued to create the false 
+impression that the company had an uninterrupted succession of profitable quarters.  Those filings 
+continued to conceal the true facts about the purported reinsurance recovery on AHERF, including 
+the side agreement between MBIA and Axa.  
+63.  It was not until March 2005, after Axa filed suit in France, that MBIA publicly 
+acknowledged the side agreement and the effect of it on its reported results for 1998.  In March 
+2005, MBIA restated its consolidated financial statements for the calendar years 1998 through 
+2003 in light of the conclusion reached in the course of the internal investigation that the existence 
+of a side agreement “appear[s] likely.”  The effect on the company’s consolidated income 
+statement for the third quarter of 1998 and fiscal year 1998 was to reverse the $70 million gain 
+attributable to the reinsurance receivable under the excess of loss contract with Zurich, which 
+14
+
+originally had offset part of the $170 million AHERF loss.  MBIA also reversed the expense for 
+the $102 million in net premiums it had ceded to Zurich, which it then recognized as income over a 
+six-year period beginning in 1999.  In addition, the company eliminated the $70 million receivable 
+from Zurich originally reflected on its September 30, 1998 balance sheet.  
+64. The company did not restate its accounting for the other $100 million of 
+reinsurance, which was improper. 
+VIOLATIONS 
+65. As a result of the conduct described above, MBIA violated Section 17(a) of the 
+Securities Act, which prohibits fraudulent conduct in the offer or sale of securities.  MBIA made 
+material misstatements and omitted material facts concerning the AHERF transaction in 
+connection with its September 1998 debenture offering. 
+66. As a result of the conduct described above, MBIA 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.  MBIA improperly recognized the $170 million it received under 
+the excess of loss contracts as income and did not disclose material facts concerning the AHERF 
+transaction in its periodic filings that would have given the true picture of the transaction. 
+67. As a result of the conduct described above, MBIA violated Section 13(a) of the 
+Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 12b-20 thereunder, which require issuers to 
+file true, accurate, and complete periodic reports with the Commission.  Because of its 
+misstatements and omissions of material facts concerning the AHERF transaction, MBIA filed 
+false periodic reports and earnings releases with the Commission. 
+68.  As a result of the conduct described above, MBIA 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 MBIA improperly recorded the excess of loss and quota share contracts, 
+its books, records and accounts did not, in reasonable detail, accurately and fairly reflect its 
+transactions and dispositions of assets. 
+69. As a result of the conduct described above, MBIA violated Section 13(b)(2)(B) of 
+the Exchange Act and Rule 13b2-1 thereunder, which require all reporting companies to devise and 
+maintain a system of internal accounting controls sufficient to provide reasonable assurances that 
+transactions are recorded as necessary to permit preparation of financial statements in conformity 
+with generally accepted accounting principles and prohibit them from, directly or indirectly, 
+falsifying or causing to be falsified, any book, record, or account.  MBIA’s internal controls were 
+not sufficient to prevent numerous false accounting entries related to the AHERF reinsurance 
+agreements to be recorded that were not in conformity with generally accepted accounting 
+principles. 
+15
+
+UNDERTAKINGS 
+MBIA undertakes to: 
+70. Cooperate fully with the Commission in any and all respects relating to or arising 
+from the matters described in the Offer.  In connection with such cooperation, MBIA undertakes to: 
+(a) produce, without service of a notice or subpoena, any and all documents and other 
+information requested by the Commission’s staff (“Staff”); 
+(b) 	 be interviewed by the Staff at such times as the Staff reasonably may direct; 
+(c) upon the request of the Staff, waive any applicable privilege with respect to 
+MBIA's internal investigation concerning the matters addressed in this Order; 
+(d) appear and testify truthfully and completely without service of a notice or 
+subpoena as may be requested by the Staff; 
+71. Independent Consultant. In accordance with the procedure specified in 
+subparagraph 71(k) below, retain, pay for, and enter into an agreement with an independent 
+consultant, not unacceptable to the Staff (“Independent Consultant”), to conduct a 
+comprehensive review of the areas specified in subparagraphs (a) and (b) below, and to make 
+recommendations to MBIA’s Board of Directors, after consultation with the Staff, regarding best 
+practices in these areas. The agreement with the Independent Consultant shall contain the 
+following provisions: 
+(a)	 The Independent Consultant shall review: 
+(i)	 MBIA’s accounting for, and disclosures concerning, its investment in 
+Capital Asset Holdings GP, Inc., and 
+(ii)	 MBIA’s accounting for, and disclosures concerning, its exposure on notes 
+issued by the US Airways 1998-1 Repackaging Trust. 
+(b) The Independent Consultant shall also review the design of the review conducted 
+on behalf of the Audit Committee of MBIA’s Board of Directors by Promontory 
+Financial Group LLC, of MBIA’s compliance organization and monitoring systems, 
+internal audit functions, governance process and other controls including risk 
+management, and records management policies and procedures (“Audit Committee 
+Review”), and the implementation of any recommendations by Promontory. 
+(c) The Independent Consultant shall issue a report to the Staff and MBIA’s Board of 
+Directors within six months of appointment, setting forth:  
+(i)	 with respect to the items identified at subparagraph 71(a) above, his or her 
+findings on whether MBIA acted in a manner consistent with generally 
+16
+
+accepted accounting principles (“GAAP”) and the federal securities laws.  
+With respect to any matter as to which he or she concludes that MBIA 
+acted in a manner inconsistent with GAAP or the federal securities laws, 
+he or she shall propose a plan of review designed to evaluate similar 
+transactions or occurrences, if any, and provide reasonable assurance that 
+all similar conduct inconsistent with GAAP or the federal securities laws 
+has been identified and corrected; and 
+(ii)	 with respect to the matters identified at subparagraph 71(b) above, his or 
+her findings concerning whether the Audit Committee’s Review was 
+reasonably designed and implemented and, if not, any recommendations 
+for further review to determine what policies and procedures should be 
+implemented to achieve best practices. 
+The Report shall also include a description of the review performed, the conclusions reached, the 
+Independent Consultant’s recommendations for any changes in or improvements to MBIA’s 
+policies and procedures necessary to conform to best practices and a procedure for implementing 
+the recommended changes in or improvements to MBIA’s policies and procedures. 
+Terms of Independent Consultant’s Retention 
+(d) In addition to the report identified above, the Independent Consultant shall provide 
+the Staff and the Board of Directors with such documents or other information concerning 
+the areas identified in subparagraphs 71(a) and (b), above, as any of them may request 
+during the pendency or at the conclusion of the review. 
+(e) The Independent Consultant shall have reasonable access to all of MBIA’s books 
+and records, and the ability to meet privately with MBIA personnel.  MBIA may not assert 
+the attorney-client privilege, the protection of the work-product doctrine, or any privilege 
+as a ground for not providing the Independent Consultant with contemporaneous 
+documents or other information related to the matters that are the subject of the review.  
+MBIA shall cooperate with the Independent Consultant, by, among other things, making 
+available to the Independent Consultant the results of the investigation of Capital Asset 
+conducted in 1999 by outside counsel at the direction of the Audit Committee of MBIA’s 
+Board of Directors.  The Independent Consultant may consider and use the results of such 
+prior investigation to the extent he or she deems appropriate in the course of conducting his 
+or her own review.  MBIA shall instruct and otherwise encourage its officers, directors, and 
+employees to cooperate fully with the review conducted by the Independent Consultant, 
+and inform its officers, directors, and employees that failure to cooperate with the review 
+will be grounds for dismissal, other disciplinary actions, or other appropriate actions. 
+(f) The Independent Consultant shall have the right, as reasonable and necessary in his 
+or her judgment, to retain, at MBIA’s expense, attorneys, accountants, and other persons or 
+firms, other than officers, directors, or employees of MBIA, to assist in the discharge of his 
+or her obligations under these Undertakings.  MBIA shall pay all reasonable fees and 
+expenses of any persons or firms retained by the Independent Consultant.   
+17
+
+(g) The Independent Consultant shall make and keep notes of interviews conducted, 
+and keep a copy of documents gathered, in connection with the performance of his or her 
+responsibilities, and require all persons and firms retained to assist the Independent 
+Consultant to do so as well. 
+(h) As to the Commission and its Staff, the Independent Consultant’s relationship with 
+MBIA shall not be treated as one between an attorney and client.  The Independent 
+Consultant will not assert the attorney-client privilege, the protection of the work-product 
+doctrine, or any privilege as a ground for not providing any information obtained in the 
+review sought by the Staff. 
+(i) If the Independent Consultant determines that he or she has a conflict with respect 
+to one or more of the areas described in paragraph 71 or otherwise, the responsibilities with 
+respect to that subject shall be delegated to a person selected pursuant to the procedures set 
+forth in subparagraph 71(k) below. 
+(j) For the period of engagement and for a period of two years from completion of the 
+engagement, the Independent Consultant shall not enter into any employment, consultant, 
+attorney-client, auditing or other professional relationship with MBIA, or any of its present 
+or former affiliates, directors, officers, employees, or agents acting in their capacity as 
+such; and shall require that any firm with which the Independent Consultant is affiliated or 
+of which the Independent Consultant is a member, and any person engaged to assist the 
+Independent Consultant in performance of the Independent Consultant’s duties under this 
+Order not, without prior written consent of the Staff, enter into any employment, 
+consultant, attorney-client, auditing or other professional relationship with MBIA, or any of 
+its present or former affiliates, directors, officers, employees, or agents acting in their 
+capacity as such for the period of the engagement and for a period of two years after the 
+engagement.  For the purposes of this section, representation of a person or firm insured by 
+MBIA shall not be deemed a professional relationship with MBIA. 
+MBIA Obligations Relating to the Independent Consultant 
+(k) Within twenty days of the date of entry of this Order, MBIA will submit to the Staff 
+a proposal setting forth the identity, qualifications, and proposed terms of retention of the 
+Independent Consultant. The Independent Consultant’s compensation and expenses shall 
+be borne exclusively by MBIA, and shall not be deducted from any amount due under the 
+provisions of this Order.  After consultation and coordination with the New York 
+Attorney’s Office and the New York Insurance Department, the Staff, within thirty days of 
+such notice, will either (a) approve MBIA’s choice of Independent Consultant and 
+proposed terms of retention or (b) require MBIA to propose an alternative Independent 
+Consultant and/or revised proposed terms of retention within fifteen days.  This process 
+will continue, as necessary, until MBIA has selected an Independent Consultant on 
+retention terms that are not unacceptable to the Staff (and the New York Attorney’s Office 
+and the New York Insurance Department.) 
+18
+
+(l) MBIA shall adopt all recommendations contained in the report of the Independent 
+Consultant referred to in subparagraph 71(c), above; provided, however, that within fifteen 
+days of receipt of the report, MBIA shall in writing advise the Independent Consultant and 
+the Staff of any recommendations that it considers to be unnecessary or inappropriate.  
+With respect to any recommendation that MBIA considers unnecessary or inappropriate, 
+MBIA need not adopt that recommendation at that time but shall propose in writing an 
+alternative policy, procedure or system designed to achieve the same objective or purpose. 
+(m) As to any recommendation with which MBIA and the Independent Consultant do 
+not agree, such parties shall attempt in good faith to reach an agreement within thirty days 
+of the issuance of the Independent Consultant’s report referred to in subparagraph 71(c), 
+above.  In the event MBIA and the Independent Consultant are unable to agree on an 
+alternative proposal, MBIA will abide by the determinations of the Independent Consultant. 
+(n) MBIA, including the board of directors and committees of the board of directors of 
+MBIA, shall not assert the attorney-client privilege, the protection of the work-product 
+doctrine, or any privilege as a ground for not providing any documents, information, or 
+testimony requested by the Staff related to the review conducted by the Independent 
+Consultant. 
+(o) MBIA shall retain the Independent Consultant for a period of nine months from the 
+date of appointment.  The Staff or MBIA may in either’s discretion extend the Independent 
+Consultant’s term of appointment. 
+(p) Within ninety days of the receipt of the report referred to in subparagraph (c), 
+MBIA shall certify to the Staff that all procedures recommended in the Independent 
+Consultant’s report, and any additional or alternative procedures agreed upon as a result of 
+the procedure set out in subparagraphs 71(l) and (m), have been implemented, or will be 
+implemented on a schedule agreed to by the Independent Consultant, and set out in the 
+certification. 
+(q) With respect to any procedures to be implemented on a schedule agreed to by the 
+Independent Consultant but not yet implemented by the date of the certification required 
+pursuant to subparagraph 71(p), MBIA shall certify to the Staff within ten days after the 
+end of the schedule agreed to by the Independent Consultant that all such procedures have 
+been implemented. 
+19
+
+Accountants’ Report 
+(r) MBIA shall engage certified public accountants, which may be MBIA’s usual 
+public accounting firm, to: (a) review whether MBIA acted in a manner consistent with 
+GAAP and the federal securities laws in its accounting for, and disclosures concerning:  (i) 
+advisory fees, and (ii) the assets within Triple A One Funding, LLC,  Polaris Funding 
+Company LLC, and Meridian Funding Company, LLC; and (b) provide a written report of 
+its review and conclusions to the Staff within sixty days of the entry of this Order 
+(“Accountants’ Report”). 
+Miscellaneous Provisions 
+(s) MBIA shall, at the Staff’s discretion, (a) expand the scope of the Independent 
+Consultant’s engagement to include (i) the review of similar transactions or occurrences 
+referred to at subparagraph 71(c)(i) above, or (ii) following the Staff’s review of the 
+Accountants’ Report, MBIA’s accounting for, and disclosures concerning:  advisory fees, 
+or the assets within Triple A One Funding, LLC, Polaris Funding Company LLC, and 
+Meridian Funding Company, LLC.; and (b) extend any of the deadlines set out in this 
+paragraph 71. 
+72. Pay the expenses and fees, if any, for the distribution of any Fair Fund established 
+pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 established in the related civil action 
+captioned Securities and Exchange Commission v. MBIA Inc., 07 Civ. 658 (JGK) (S.D.N.Y., filed 
+Jan. 29, 2007). 
+73. Restate its financial statements in a manner not inconsistent with the findings in this 
+Order. 
+74. In determining whether to accept the Offer, the Commission has considered the 
+above undertakings. 
+20
+
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in MBIA’s Offer.2 
+Accordingly, it is hereby ORDERED that: 
+A. MBIA shall cease and desist from committing or causing any violations and any 
+future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-1 
+thereunder. 
+B. MBIA sh all c omply w ith the undert akings enumerated in Para graphs 71 a nd 72, 
+above. 
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+Pursuant to the Consent of MBIA Inc. to Final Judgment filed in the action captioned 
+United States Securities and Exchange Commission v. MBIA Inc., MBIA shall pay 
+disgorgement in the amount of $1 and a civil penalty in the amount of $50 million under 
+Section 20(d) of the Securities Act of 1933 and Section 21(d)(3) of the Securities 
+Exchange Act of 1934 (“Exchange Act”), which may be distributed pursuant to the Fair 
+Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002. 
+21
+2 
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2551.txt b/raw/aaer/2007/AAER-2551.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e97917d122f1dbfd6dd41921bfbfc208e26e9c17
--- /dev/null
+++ b/raw/aaer/2007/AAER-2551.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19990 / February 6, 2007 
+
+ Accounting and Auditing Release No. 2551 / February 6, 2007 
+
+  SEC v.  Steven J. Landmann , United States District Court for the Eastern District of Missouri, Civil Action No. 4:07-CV-270 (E.D. Mo. February 6, 2007) 
+
+  SEC v. Gary C. Gerhardt , United States District Court for the Eastern District of Missouri, Civil Action No. 4:07-CV-271 (E.D. Mo. February 6, 2007) 
+
+ SEC Files Actions Against Former CFO and Former Controller of Engineered Support Systems, Inc. Relating to Options Backdating Scheme; Former Controller Consents to Permanent Injunction, Officer-and-Director Bar, and Payment of $886,557 
+
+ 
+
+ On February 6, 2007, the Securities and Exchange Commission filed civil injunctive actions against Gary C. Gerhardt, the former Chief Financial Officer of Engineered Support Systems, Inc., and Steven J. Landmann, the company's former Controller, alleging that they participated in a six-year fraudulent options backdating scheme in which they granted undisclosed, in-the-money stock options to themselves and to other Engineered Support officers, employees, and directors. According to the complaints, Engineered Support employees and directors received approximately $20 million in unauthorized compensation as a result of the backdating, $15 million of which was received by top executives and directors. Gerhardt and Landmann personally profited by $1,906,300 and $518,972 respectively. Landmann has consented to settle the action. 
+
+ The complaints allege that, from 1997 through 2002, Gerhardt instructed Landmann to backdate company stock option grants to coincide with historically low closing prices of Engineered Support's common stock. The company's stock options vested at the time of grant, allowing the option recipients to obtain immediate cash profits. In addition, the complaints allege that, on at least two occasions, Gerhardt ordered Landmann to cancel previously issued Engineered Support stock options that had fallen out-of-the-money and to reissue them with new backdated grant dates and exercise prices, to bring them back in-the-money. The complaints also allege that Gerhardt directed Landmann to issue additional Engineered Support stock options to nonemployee directors in excess of authorized amounts, from which these directors received a total gain of approximately $6 million. 
+
+ As part of the scheme, Gerhardt and Landmann allegedly caused Engineered Support to misrepresent in its Forms 10-K and proxy statements filed with the Commission that all stock options were granted at the fair market value of the stock on the date of the award. Engineered Support also failed to report the additional compensation its executives had received through in-the-money option grants. In addition, the company failed to disclose the repricing of options that had fallen out-of-the-money, or the granting of stock options to nonemployee directors in excess of authorized amounts. 
+
+ The complaints also allege that Gerhardt and Landmann caused Engineered Support to file materially misstated financial statements with the Commission 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, Engineered Support overstated its aggregate pretax operating income by approximately $26 million, or 21%, for fiscal years 1997 through 2002. 
+
+ The Commission's complaint against Gerhardt alleges that he violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 thereunder. The Commission is seeking a permanent injunction, disgorgement of ill-gotten gains, including prejudgment interest, civil penalties, and a bar from serving as an officer or director of any public company against Gerhardt. 
+
+ Without admitting or denying the Commission's allegations, Landmann has consented to a permanent injunction from violating and/or aiding and abetting violations of the antifraud, proxy statement, reporting, record-keeping, and the false statements to auditors provisions of the federal securities laws. Specifically, Landmann has consented to be enjoined from 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, 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 13a-1, 13a-13, and 12b-20 thereunder. Landmann has also consented to pay disgorgement of $518,972, prejudgment interest of $108,099, and a civil penalty of $259,486, and to be permanently barred from serving as an officer or director of a public company. The settlement is subject to approval by the United States District Court for the Eastern District of Missouri. 
+
+ As part of the settlement, Landmann has also consented to be permanently suspended from appearing or practicing before the Commission as an accountant, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, based on the anticipated entry of a permanent injunction against him. 
+
+ The Commission's investigation in this matter is continuing. 
+
+ 
+
+ 
+   SEC Complaints in this matter:  Gary C. Gerhardt   Steven J. Landmann  
+
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diff --git a/raw/aaer/2007/AAER-2552.txt b/raw/aaer/2007/AAER-2552.txt
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--- /dev/null
+++ b/raw/aaer/2007/AAER-2552.txt
@@ -0,0 +1,1378 @@
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+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19996 / February 9, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2552 / February 9, 2007 
+
+  Securities and Exchange Commission v. Richard A. Causey , Civil Action No. H-04-0284 (Harmon) (S.D. Tex.) 
+
+ SEC Settles Civil Fraud Charges Filed Against Richard A. Causey, Former Enron Chief Accounting Officer 
+
+ Causey Barred From Acting as an Officer or Director of a Public Company 
+
+ The Securities and Exchange Commission ("Commission") announced today that, on February 8, 2007, the U.S. District Court in Houston entered a final judgment in the Commission's civil action against Richard A. Causey, Enron's former Chief Accounting Officer.  In its complaint filed on January 22, 2004, the Commission alleged that Causey, along with others, engaged in a wide-ranging scheme to manipulate Enron's publicly-reported earnings through a variety of devices designed to produce materially false and misleading financial results.  Causey consented to the final judgment without admitting or denying the allegations in the Commission's complaint.  He has agreed to be enjoined permanently from violating the antifraud, periodic reporting, books and records, and internal control provisions of the federal securities laws, and to be barred permanently from acting as an officer or director of a public company.  Causey previously entered into a guilty plea on related criminal charges and was sentenced to 66 months in prison.  As part of his criminal plea, Causey agreed to forfeit a total of $1.5 million and to cooperate with the ongoing investigations being conducted by the Commission and the Justice Department's Enron Task Force. 
+
+ As alleged in the Commission's complaint, Causey and others fraudulently manipulated Enron's merchant asset portfolio; improperly used "off-balance-sheet" special purpose entities; manipulated Enron's "business segment reporting" to conceal losses at Enron's retail energy business, Enron Energy Services; manipulated expenses to conceal losses at Enron's broadband unit, Enron Broadband Services; and manipulated reserves in Enron's wholesale energy trading business to conceal earnings volatility and losses.  The complaint also alleged that Causey and others made false and misleading statements concerning Enron's financial results and the performance of its businesses, and that these misrepresentations were reflected in Enron's public filings with the Commission. 
+
+ In settlement of this action, Causey also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an accountant. 
+
+ The Commission acknowledges the assistance of the U.S. Department of Justice. 
+
+ For additional information see  Litigation Release No. 18551 , January 22, 2004. 
+
+ 
+
+ 
+    
+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2007/AAER-2553.txt b/raw/aaer/2007/AAER-2553.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e500083c412c0d0a10446efe0fdbce56910ce839
--- /dev/null
+++ b/raw/aaer/2007/AAER-2553.txt
@@ -0,0 +1,1387 @@
+
+
+ 
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+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19997 / February 12, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2553 / February 12, 2007 
+
+  Securities and Exchange Commission v. Enrique (Henry) Fiallo , Civil Action No. 07CV036 (D.N.H.) 
+
+ On February 8, 2007, the Securities and Exchange Commission filed a partially settled civil fraud action against Enrique (Henry) Fiallo in United States District Court for the District of New Hampshire.  According to the Commission's complaint, from March 2000 through December 2001, Fiallo, the former Chief Executive Officer for Enterasys Networks, Inc., participated in a company-wide scheme to fraudulently inflate revenues at Enterasys and its former parent company, Cabletron Systems, Inc., and thereby convince the market that Enterasys was a viable independent company with consistently strong revenue growth.  The Commission's complaint further alleges that Fiallo directly participated in transactions which involved undisclosed side agreements in which the purchaser was granted full return or exchange rights, or payment for the product was contingent upon the purchaser's resale of the product, or payment was contingent upon a future investment by Enterasys.  In the latter, Enterasys agreed to take a debt or equity interest in its customer, in return for that company's agreement to use the related funds to purchase product from Enterasys.  
+
+ The Commission accepted an offer of partial settlement in this matter from Fiallo, who, without admitting or denying the allegations of the complaint, consented to an injunction against future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder; and from aiding and abetting any violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Fiallo also consented to an officer and director bar and to a provision that upon motion of the Commission the Court will determine whether it is appropriate to order disgorgement of ill-gotten gains and/or impose a civil penalty and, if so, the amount of the disgorgement and/or civil penalty.    
+
+ Related Actions 
+Fiallo pled guilty to one count of conspiracy to commit securities, mail and wire fraud and cooperated with the U.S. Attorney's Office for the District of New Hampshire in the prosecution of  U.S. v. Barber et al. , Criminal No. 04-126 (D.N.H.). 
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diff --git a/raw/aaer/2007/AAER-2554.txt b/raw/aaer/2007/AAER-2554.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2cc9db86ee229ac961f653bc5a632ccb1d7503a7
--- /dev/null
+++ b/raw/aaer/2007/AAER-2554.txt
@@ -0,0 +1,1375 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20000 /  February 13, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2554 / February 13, 2007  
+
+  Securities and Exchange Commission v. The Dow Chemical Company , Civil Action No. 07CV00336 (D.D.C.) 
+
+ SEC Files Settled Enforcement Action Against The Dow Chemical Company for Foreign Corrupt Practices Act Violations 
+
+ The Securities and Exchange Commission today filed a settled civil action in the United States District Court for the District of Columbia alleging that The Dow Chemical Company (Dow) violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) [Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act)], in connection with an estimated $200,000 in improper payments made by a fifth-tier foreign subsidiary of Dow to Indian government officials from 1996 through 2001.  Without admitting or denying the allegations in the Commission's complaint, Dow consented to pay a $325,000 civil penalty.        
+
+ The complaint alleges that the Dow subsidiary, DE-Nocil Crop Protection Ltd. ("DE-Nocil"), headquartered in Mumbai, India, manufactured and marketed pesticides and other products primarily for use in the Indian agriculture industry.  According to the complaint, beginning in 1996, DE-Nocil made approximately $39,700 in improper payments to an official in India's Central Insecticides Board to expedite the registration of three DE-Nocil products.  Most of these payments were made through agreements with contractors which added fictitious charges on its bills, or issued false invoices, to DE-Nocil.  The contractors then disbursed these extra funds, at DE-Nocil's direction, to the CIB official.  The complaint also alleges that from 1996 and to 2001, DE-Nocil made $87,400 in improper payments to state officials in order to distribute and sell its products. 
+
+ The complaint alleges that, in addition to these payments, DE-Nocil also made improper payments to Indian government officials consisting of an estimated $37,600 for gifts, travel, entertainment and other items; $19,000 to government business officials; $11,800 to sales tax officials; $3,700 to excise tax officials; and $1,500 to customs officials.  In sum, over a six-year period, DE-Nocil distributed an estimated total of $200,000 in improper payments through federal and state channels.  According to the complaint, none of these payments were accurately reflected in Dow's books and records, and Dow's system of internal accounting controls failed to prevent the payments. 
+ 
+ In a related proceeding, the Commission today issued a settled cease-and-desist order against Dow finding that that Dow violated the books and records provisions and internal controls provisions of the Exchange Act in connection with the improper payments made by DE-Nocil.  Without admitting or denying the Commission's findings, Dow consented to the entry of the order that requires Dow to cease and desist from violating those provisions. 
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diff --git a/raw/aaer/2007/AAER-2555.pdf b/raw/aaer/2007/AAER-2555.pdf
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+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55281 / February 13, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2555 / February 13, 2007  
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12567 
+ 
+__________________________________ 
+ 
+In the Matter of     : ORDER INSTITUTING CEASE-AND- 
+: DESIST PROCEEDINGS, MAKING  
+THE DOW CHEMICAL   : FINDINGS AND IMPOSING A  
+COMPANY,     : CEASE-AND-DESIST ORDER  
+: PURSUANT TO SECTION 21C OF  
+Respondent.     : THE SECURITIES EXCHANGE ACT  
+      : OF 1934 
+__________________________________ 
+ 
+I. 
+ 
+ The Securities and Exchange Commissi on (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Exchange Act”), against The Dow Chemical Company 
+(“Respondent” or “Dow”). 
+ 
+II. 
+ 
+ In anticipation of the institution of thes e proceedings, the Respondent has submitted an 
+Offer of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for 
+the purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as 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, as set forth below (“Order”).1
+ 
+III. 
+ 
+ On the basis of this Order and Re spondent’s Offer, the Commission finds2 that: 
+ 
+Summary 
+ 
+ This matter involves Dow’s violations of the books and records and internal controls 
+provisions of the Foreign Corrupt Practices Act (“FCPA”) through numerous improper payments 
+made by DE-Nocil Crop Protection Ltd. (“DE-Nocil”), a fifth-tier subsidiary of Dow, from 1996 
+to 2001, to Indian government officials to register several agro-chemical products slated for 
+marketing in time for India’s growing season.  DE-Nocil paid an estimated $200,000 in improper 
+payments and gifts to Indian government officials at the state and federal levels.  None of these 
+payments were accurately reflected in Dow’s books and records.  Additionally, Dow’s system of 
+internal accounting controls failed to prevent the payments. 
+ 
+Respondent 
+ 
+ 1. Dow is a Delaware corporation with corporate headquarters in Midland, 
+Michigan, that manufactures and sells chemicals, plastic materials, agricultural and other 
+specialized products and services.  Its common stock is registered with the Commission pursuant 
+to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange. 
+ 
+Other Relevant Entities 
+ 
+ 2. During the time period 1996 to 2001, DE-Nocil, headquartered in Mumbai, India, 
+was a fifth-tier subsidiary of Dow that manufactured and marketed pesticides and other products 
+primarily for use in the Indian agriculture industry.  DE-Nocil was established in 1994 as a joint 
+venture when a majority-owned Dow subsidiary, DowElanco, acquired a 51% ownership interest 
+in the agro-chemicals business of a local Indian company, National Organic Chemicals Industry 
+Ltd. (“Nocil”) owned by a prominent Indian family.  In 1997, DowElanco became a wholly-
+owned subsidiary of Dow and was re-named Dow AgroSciences LLC (“DAS”), a Delaware 
+limited liability company.  As of March 2001, DAS’ stake in DE-Nocil was 75.7%.  On January 
+                                                 
+1 The Commission has contemporaneously filed a complaint in the United States District Court for the District of 
+Columbia against Dow alleging violations of Section 13(B)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 
+1934 (“Exchange Act”) and seeking a civil penalty.  Without admitting or denying the Commission’s allegations, Dow 
+has consented to the entry of a final judgment by the Court that requires Dow to pay a $325,000 civil penalty.  See SEC 
+v. The Dow Chemical Company, Case No. 07CV00336 (D.D.C.) (filed February 13, 2007).  
+ 
+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
+13, 2005, Dow attained 100% ownership of DE-Nocil, and on March 31, 2005, DE-Nocil 
+changed its name to Dow AgroSciences India Pvt. Ltd. 
+ 
+Facts 
+ 
+A. The Indian Government Regula tory Framework Affecting DE-Nocil 
+ 
+ 3. Before it could market its products in India, DE-Nocil was required by Indian law 
+to obtain government registration for its products.  This process involved registration both at the 
+federal and state levels.  At the federal level, the principal regulator was an agency called the 
+Central Insecticides Board (“CIB”).  The CIB was comprised of twenty-nine officials charged 
+with examining safety and health issues related to agricultural chemicals.  Within the CIB was a 
+Registration Committee composed of six persons that recommended whether to grant 
+registrations and when they would be granted.  A key member of the Registration Committee 
+(the “CIB Official”) held considerable influence within the Committee.  He was able to  
+determine if and when a company’s agricultural chemical product would be registered and, in 
+fact, the CIB Official would refuse or delay registrations unless he received financial payments.  
+This individual left the CIB in 2000.  Dow is not aware of any similar requests made by CIB 
+officials after the CIB Official left. 
+ 
+ 4. In addition to the CIB, there were a nu mber of state government officials in India 
+that had some regulatory and enforcement authority regarding agro-chemical businesses like DE-
+Nocil.  These included “licensing officers” in each state, whose approval was necessary for 
+producing, warehousing and selling product in a particular state.  The state officials also included 
+inspectors, 30,000 to 40,000 in number, who could prevent the sale of a product by drawing 
+samples and falsely claiming that the samples were misbranded or mislabeled.  Misbranding or 
+mislabeling carried significant potential penalties.  Companies could challenge accusations of 
+misbranding or mislabeling in court.  However, rather than face a suspension in sales of products 
+caused by the false accusations, companies would make petty cash payments to state inspectors. 
+ 
+B. DE-Nocil’s Improper Payment Pr actice and Improper Accounting 
+ 
+ 5. DE-Nocil’s commercial vice-president, who later became a consultant to DE-
+Nocil, and DE-Nocil’s technical development leader, developed an improper payment practice to 
+facilitate the registration of DE-Nocil’s products to the CIB.  The practice involved directing 
+improper payments to the CIB Official through the use of consultants and unrelated companies. 
+ 
+ 6. Beginning in 1996, DE-Nocil personnel began accumulating funds off DE-Nocil’s 
+books to be available to pay the CIB Official contemporaneously with DE-Nocil’s product 
+registration applications.  DE-Nocil personnel enlisted one of DE-Nocil’s contractors, an Indian 
+product formulator that mixed and packaged products for DE-Nocil, to accumulate funds on DE-
+Nocil’s behalf.  The contractor, through agreement with DE-Nocil, added fictitious charges 
+called “incidental charges” on its bills to DE-Nocil.  The contractor agreed to accumulate and 
+ 3
+segregate the funds representing these “incidental charges” and to disburse these funds as 
+directed by DE-Nocil.  When needed, DE-Nocil contacted the contractor and asked it to disburse 
+funds to third party “consultants” who delivered the funds to the CIB Official.  DE-Nocil made 
+approximately $20,000 in improper payments to the CIB Official through this contractor. 
+ 
+ 7. DE-Nocil also made an improper payment to the CIB Official through a second 
+contractor, which was also one of DE-Nocil’s product formulators.  In this case, the second 
+contractor, through an agreement with DE-Nocil, issued DE-Nocil a false invoice for $12,000 in 
+capital equipment.  DE-Nocil paid the contractor the $12,000, which was then delivered to the 
+CIB Official.  The payment was authorized by DE-Nocil’s Managing Director.  
+ 
+ 8. None of the payments that were ulti mately made to the CIB Official were 
+properly recorded in DE-Nocil’s books.  The payments resulted in the expedited registration 
+of three DE-Nocil products:  “Pride (NI-25),” “Nurelle-D,” and “Dursban 10G,” products which 
+used active ingredients that were widely used, and registered by Dow or other pesticide 
+manufacturers, in other countries, including the United States.  As a result of the expedited 
+registrations, Dow estimated that DE-Nocil generated $435,000 in direct operating margin from 
+the accelerated sales of these products, 75.7% (or $329,295) of which, based on Dow’s 
+ownership interest, went to Dow. 
+ 
+ 9. DE-Nocil also made improper payments at the state level.  DE-Nocil routinely 
+used money from petty cash to pay state officials in order to distribute and sell its products.  
+These payments were transmitted to state officials through DE-Nocil’s distributors in the field.  
+Although the payments were in small amounts – well under $100 per payment – the payments 
+were numerous and frequent.  Dow estimates that from 1996 to 2001, $87,400 in payments were 
+made to state inspectors and other state officials.  None of these payments were properly 
+recorded in DE-Nocil’s books. 
+ 
+ 10. In sum, over a six-year period, DE-N ocil distributed an estimated $200,000 in 
+improper payments through federal and state channels.  An independent auditor retained by Dow 
+identified approximately $75,600 of payments and, through a process of extrapolation, estimated 
+an additional $125,000, for a total of approximately $200,000.  From this amount, an estimated 
+$39,700 was used by DE-Nocil to register its products and an estimated $87,400 was paid to 
+state level agriculture inspectors.  The remainder of improper payments consisted of an 
+estimated: $37,600 for gifts, travel, entertainment and other items; $19,000 to government 
+officials; $11,800 to sales tax officials; $3,700 to excise tax officials; and $1,500 to customs 
+officials.  The payments were made without knowledge or approval of any Dow employee. 
+ 
+C. Dow’s Internal Investigation 
+ 
+ 11. Dow conducted an internal investigat ion of DE-Nocil and, upon its completion, 
+voluntarily approached Commission staff and presented the results.  Dow also undertook certain 
+remedial actions relating to the DE-Nocil matter, including employee disciplinary actions.  Dow 
+ 4
+retained an independent auditor to conduct a forensic audit of the books and records and internal 
+controls at DE-Nocil; reported its internal investigation to the Audit Committee of the Board of 
+Directors; and provided FCPA compliance training to employees at DE-Nocil, as well as to 
+employees at DAS.  In addition to the remedial actions relating to DE-Nocil, Dow restructured 
+its global compliance program; improved and expanded FCPA compliance training for 
+employees of Dow and its subsidiaries worldwide; trained its internal auditors to recognize 
+FCPA issues; and joined a non-profit association specializing in anti-bribery due diligence that, 
+among other things, screens potential partners and other third parties that work with 
+multinational corporations and provides FCPA training to them.  Dow also hired an independent 
+consultant to review and assess its FCPA compliance program.  
+ 
+D. Violations 
+ 
+ 12. The FCPA, enacted in 1977, added Exch ange Act Section 13(b)(2)(A) to require 
+public companies to make and keep books, records, and accounts, which, in reasonable detail, 
+accurately and fairly reflect the transactions and dispositions of the assets of the issuer, and 
+Section 13(b)(2)(B) of the Exchange Act to require such companies to devise and maintain a 
+system of internal accounting controls sufficient to provide reasonable assurances that: (i) 
+transactions are executed in accordance with management’s general or specific authorization; 
+and (ii) transactions are recorded as necessary to permit preparation of financial statements in 
+conformity with generally accepted accounting principles or any other criteria applicable to such 
+statements, and to maintain accountability for assets. 
+ 
+ 13. As detailed above, because DE-Nocil did not properly record the payments that it 
+made to Indian government officials in its books, its books, records and accounts did not, in 
+reasonable detail, accurately reflect its transactions and disposition of assets. 
+ 14. As a result of the conduct described above, Dow violated Section 13(B)(2)(A) of 
+the Exchange Act. 
+ 15. In addition, DE-Nocil failed to take steps to ensure that its employees and 
+consultants complied with the FCPA and to ensure that the payments it made to Indian 
+government officials were accurately reflected on its books and records.   
+ 16. As a result of the conduct described above, Dow violated Section 13(b)(2)(B) of 
+the Exchange Act. 
+ 
+Dow’s Remedial Efforts 
+ In determining to accept the Offer, the Commission considered the remedial acts 
+undertaken by Dow and cooperation afforded the Commission staff. 
+ 5
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to accept the 
+Respondent’s Offer. 
+ Accordingly, pursuant to Sec tion 21C of the Exchange Act, it is hereby ORDERED that 
+Dow cease and desist from committing or causing any violations and any future violations of 
+Section 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 
+ By the Commission. 
+ 
+      N a n c y  M .  M o r r i s  
+      Secretary 
+ 
+ 
+ 
+ 6
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2559.txt b/raw/aaer/2007/AAER-2559.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5c70ea61bf5fc5f0e0369cd0e17e79f353995ba5
--- /dev/null
+++ b/raw/aaer/2007/AAER-2559.txt
@@ -0,0 +1,1378 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20005 / February 15, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2559 / February 15, 2007 
+
+  SEC v. Gregory A. Brady, et al. , Civil Action No. 3:05-CV-1416-D, United States District Court for the Northern District of Texas, Dallas Division. 
+
+ SEC Settles Charges Against Former I2 Technologies CEO Gregory A. Brady 
+
+ 
+
+ On February 15, 2007, the Commission settled civil charges against Gregory A. Brady, the former chief executive officer of Dallas-based i2 Technologies, Inc. and a defendant in the Commission's July 2005 enforcement action against three former i2 officers arising from an alleged scheme to overstate i2's revenues. Without admitting or denying the Commission's allegations, Brady has consented to the entry of a final judgment enjoining him from violating or aiding and abetting violations of the antifraud, record-keeping, reporting, internal-controls and false-statements-to-auditors provisions of the federal securities laws. He also has consented to an order barring him from serving as a public company officer or director for a period of five years, and to pay a civil penalty and disgorgement, with prejudgment interest, totaling approximately $8.3 million. The settlement is subject to approval by United States District Judge Sidney A. Fitzwater. 
+
+ The Commission's Complaint alleges that, over the four years ended December 31, 2001 and the first three quarters of 2002, i2 misstated approximately $1 billion of software license revenue, including over $125 million of revenue it never should have recognized. The Complaint further alleges that Brady participated and assisted others in a fraudulent revenue-recognition scheme by, among other things, signing i2 public filings containing the misstated financial statements, providing representation letters to i2's external auditors certifying the misstated financial statements and the quality of i2's internal controls, and approving earnings releases and participating in public conference calls at which materially false and misleading financial information was provided. The Commission's complaint also alleges that Brady profited by trading i2 securities on the basis of material nonpublic information. 
+
+ The proposed Judgment to which Brady has consented, without admitting or denying the Commission's allegations, enjoins him from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder. The proposed Judgment also prohibits Brady from serving as an officer or director of a public company for five years, and orders him to pay disgorgement and prejudgment interest of $7,800,344 and a third-tier civil penalty of $500,000. The Commission intends ultimately to move the Court to establish a Fair Fund under Section 308 of the Sarbanes-Oxley Act of 2001, to hold the civil penalty, disgorgement and accrued interest, for ultimate distribution to injured i2 investors. 
+
+ For further information about the Commission's action against the former i2 executives, see Litigation Releases Nos.  19306  (July 18, 2005),  19624  (March 28, 2006) and  19871  (October 16, 2006) and Accounting and Auditing Enforcement Releases Nos.  2279  (July 18, 2005),  2400  (March 28, 2006) and  2494  (October 16, 2006). 
+
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+ SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2007/AAER-2561.txt b/raw/aaer/2007/AAER-2561.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2ce952ec65e7b98ff631c8900a1b651bcf88c0d0
--- /dev/null
+++ b/raw/aaer/2007/AAER-2561.txt
@@ -0,0 +1,1376 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
+ 
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+     
+     
+     SEC.gov | Keith G. Baxter, et. al. 
+     
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+     
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+              Keith G. Baxter, et. al.
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+        Keith G. Baxter, et. al.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20006 / February 16, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2561 / February 16, 2007 
+
+  SEC v. Keith G. Baxter, et. al. , (Civil Action No. 05-3843 RMW, N.D. Cal.) 
+
+ SEC Settles With Keith G. Baxter 
+
+ 
+
+ The Securities and Exchange Commission today announced that on February 14, 2007, the Honorable Ronald M. Whyte entered an order approving the parties' settlement. Pursuant to the terms of the settlement, Judge Whyte entered an order (i) of permanent injunction prohibiting Keith G. Baxter, former Chief Executive Officer of Cornerstone Propane Partners, LLP, from violations of the federal securities laws; (ii) requiring Baxter to pay a civil money penalty of $40,000; and (iii) prohibiting Baxter from acting as an officer or director for a period of three years. Baxter entered into the settlement and consented to the entry of the injunction without admitting or denying the allegations of the Commission's complaint. 
+
+ The injunction prohibits future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ The complaint alleged generally that Cornerstone's financial statements for fiscal year 2000 and 2001 did not comply with Generally Accepted Accounting Principles ("GAAP") because a Cornerstone subsidiary allegedly did not reconcile certain inter-company accounts in a timely manner which allegedly rendered the company's financial statements materially unreliable, and that Cornerstone allegedly failed to disclose the existence of this issue and that it could lead to the possibility of a write-down. The complaint further alleges that for these reasons, Cornerstone's fiscal year 2000 and 2001 Form 10-K and fiscal year 2001 10-Qs improperly represented that Cornerstone's financial statements complied with GAAP. The complaint further alleges that Baxter approved a September 28, 2001 press release that failed to adequately disclose the connection between these accounting problems and a related Q4 2001 non-cash charge. 
+
+ 
+
+ 
+    
+ SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2007/AAER-2562.txt b/raw/aaer/2007/AAER-2562.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5801f52f28e0d3693f556814a6c839f26b5117da
--- /dev/null
+++ b/raw/aaer/2007/AAER-2562.txt
@@ -0,0 +1,1398 @@
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+ 
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+     SEC.gov | Veritas Software Corporation 
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+              Veritas Software Corporation
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20008 / February 21, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2562 / February 21, 2007 
+
+  SEC v. Veritas Software Corporation , Civil Action No. 07-364 (D.D.C.) 
+
+ SEC Files Settled Enforcement Action Against Veritas Software Corporation 
+
+ 
+
+ The Securities and Exchange Commission announced that it filed yesterday a settled civil fraud action in the United States District Court for the District of Columbia against Veritas Software Corporation, alleging in its complaint that Veritas engaged in a fraudulent earnings management scheme and filed false and misleading financial statements from 2000 through 2003. Veritas was also charged with securities fraud in connection with an improper round-trip transaction in 2000 with America Online, Inc. (AOL), now a division of Time Warner Inc., as well as aiding and abetting AOL's securities fraud. In settling the Commission's charges, Veritas agreed to an injunction and to pay a $30 million civil penalty, which the Commission will seek to distribute to harmed investors pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. Veritas was acquired by Symantec Corporation on July 2, 2005.  
+
+ The Commission's complaint against Veritas includes the following allegations: 
+
+  In the fourth quarter of 2000, Veritas artificially inflated reported revenues in connection with a $20 million transaction with AOL and smaller transactions with two other Internet companies. In the three round-trip transactions, Veritas agreed to "buy" online advertising in exchange for the customer's agreement to purchase software from Veritas at inflated prices. To conceal the true nature of the AOL transaction, the company structured and documented the round-trip as if it was two separate, bona fide transactions, conducted at arm's length and reflecting each party's independent business purpose. In addition, the company lied to and withheld material information from its independent auditors about the AOL transaction and the other two transactions.   
+
+   AOL improperly recognized revenue on the round-trip transaction and reported materially misstated financial results to its own investors. Through its conduct, Veritas aided and abetted AOL's fraud.   
+
+   During 2000 through 2002, Veritas engaged in three improper accounting practices to manage its earnings and artificially smooth its financial results.  Specifically, Veritas improperly (a) recorded and maintained excess accrued liabilities, employing "accrual wish lists" and "cushion schedules"; (b) stopped recognizing professional service revenue it had fully delivered and earned upon reaching internal targets; and (c) inflated its deferred revenue balance.  As with the round-trips, the company took concerted steps to conceal these improper practices from its independent auditors. 
+  Without admitting or denying the allegations in the Commission's complaint, Veritas has consented to the entry of a final judgment permanently enjoining it 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 (the "Exchange Act"), Exchange Act rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1 and from aiding and abetting violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5. 
+
+ The corporate penalty in this case was negotiated before the Commission issued its Statement Concerning Financial Penalties ( http://www.sec.gov/news/press/2006-4.htm ). The Commission therefore elected not to apply that Statement to this corporate penalty.  
+
+ The Commission's investigation into these matters continues. 
+
+ 
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diff --git a/raw/aaer/2007/AAER-2564.txt b/raw/aaer/2007/AAER-2564.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6be6bb717745ac0e20399a55b318614e60b2f595
--- /dev/null
+++ b/raw/aaer/2007/AAER-2564.txt
@@ -0,0 +1,161 @@
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55324 / February 21, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2564 / February 21, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12571
+       
+      :  
+ :  
+ :   
+In the Matter of  : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ ANTHONY L. HURLEY,   : 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 
+Anthony L. Hurley (“Respondent” or “Hurley”) 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 Respondent’s Offer, the Co mmission finds that: 
+ 
+ 1. Hurley, age 36, was a certified public accountant licensed in the State of 
+Massachusetts.  He was employed as the assistant controller of Enterasys Networks, Inc. 
+(“Enterasys”) from October 1998 through November 2002.2
+ 
+ 2. Enterasys was headquar tered in New Hampshire and engaged in the business 
+of providing telecommunications switches and related products.  Its stock was registered with the 
+Commission and listed on the New York Stock Exchange.  Accordingly, Enterasys filed periodic 
+reports with the Commission containing consolidated financial statements.3
+ 
+ 3. On February 6, 2007, in the civil action entitled Securities and Exchange 
+Commission v. Anthony L. Hurley, Civil Action Number 07cv022, in the United States District 
+Court for the District of New Hampshire, a final judgment was entered against Hurley, 
+permanently enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange 
+Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting 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.  Hurley was also ordered to pay $24,498 in disgorgement of ill-gotten gains 
+from his sales of stock and bonuses while participating in the fraud, as well as $7,526 in 
+prejudgment interest. 
+ 
+  4. The Commission’s complaint alleged that Hurley and others engaged in a 
+fraudulent scheme which resulted in Enterasys reporting inflated revenues for periods in 2000 
+and 2001.  The Commission alleged, among other things, that Enterasys improperly recognized 
+ 
+2  Enterasys was a who lly-owned subsidiary of Cabletron Systems, Inc. (“Cabletron”) from 
+February 2000 to August 6, 2001, at which time Enterasys merged into, and became successor to, 
+Cabletron.  As used in this Order, “Enterasys” refers to Cabletron (prior to the merger) and 
+Enterasys (after the merger).   
+ 
+3  Enterasys became a private company on March 1, 2006, following its acquisition by two 
+limited liability companies.  On the same day, it filed a Form 15 with the Commission 
+terminating the registration of its common stock under Section 12 of the Exchange Act.  On 
+March 2, 2006, Enterasys was delisted from the New York Stock Exchange. 
+ 
+ 3
+revenues from sales tied to investment transactions that lacked economic substance.  It 
+contended that Enterasys funded the purchase of its own products by purchasing equity interests 
+in other companies that used the investment proceeds to pay for Enterasys products.  The 
+Commission alleged that Hurley knowingly participated in the fraudulent scheme by allowing 
+Enterasys to improperly recognize revenue and by misrepresenting material information to or 
+concealing material information from Enterasys’ outside auditors. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Hurley’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Hurley is suspended fr om appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five years from the date of th is Order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+ 
+  1. a preparer or reviewer, or a pe rson responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+ 
+  2. an independent accountant.  Su ch an application must satisfy the 
+Commission that: 
+ 
+   (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the Respondent’s or the firm’s quality control system that would 
+indicate that the Respondent will not receive appropriate supervision; 
+   (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 
+ 4
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.   
+ 
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his state CPA license is 
+current and he has resolved all other disciplinary issues with the applicable state boards of 
+accountancy.  However, if state licensure is dependant on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       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/2007/AAER-2566.txt b/raw/aaer/2007/AAER-2566.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3d6fa11936e0aef26f7bc09d6801ffe842cf585d
--- /dev/null
+++ b/raw/aaer/2007/AAER-2566.txt
@@ -0,0 +1,172 @@
+ 
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55359 / February 27, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2566 / February 27, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12575 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  Robert A. Ness, Jr.,   : 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 Robert 
+A. Ness, Jr., (“Respondent” or “Ness”) 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 paragraph 3 of Section III below, which are admitted, 
+Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Co mmission finds that: 
+ 
+ 1. Ness, age 42, passed the Certified Public Accountant (“CPA”) examination 
+in the State of Washington, and received a certificate allowing him to use the title CPA-Inactive, but 
+has never been a licensed CPA.  He served as Controller of Metropolitan Mortgage & Securities 
+Co., Inc. (“Metropolitan”) from 2001 until his termination in April 2004. 
+ 
+ 2. Metropolitan was, at all releva nt times, a closely-held Washington 
+corporation with its principal place of business in Spokane, Washington that was engaged in the 
+business of originating high-risk commercial real estate loans and selling real estate.  While all of 
+Metropolitan’s common stock was held by former CEO C. Paul Sandifur, Jr. (“Sandifur”) or his 
+family, Metropolitan registered debt securities and preferred stock with the Commission pursuant to 
+Sections 12(b) and 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”).  Metropolitan 
+listed its securities on the Pacific Exchange and the American Stock Exchange until both exchanges 
+delisted the securities in December 2003.  Metropolitan had its registrations revoked pursuant to 
+Section 12(j) of the Exchange Act on January 27, 2006.  On February 4, 2004, Metropolitan filed 
+for Chapter 11 bankruptcy in United States Bankruptcy Court in the Eastern District of Washington.  
+Metropolitan’s assets are currently being liquidated. 
+ 
+ 3. On September 26, 20 05, the Commission filed a complaint against Ness in 
+SEC v. Robert A. Ness, et al. (Civil Action No. 2:05-CV-1631).  On February 2, 2007, the court 
+entered an order permanently enjoining Ness, 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, 13a-
+14, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.    
+ 
+ 4. The Commission’s complaint alleged, among other things, that Ness, at the 
+direction of Metropolitan’s former President and Chief Executive Officer, approved the use of an 
+accounting treatment that did not comply with Generally Accepted Accounting Principles 
+(“GAAP”).  The inappropriate accounting treatment recognized the full gain on several sales of 
+ 3
+real estate immediately, when one or more of the criteria required by GAAP had not been met.  
+To facilitate the real estate sales Metropolitan had financed all or nearly all of the sales prices to 
+the buyers.  Under GAAP, recognition of the full gain on these real estate sales was not permitted 
+until various criteria were met including, that the buyers make their own substantial initial down 
+payments demonstrating their commitments to pay for the properties.  Despite this, Ness approved 
+the immediate recognition of the full gain for the transactions even though he knew, or was 
+reckless in not knowing, that such accounting treatment was a departure from GAAP and contrary 
+to the advice Metropolitan had received from its auditor.  The fraudulently recorded income from 
+the transactions allowed Metropolitan to report a net profit for the third fiscal quarter of 2002 and 
+the 2002 fiscal year instead of a net loss. 
+ 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Ness is suspended from appearing or  practicing before the Commission as an 
+accountant.   
+ 
+ B. After five years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the Respondent’s or the firm’s quality control system that would 
+indicate that the Respondent will not receive appropriate supervision; 
+ 4
+   (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 as an accountant provided that his state 
+CPA license is current and he has resolved all other disciplinary issues with the applicable 
+state boards of accountancy.  The Commission will consider an application by Respondent 
+to resume appearing or practicing before the Commission as a preparer or reviewer, or a 
+person responsible for the preparation or review, of any public company’s financial 
+statements that are filed with the Commission provided that his state CPA license or 
+certificate 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 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/2007/AAER-2567.txt b/raw/aaer/2007/AAER-2567.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ef7a4b42a15d4f1127ed0f5f1d51ca9193e60805
--- /dev/null
+++ b/raw/aaer/2007/AAER-2567.txt
@@ -0,0 +1,1395 @@
+
+
+ 
+ 
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+     SEC.gov | Kent H. Roberts 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20020 / February 28, 2007 
+
+ Accounting and Auditing Release No. 2567 / February 28, 2007 
+
+  SEC v. Kent H. Roberts , United States District Court for the District of Columbia, Civil Action No. 07-CV-00407 (D.D.C. February 28, 2007) 
+
+ SEC Charges Former General Counsel of McAfee, Inc. for Fraudulently Re-Pricing Option Grants 
+
+ 
+
+ The Securities and Exchange Commission today charged Kent H. Roberts, the former General Counsel and Corporate Secretary of McAfee, Inc., with securities fraud for wrongfully re-pricing McAfee stock option grants awarded to him and others in an effort to secretly increase the value of the grants. The Commission's complaint alleges that Roberts, secretly and without authorization, changed the grant date of a February 2000 grant made to him in order to take advantage of McAfee's then-declining stock price, which increased the potential value of his option grant by approximately $197,500. Roberts concealed his fraudulent re-pricing by filing false stock ownership reports with the Commission, and by failing to properly disclose in a McAfee proxy statement, which he signed, that the grant had been illicitly re-priced to confer a potential benefit of approximately $197,500 on Roberts. 
+
+ The complaint also alleges that in 2002, Roberts, in his capacity as secretary of the compensation committee of McAfee's board of directors, falsified the minutes of a compensation committee meeting, and directed the company to issue a 420,000 share option grant to McAfee's chief executive a day later than the committee had directed. By re-dating the grant to a day after the committee's intended grant date, Roberts gave the chief executive a potential benefit of approximately $739,200, due to an intervening decline in McAfee's stock price. Roberts later signed a company proxy statement that misleadingly described the chief executive's option grants, and failed to disclose that the CEO had received an extra $739,200 of potential value due to the unauthorized re-pricing. 
+
+ Roberts was terminated from his positions at McAfee, Inc. in May 2006, after he confessed his option re-pricing to members of McAfee's board of directors. Roberts did so as McAfee was conducting an internal investigation into option granting practices. 
+
+ Roberts is charged with violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder, the antifraud provisions; with violating Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, for circumventing internal controls; and with violating Section 16(a) of the Exchange Act, and Rule 16a-3 thereunder, regarding disclosures of stock ownership by public company officers. He is also charged with violating, and aiding and abetting violations by McAfee, Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 thereunder for proxy statement disclosure violations. The Commission is seeking injunctive relief, disgorgement, and money penalties against Roberts, in addition to a permanent bar to prohibit Roberts from serving as an officer or director of a public company. 
+
+ The Commission acknowledges the assistance of the United States Attorney's Office for the Northern District of California, which conducted its own separate, parallel investigation. 
+
+ The Commission's investigation in this matter is continuing. 
+
+ 
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2007/AAER-2568.txt b/raw/aaer/2007/AAER-2568.txt
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+++ b/raw/aaer/2007/AAER-2568.txt
@@ -0,0 +1,1375 @@
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+           SEC Action Lookup - Individuals (SALI) 
+         
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+                                                                                                                                                                                                                                                                                                                                                 
+  
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+               Home 
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+       
+              Leonard M. Snyder, H. Dane Reynolds, C. Burt Duren, and Carey Johnson
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Leonard M. Snyder, H. Dane Reynolds, C. Burt Duren, and Carey Johnson
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
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+             
+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20025 / March 1, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2568 / March 1, 2007 
+
+  SEC v. Leonard M. Snyder, H. Dane Reynolds, C. Burt Duren, and Carey Johnson , Civil Action No. 7:05-2471-RBH (D.S.C.) 
+
+ 
+
+ The Securities and Exchange Commission announced that on March 1, 2007, the Honorable R. Bryan Harwell, United States District Judge for the District of South Carolina, entered a Final Judgment as to Defendant C. Burt Duren, enjoining him from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Duren consented to the entry of the judgment without admitting or denying the allegations of the Commission's Complaint. The court ordered a civil penalty against Duren in the amount of $35,000, and prohibited Duren from acting as an officer or director of any issuer that has a class of registered securities for a period of five years. 
+
+ The Commission's Complaint, filed on August 25, 2005, alleged that, during the period from late 2002 through December 2003, Duren and the other defendants caused One Price Clothing Stores, Inc. ("One Price") to misrepresent in its Commission filings that it was in compliance with its credit facility, on which the company relied to provide cash for its operations. The Complaint further alleged that One Price was actually in default because the defendants caused the company to artificially inflate its inventory levels, which collateralized its debt, in weekly reports to its lender. The Complaint also alleged that One Price filed false and misleading periodic reports with the Commission because the inflated inventory levels were included in the financial statements that were filed with those reports. 
+
+ See also: L.R.  19349  (August 26, 2005); and R.  55270  (February 12, 2007). 
+
+ 
+
+ 
+    
+ SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2007/AAER-2569.txt b/raw/aaer/2007/AAER-2569.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e7adb38154b13f27e830e9ab747c970249caa9ad
--- /dev/null
+++ b/raw/aaer/2007/AAER-2569.txt
@@ -0,0 +1,143 @@
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55383 / March 2, 2007      
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2569 / March 2, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12577 
+In the Matter of 
+David C. Kirkpatrick, 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against David C. Kirkpatrick (“Kirkpatrick” or 
+“Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Kirkpatrick 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, Kirkpatrick 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 Kirkpatrick’s Offer, the Commission finds1 that: 
+1 The findings herein are made pursuant to Kirkpatrick's Offer of Settlement and 
+are not binding on any other person or entity in this or any other proceeding.  
+A. R ELEVANT ENTITIES 
+1. Kmart Corporation (“Kmart” or the “company”) 
+Kmart was a Michigan Corporation headquartered in Troy, Michigan, during the relevant 
+period. On January 22, 2002, Kmart filed a voluntary petition for reorganization relief under 
+Chapter 11 of the Bankruptcy code.  The company’s common stock was registered with the 
+Commission pursuant to Section 12(b) of the Exchange Act [15 U.S.C. § 78l(b)] and traded on the 
+New York Stock Exchange until December 19, 2002, when trading was suspended.  Kmart’s fiscal 
+year ends the last Wednesday in January. 
+2. Coca Cola Enterprises Inc. (“CCE”) 
+CCE is a Delaware corporation headquartered in Atlanta, Georgia. CCE is the world’s 
+largest bottler of Coca-Cola products and a major Kmart vendor.  CCE’s common stock is 
+registered with the Commission pursuant to Section 12(b) of the Exchange Act and is listed on the 
+New York Stock Exchange. 
+B. RESPONDENT 
+Kirkpatrick was National Sales Director for CCE in charge of the Kmart account at all 
+relevant times through January 2004, when he was asked to resign. Kirkpatrick worked out of a 
+Farmington Hills, Michigan, field office during the relevant period.    
+C. FACTS 
+1. Kmart Improperly Recognized Vendor Allowances 
+Kmart improperly recognized millions of dollars worth of vendor “allowances” prior to 
+bankruptcy. Kmart obtained allowances from its vendors for various promotional and marketing 
+activities. A significant number of allowances were recognized prematurely – or “pulled 
+forward” -- on the basis of false information provided to Kmart’s accounting department, while 
+the true terms of the payments were set forth in undisclosed side agreements. As a result of these 
+accounting irregularities, Kmart’s cost of goods sold was understated, and earnings were 
+materially overstated, for the fourth quarter of fiscal year ended January 31, 2001 (“fiscal year 
+2000”). 
+2. Kmart’s Vendor Allowance Tracking System (“VATS”) Forms 
+The principal document involved in the pulling forward of vendor allowances was Kmart’s 
+VATS form.  VATS forms summarized the basic terms of vendor allowances for the company’s 
+accounting department.  Bookkeepers inputted information from the VATS form into the 
+company’s computerized accounting system, where it was eventually posted to the general ledger.  
+To ensure proper accounting for an allowance, the VATS form should have reflected the true 
+purpose of, and effective dates for, the payment.  To pull forward an allowance, this information 
+was misrepresented on the VATS form to make it look like the payment was for past performance, 
+2
+
+when in truth it related to future obligations.  Kmart had a number of safeguards designed to ensure 
+the accuracy of the VATS forms and proper recognition of vendor allowances.  These included the 
+requirement that vendors co-sign VATS forms.   
+3. Kirkpatrick Signed Two Misstated VATS Forms 
+At a meeting on or about January 5, 2001, Kirkpatrick learned that Kmart’s food and 
+consumables division needed $5 million from CCE to help cover a divisional profit shortfall.  As 
+explained in a subsequent e-mail to Kirkpatrick on January 11, 2001, “dave, i appreciate your 
+efforts however i need to accelerate your schedule.  with the close of our fiscal on 1/31 i need to 
+line up another partner.  the bottom line is we need the 5.0m stay in touch.”  Kirkpatrick responded 
+by e-mail, “[] How about 7:30AM on Tuesday 1/16/0[1]? I’ll bring the donuts and the checkbook.”  
+Kirkpatrick attended additional meetings at Kmart in mid to late January 2001, after which CCE 
+agreed to “advance” $3 million worth of allowances in exchange for sales and promotional 
+activities by Kmart during calendar year 2001 and to pay $2 million to settle accounts for calendar 
+year 2000. To memorialize that agreement, Kmart and CCE entered into a written contract dated 
+January 30, 2001 (“Coke Contract”), which was negotiated by Kirkpatrick on behalf of CCE.  The 
+Coke Contract provided in relevant part that CCE would pay $3 million to support mutually 
+agreed-upon marketing activities during calendar year 2001.  Kmart would earn this allowance if, 
+and only if, it sold targeted amounts of CCE product during the calendar year.   
+At the end of January 2001, Kirkpatrick signed several VATS forms, including two relating 
+to the $3 million “advance.”  The first, VATS No. 226003, purported to relate to a $2.25 million 
+“Case display allowance” with an effective date of 02/01/00 to 12/31/00; the second, VATS No. 
+226004, purported to relate to a $750,000 “Holiday Display activation” allowance with an effective 
+date of 11/01/00 to 12/31/00.  VATS Nos. 226003 and 226004 misrepresented the effective dates 
+and purpose of these allowances.  The true terms of the allowances were set forth in the Coke 
+Contract and a subsequent letter Kirkpatrick wrote, neither of which was provided to Kmart’s 
+accounting department or independent auditor.  As explained therein, CCE agreed to pay $3 
+million to support mutually agreed-upon marketing activities during calendar year 2001.   
+On or about January 30, 2001, Kmart’s accounting department entered the false VATS 
+information into the company’s computerized accounting system, where it was eventually posted 
+to the general ledger. VATS Nos. 226003 and 226004 caused the cost of goods sold to be 
+understated by approximately $3 million in fiscal year 2000.  CCE paid the $3 million allowance 
+by check dated April 4, 2001, but the money was subject to repayment if Kmart did not perform in 
+accordance with the terms of the Coke Contract.   
+4. CCE’s False Third-Party Confirmation 
+Kmart’s independent auditor, PricewaterhouseCoopers LLP (“PwC”), sought to confirm 
+with CCE the terms of the $2.25 million allowance during the fiscal year 2000 audit.  Towards that 
+end, PwC faxed Kirkpatrick a third-party confirm relating to VATS No. 226003 on or about 
+February 19, 2001.  The third-party confirm, which was on Kmart letterhead, read in relevant part, 
+“Our auditors, PricewaterhouseCoopers L.P.P. are performing an annual audit of our financial 
+3
+
+statements.  They have requested of us to confirm directly with you the following vendor 
+allowance agreement [Vats No. 226003].”  On or about March 5, 2001, Kirkpatrick filled out by 
+hand, signed, and faxed to PwC an executed third-party confirm that, as he knew or was reckless in 
+not knowing, misrepresented the nature of (“Case display allowance”) and effective dates 
+(“02/01/00 to 12/31/00”) for the $2.25 million allowance.   
+5. Kmart’s Earnings Were Overstated 
+On March 13, 2001 Kmart filed its Form 10-K for the period ended January 31, 2001.  
+According to the financial statements incorporated into the Form 10-K, Kmart reported net income 
+for the fourth quarter of $249 million or $0.48 per share, exceeding Wall Street analyst 
+expectations of $0.47 by a penny.  Kirkpatrick’s accounting irregularities caused Kmart’s net 
+income for the quarter to be overstated by approximately 1.2 percent. 
+D. CONCLUSION 
+As a result of the foregoing, Kirkpatrick committed violations of Rule 13b2-1 of the 
+Exchange Act and caused violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 
+and 13b2-2 promulgated thereunder.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Kirkpatrick’s Offer.2 
+Accordingly, IT IS HEREBY ORDERED that Respondent Kirkpatrick cease and desist 
+from committing or causing any violations and any future violations Rule 13b2-1 of the Exchange 
+Act and causing any violations and any future violations of Section 13(a) of the Exchange Act and 
+Rules 12b-20, 13a-1 and 13b2-2 promulgated thereunder.   
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+  Kirkpatrick has agreed to pay a $25,000 civil penalty in connection with a related civil action. 
+4
+2
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2570.txt b/raw/aaer/2007/AAER-2570.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f76462a09f571c1064d33fa6cab354c865516292
--- /dev/null
+++ b/raw/aaer/2007/AAER-2570.txt
@@ -0,0 +1,101 @@
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55384 / March 2, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2570 / March 2, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12578 
+ORDER INSTITUTING CEASE-AND-
+In the Matter of 
+John Paul Orr, 
+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 John Paul Orr (“Orr” or “Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Orr 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, Orr 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 Orr’s Offer, the Commission finds1 that: 
+1 The findings herein are made pursuant to Orr’s Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding.  
+A. R ELEVANT ENTITIES 
+1. Kmart Corporation (“Kmart” or the “company”) 
+Kmart was a Michigan Corporation headquartered in Troy, Michigan, during the relevant 
+period. On January 22, 2002, Kmart filed a voluntary petition for reorganization relief under 
+Chapter 11 of the Bankruptcy code.  The company’s common stock was registered with the 
+Commission pursuant to Section 12(b) of the Exchange Act [15 U.S.C. § 78l(b)] and traded on the 
+New York Stock Exchange until December 19, 2002, when trading was suspended.  Kmart’s fiscal 
+year ends the last Wednesday in January. 
+2. Eastman Kodak Company (“Kodak”) 
+Kodak is a New Jersey corporation headquartered in Rochester, New York.  Kodak is one 
+of the world’s largest photo imaging companies and a major Kmart vendor.  Kodak’s common 
+stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is 
+listed on the New York Stock Exchange. 
+B. RESPONDENT 
+Orr was Divisional Vice President of Kmart’s photo division from October 1999 to 
+February 15, 2001, when he left the company.          
+C. FACTS 
+1. Kmart Improperly Recognized Vendor Allowances 
+Kmart improperly recognized millions of dollars worth of vendor “allowances” prior to 
+bankruptcy. Kmart obtained allowances from its vendors for various promotional and marketing 
+activities. A significant number of allowances were recognized prematurely – or “pulled 
+forward” -- on the basis of false information provided to Kmart’s accounting department, while 
+the true terms of the payments were set forth in undisclosed side agreements. As a result of these 
+accounting irregularities, Kmart’s cost of goods sold was understated for the fourth quarter of 
+fiscal year ended January 26, 2000 (“fiscal year 1999”).   
+2. Kmart’s Vendor Allowance Tracking System (“VATS”) Forms 
+The principal document involved in the pulling forward of vendor allowances was Kmart’s 
+VATS form.  VATS forms summarized the basic terms of vendor allowances for the company’s 
+accounting department.  Bookkeepers inputted information from the VATS form into the 
+company’s computerized accounting system, where it was eventually posted to the general ledger.  
+To ensure proper accounting for an allowance, the VATS form should have reflected the true 
+purpose of, and effective dates for, the payment.  To pull forward an allowance, this information 
+was misrepresented on the VATS form to make it look like the payment was for past performance, 
+when in truth it related to future obligations.  Kmart had a number of safeguards designed to ensure 
+2
+
+the accuracy of the VATS forms and proper recognition of vendor allowances.  These included the 
+requirement that vendors co-sign VATS forms.   
+3. Orr’s Division Pulled Forward $2.5 Million Of Kodak Allowances 
+Towards the end of fiscal year 1999, Kmart’s photo division was projecting a profit 
+shortfall, meaning actual results were short of what senior management expected.  Orr’s division 
+dealt with the profit shortfall in part by asking Kodak for additional allowances.  Kodak responded 
+by agreeing to pay $2.5 million to secure for itself the right to display product at the front of Kmart 
+stores during calendar year 2000.  On or about January 24, 2000, a Kmart buyer in the photography 
+products group prepared and signed VATS No. 197017.  VATS No. 197017 misrepresented the 
+effective date of the $2.5 million allowance as 2/1/99 to 1/25/00.  VATS No. 197017 also 
+misrepresented that the allowance related to an “Annual Rolling Rack Program for 1999.”  This 
+information was inaccurate because the allowance related to activity scheduled for calendar year 
+2000. On or about January 27, 2000, Kmart’s accounting department entered the inaccurate VATS 
+information into the company’s computerized accounting system, where it was eventually posted 
+to the general ledger.  VATS No. 197017 caused cost of goods sold to be understated by $2.5 
+million in fiscal year 1999. 
+D. CONCLUSION 
+As a result of the foregoing, Orr caused a violation of Rule 13b2-1 of the Exchange Act.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanction 
+agreed to in Orr’s Offer.2 
+Accordingly, IT IS HEREBY ORDERED that Respondent Orr cease and desist from 
+committing or causing any violations and any future violations of Rule 13b2-1 of the Exchange Act.   
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+2  In connection with the institution of these proceedings, the Commission is voluntarily 
+dismissing with prejudice as to Respondent a civil action previously filed against him in the 
+United States District Court for the Eastern District of Michigan.   
+3
diff --git a/raw/aaer/2007/AAER-2576.txt b/raw/aaer/2007/AAER-2576.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6afa85543acc870fa81b48a5f05cc9fe5b952964
--- /dev/null
+++ b/raw/aaer/2007/AAER-2576.txt
@@ -0,0 +1,1404 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill (a.k.a. Mary Anne Poland) 
+     
+     
+     
+     
+     
+     
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+              Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill (a.k.a. Mary Anne Poland)
+           
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+        Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill (a.k.a. Mary Anne Poland)
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20036 / March 12, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2576 / March 12, 2007 
+
+  SEC v. Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill (a.k.a. Mary Anne Poland) , Civil Action No. 07 CV 2058 (S.D.N.Y.) 
+
+ SEC Charges Four Former Senior Executives of Nortel Networks Corporation in Wide-Ranging Financial Fraud Scheme 
+
+ 
+
+ The Securities and Exchange Commission today filed civil fraud charges in the U.S. District Court for the Southern District of New York against four former senior executives of Nortel Networks Corporation for repeatedly engaging in accounting fraud to bridge gaps between Nortel's true performance, its internal targets and Wall Street expectations. Nortel is a Canadian manufacturer of telecommunications equipment. 
+
+ Named in the Commission's complaint are Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill. The complaint alleges that these individuals engaged in this misconduct while serving as top corporate executives of Nortel between September 2000 and January 2004. During that time, Dunn served as Chief Financial Officer and Chief Executive Officer; Beatty as Controller and Chief Financial Officer; Gollogly as Controller; and Pahapill as Assistant Controller and Vice President of Corporate Reporting. 
+
+ According to the Commission's complaint, from late 2000 through January 2001, Dunn, Beatty and Pahapill altered Nortel's revenue recognition policies to accelerate revenue as needed to meet forecasts and, from at least July 2002 through June 2003, Dunn, Beatty and Gollogly improperly established, maintained and released reserves to meet earnings targets, fabricate profits and pay performance-related bonuses. 
+
+ The complaint specifically alleges the following: 
+
+  In late 2000, Beatty and Pahapill implemented changes to Nortel's revenue recognition policies that violated US GAAP, specifically to pull forward revenue to meet publicly announced revenue targets. However, because their efforts pulled in more revenue than needed to meet those targets, Dunn, Beatty and Pahapill selectively reversed certain revenue entries during the 2000 year-end closing process. These actions improperly boosted Nortel's fourth quarter and fiscal 2000 revenue by over $1 billion, while at the same time allowing the Company to meet, but not exceed, market expectations.   
+
+   In November 2002, Dunn, Beatty and Gollogly learned that Nortel was carrying over $300 million in excess reserves. Dunn, Beatty and Gollogly did not release these excess reserves into income as required under US GAAP. Instead, they concealed their existence and maintained them for later use. Further, in early January 2003, Beatty, Dunn and Gollogly directed the establishment of yet another $151 million in unnecessary reserves during the 2002 year-end closing process to avoid posting a profit and paying bonuses earlier than Dunn had predicted publicly. These reserve manipulations erased Nortel's  pro forma  profit for the fourth quarter of 2002 and caused it to report a loss instead.   
+
+   In the first and second quarters of 2003, Dunn, Beatty and Gollogly directed the release of at least $490 million of excess reserves specifically to boost earnings, fabricate profits and pay bonuses. These efforts turned Nortel's first quarter 2003 loss into a reported profit under US GAAP, which allowed Dunn to claim that he had brought Nortel to profitability a quarter ahead of schedule. In the second quarter of 2003, their efforts largely erased Nortel's quarterly loss and generated a  pro forma  profit. In both quarters, Nortel posted sufficient earnings to pay tens of millions of dollars in so-called "return to profitability" bonuses, largely to a select group of senior managers.   
+
+   During the second half of 2003, Dunn and Beatty repeatedly misled investors as to why Nortel was conducting a purportedly "comprehensive review" of its assets and liabilities, which resulted in Nortel's restatement of approximately $948 million in liabilities in November 2003. Dunn and Beatty falsely represented to the public that the restatement was caused solely by internal control mistakes. In reality, Nortel's first restatement was necessitated by the intentional improper handling of reserves which occurred throughout Nortel for several years, and the first restatement effort was sharply limited to avoid uncovering Dunn, Beatty and Gollogly's earnings management activities. 
+  The complaint charges Dunn, Beatty, Gollogly and Pahapill with violating and/or aiding and abetting violations of the antifraud, reporting, books and records, internal controls and lying to auditors provisions of the federal securities laws. Dunn and Beatty are separately charged with violations of the officer certification provisions instituted by the Sarbanes-Oxley Act. The Commission seeks a permanent injunction, civil monetary penalties, officer and director bars, and disgorgement with prejudgment interest against all four defendants. 
+
+ The Commission acknowledges the assistance of the Ontario Securities Commission, which conducted its own separate, parallel investigation. 
+
+ The Commission's investigation is continuing. 
+
+ 
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diff --git a/raw/aaer/2007/AAER-2578.txt b/raw/aaer/2007/AAER-2578.txt
new file mode 100644
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+UNITED STATES OF AMERICA 
+BEFORE THE 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8790 / March 15, 2007 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55476 / March 15, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2578 / March 15, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12592 
+In the Matter of 
+FRANKLYN A. CAINE, 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND SECTION 21C 
+OF THE SECURITIES EXCHANGE ACT OF 1934 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the 
+Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 
+1934 (“Exchange Act”) against Franklyn A. Caine (“Caine” or “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject matter of 
+these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
+Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange 
+Act of 1934 (“Order”), as set forth below.1 
+  In a separate civil action filed simultaneously with this proceeding, Caine separately consented to the entry of a 
+judgment by the U.S. District Court for the District of Columbia pursuant to Section 20(d) of the Securities Act and 
+Section 21(d) of the Exchange Act ordering him to pay a civil penalty of $125,000 and disgorgement of $550,000 
+plus pre-judgment interest of $156,072.  SEC v. Franklyn A. Caine, Civil Action No. 07-cv-00494 (GK). 
+1
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that:2 
+A. RESPONDENT 
+1. Caine, age 57, served as the Chief Financial Officer (“CFO”) of Raytheon 
+Company (“Raytheon”) from April 1999 to December 2002. 
+B. SUMMARY 
+2. Between 1997 and 2001, Raytheon Company and certain members of its senior 
+management (“Raytheon” or the “company”) made false and misleading disclosures and used 
+improper accounting practices that operated as a fraud by masking the declining results and 
+deteriorating business of Raytheon Aircraft Company (“RAC”) and inaccurately reporting the 
+company’s operating results on both a segmented and consolidated basis.  As set forth below, 
+certain of these disclosures and accounting practices were undertaken by or with the knowledge 
+of senior company officers, including Caine. 
+3. Between 1997 and 2001, Raytheon failed to fully and accurately disclose known 
+risks, trends, uncertainties, and other information concerning the deteriorating state of RAC’s 
+commuter aircraft business and the negative impact this decline was having on asset values 
+associated with RAC’s line of nineteen-seat, turboprop aircraft (the “commuters” or the “1900s”) 
+and, thus, on the company’s (including RAC’s) results of operations.  Raytheon also engaged in 
+several improper accounting practices that delayed and mischaracterized known losses associated 
+with RAC’s commuter line during this time period.   
+4. As Raytheon’s CFO, Caine failed to make or ensure the timely, accurate, and full 
+disclosure of these material trends and uncertainties in the company’s public filings during 2000 
+and 2001 and failed to take sufficient steps to ensure that Raytheon properly accounted for the 
+company’s on- and off-balance sheet commuter assets during this time period.  Caine also did 
+not ensure that the company maintained an adequate system of internal accounting controls 
+related to these assets. 
+5. Had Raytheon properly accounted for its commuter assets, the company would 
+have reported material reductions in RAC’s reported operating income of at least $34 million, 
+$22 million, and $21 million at year-end 1998, 1999, and 2000, respectively, which represented 
+13 percent of the subsidiary’s reported annual operating income in each of these periods.   
+6. RAC’s operating results would have been further reduced by at least $67 million 
+(41 percent) at year-end 2000 had Caine and others in senior Raytheon and RAC management 
+timely and appropriately recognized losses inherent in a planned “soft landing” of the commuter 
+aircraft line. Internal company documents and other information further indicate that, at this 
+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
+2 
+time, these senior executives expected commuter losses of $240 million given the cash sales 
+prices that had been approved in the “soft landing,” and a charge of $67 million to $240 million 
+would have reduced Raytheon’s 2000 profit before taxes by at least 8 to 27 percent.  Caine and 
+others, however, caused Raytheon to improperly take this charge in the third quarter of 2001, 
+when the company wrote down its on-balance sheet commuter assets and increased reserves for 
+its off-balance sheet commuter receivables by a total of $693 million after the terrorist attacks of 
+September 11th.  Given the charge that the company should have taken at year-end 2000, 
+Raytheon’s third quarter 2001 commuter loss provision was materially overstated by at least 10 
+to 53 percent. 
+C. BACKGROUND 
+7. Raytheon is a Delaware corporation, headquartered in Waltham, Massachusetts.  
+The company is an industry leader in defense, government electronics, space technology, and 
+business and special mission aircraft.  Between 1997 and 2001, Raytheon reported between $13 
+billion and $20 billion in net sales revenue annually and employed between 75,000 to 120,000 
+individuals. During this time period and continuing through today, Raytheon’s securities have 
+been registered with the Commission pursuant to Section 12(b) of the Exchange Act and listed 
+on the New York, Chicago, and Pacific Exchanges. 
+8. In the early 1990s, Raytheon was a diversified, multi-national conglomerate, 
+which operated in the defense, electronics, engineering and construction, major appliances and 
+aircraft businesses. The company formed RAC in 1994 through the combination of Beech 
+Aircraft and Raytheon Corporate Jets, and the wholly-owned Raytheon subsidiary has been 
+reported as a separate segment in all of the company’s public filings since that time.   
+9. RAC manufactures, markets, and services business jets, turboprops, and piston-
+powered aircraft for the world’s commercial, fractional ownership, and military aircraft markets.  
+Due to the cyclical nature of these markets, RAC often experienced fluctuating results.  For 
+example, between 1997 and 2001, RAC generated between $2.3 billion and $3.2 billion in net 
+sales revenue for the company annually, accounting for 13 to 19 percent of Raytheon’s 
+consolidated annual sales revenues. In addition, while the revenues generated by the commuter 
+aircraft product line represented approximately 1 percent of Raytheon’s consolidated net sales 
+revenue during this time period, the company’s financing of those sales left Raytheon with 
+substantial recourse obligations related to over $1 billion in commuter receivables that were off 
+the balance sheet, which represented approximately 9 percent of Raytheon’s reported 
+stockholder’s equity each year between 1997 and 2001. 
+10. In 1997, Raytheon completed two multi-billion dollar defense acquisitions in an 
+effort to streamline its operations and solidify its position as one of the nation’s largest military 
+contractors. These acquisitions led to a doubling of Raytheon’s long-term debt load (increasing 
+it to over $8 billion) and a substantial lowering of Raytheon’s credit rating.  In an effort to reduce 
+the burden of its debt expense on earnings and cash flows, Raytheon began to divest many of its 
+“non-core” commercial units, using the cash generated by these sales to pay down debt it 
+incurred as a result of its defense acquisitions. RAC was considered for divestiture as part of this 
+plan. 
+3
+
+D. 	 RAYTHEON’S IMPROPER ACCOUNTING AND DISCLOSURES FOR 
+ITS COMMUTER BUSINESS 
+11. Between 1997 and 2001, Raytheon deferred substantial losses related to RAC’s 
+line of commuter aircraft. These planes were typically used by small, thinly capitalized airlines 
+to transport passengers along regional or local routes.  These carriers were generally seen as 
+significant credit risks, were thus frequently unable to obtain independent financing for their 
+aircraft purchases, and typically lacked sufficient cash on hand to make outright purchases of 
+RAC’s commuter aircraft.   
+12. As a result, RAC rarely sold its new or used 1900s for cash.  Instead, RAC’s sales 
+were regularly financed by the subsidiary’s captive finance company, Raytheon Aircraft Credit 
+Corporation (“RACC”), which often offered below-market interest rates and other favorable 
+terms to customers in order to increase demand for the 1900s.  RAC also regularly took used 
+commuter aircraft (model 1900Bs and 1900Cs) in trade for the purchase of newer planes (model 
+1900Ds), which left RAC with a supply of used 1900s in inventory that required reconditioning 
+and refurbishment in order to be remarketed. 
+13. RACC sold most of its aircraft receivables, including commuter financing 
+receivables, into a revolving credit facility funded by an outside bank syndicate, which removed 
+the debt associated with these financed sales from the company’s balance sheet.  Under the terms 
+of the credit facility agreement, Raytheon was obligated to re-purchase certain delinquent and 
+defaulted receivables, and the level of recourse to Raytheon on the commuter receivables 
+generally ranged between 75 to 100 percent depending upon the type of financing.  RACC also 
+renegotiated and restructured many of the payment arrangements it had with certain RAC 
+customers in order to keep these customers from becoming overly delinquent or otherwise 
+defaulting on their notes. 
+14. As Raytheon’s CFO, Caine was aware that the company regularly substituted new 
+or restructured commuter notes for delinquent receivables prior to their triggering any defaults 
+under the credit facility.  Thus, despite the financial stress accumulating in the portfolio’s 
+commuter exposure, Caine was of the view that the portfolio as a whole was always 
+“performing” from an accounting standpoint. 
+1. The Declining Commuter Market between 1997 and 1998 
+15. During the late 1990s, RAC began to experience softening demand for its 
+commuter aircraft due to, among other things, shifting consumer preferences, increased 
+government regulation of nineteen-seat aircraft, increased competition in the used aircraft 
+market, and the introduction of regional jets.  These and other factors combined to place 
+downward pressure on the sales prices, lease rates, and asset values of these planes.  Thus, in 
+1997, RAC began for the first time to place used 1900s with customers on operating leases and 
+substantially ceased outright sales of used 1900s for cash.   
+16. In addition, many of the used commuters that RAC received as returns, 
+repossessions, and trade-ins required significant refurbishment before RAC could re-market 
+them.  These refurbishment costs were capitalized as part of the aircraft’s book value, which led 
+4
+
+to “[h]igher book values” that “can and do exceed fair market value.”  In response, during the 
+mid 1990s, prior to Caine’s arrival, RAC adopted a policy of depreciating the used commuter 
+aircraft on an accelerated basis during the life of their leases to “bring down values” to amounts 
+that were more likely to be recovered in later cash sales.  By so doing, RAC improperly deferred 
+and re-characterized impairment losses associated with high commuter book values as ordinary 
+depreciation. 
+17. As Raytheon’s CFO, Caine understood that the book value of all used commuters 
+could not be recovered by cash sales into the then-current market.  He was also repeatedly 
+informed by Raytheon’s outside auditors that “The most significant accounting issue for used 
+commuters is the realizability of assets.  Management’s plan is to lease the aircraft, depreciate 
+them down to 50% of book value over 10 years and sell them to the freighter market at the end of 
+the lease.” 
+2. The Deferral of Significant Commuter Losses in 1999 
+18. Throughout 1999, certain senior Raytheon and RAC officers (including Caine) 
+were made aware of potential negative and adverse trends, uncertainties, and risks related to 
+RAC’s commuter business. 
+19. In April 1999, Caine’s first month as Raytheon’s CFO, an outside consultant 
+presented a report to senior management, which stated that the commuter market was “at a 
+turning point,” that other “[c]arriers have begun to flood the market with…used 19-seat 
+airplanes,” that “lease rates for used 19-seat aircraft [we]re declining,” that the “[d]ownward 
+pressure on lease rates w[ould] grow as the surplus of 19-seat aircraft expands,” and that 
+“[a]dditional lease rate pressures could impact the company’s asset values and re-marketing 
+efforts.”   
+20. An April 1999 e-mail that previewed this report for Caine informed him that such 
+“surplus” aircraft and “lower lease rates could drive declining asset values and represent a 
+potential material write down” of the commuter assets.  Caine subsequently received a copy of 
+the report, and both he and other senior Raytheon officers were briefed on this situation and 
+management’s views of it.  That same month, during their first meeting, Raytheon’s lead auditor 
+discussed issues related to the commuters with Caine. 
+21. In May 1999, an internal Raytheon study forecasted that RAC’s portfolio of 
+commuter receivables would generate an estimated $95 million in losses due to “[t]he lack of 
+portfolio equity, poor customer credit and payment behavior, high loan-to-value ratios, and the 
+modest level of reserves” established for these assets.  That same study identified a “worst case 
+scenario” that could generate $200 million in additional losses depending upon the impact of the 
+“upcoming introduction” of regional jets.   
+22. An e-mail that previewed the conclusions of this internal study further informed 
+Caine that there was an “obvious” need for a “material write-down” of RAC’s commuter assets, 
+that these losses were “large and growing,” that RAC was engaging in “misleading financial 
+reporting,” and that the situation was “as bad as [the author of the study had] seen.”  Caine 
+5
+
+subsequently received a copy of the internal study, and both he and other senior Raytheon 
+officers were briefed on both its conclusions and management’s views of them. 
+23. In June 1999, Raytheon’s then-Controller advised Caine that there was an 
+estimated exposure of $300 million to $500 million in marking the RACC portfolio to market. 
+24. Also in June 1999, Caine and other senior Raytheon officers received a 
+“response” from RAC to the April and May 1999 external and internal studies.  This response set 
+forth the view of RAC management that there was greater demand for new commuter aircraft 
+than forecast by the company’s outside consultant.  With respect to the internal study, RAC’s 
+response advised Caine and others that it was “a corporate decision” whether to adopt a proposed 
+“equity model” as an alternative way to establish commuter reserves at RAC, but described the 
+model as “[a] means to build reserves at the expense of current period profits.”  RAC’s response 
+instead proposed a series of “risk mitigation plans” for the commuter portfolio, such as 
+addressing the $95 million commuter exposure identified in the May 1999 internal study through 
+various means (including “third party, no recourse notes” that would provide an estimated $93 
+million “improvement”).  These sales did not materialize, however.  Yet, reserves were not 
+adequately increased. 
+25. In July 1999, Raytheon’s investment bankers informed company executives that 
+“[p]ortfolio policies may be masking problems from being recognized,” that “actual collateral 
+values may be substantially lower than loan balances,” and that, if the company attempted to 
+securitize all of RAC’s commuter receivables, the commuter portfolio would be valued “at a 
+material discount to its current book value.”  Management subsequently decided not to pursue a 
+securitization of these receivables. 
+26. In August 1999, as part of an initial consideration to divest RAC, Caine and other 
+senior Raytheon executives were informed that there was “approximately $250 Million - $350 
+Million risk in [the] $2.4 Billion loan/lease portfolio,” and the “risk is likely to approach the high 
+end of this range over time” since “about 40% of loan/lease payments are delinquent” and 
+“business cycle downturn may also drive up defaults [and] reduce residual values of used 
+aircraft.” 
+27. In the Fall of 1999, after the initial effort to divest RAC failed, Raytheon 
+management attempted to sell RAC’s portfolio of aircraft receivables (including its commuter 
+receivables) to an outside finance company.  The finance company, however, informed certain 
+Raytheon executives that it would not purchase any of the commuter receivables due to, among 
+other things, concerns over their high loan-to-value ratios and high concentrations in certain 
+customers.  The finance company also provided Raytheon personnel with an independent 
+valuation analysis of the 1900s, which stated that the commuter industry was experiencing a 
+“distinct reduction in sales activity” and a “downturn” in leasing activity over the past year.  This 
+report also listed estimated market values for the 1900s that were below their book values. 
+28. In October 1999, due to unrelated difficulties in its defense businesses and 
+engineering and construction unit, Raytheon announced an unexpected $640 million charge, 
+which caused the price of the company’s stock to fall 44 percent in one day.  This charge also led 
+to a downgrading of the company’s bond and credit ratings, and Raytheon management 
+6
+
+continued with the strategy to pay down the company’s debt by divesting certain “non-core” 
+commercial units. As part of this strategy, senior Raytheon management undertook a new effort 
+to divest RAC. 
+29. Contemporaneous documents further indicate that, during January 2000 
+presentations to Raytheon management and the audit committee, the company’s outside auditors 
+informed Caine and others that they had a “continued concern about commuter portfolio 
+exposure,” that “higher refurb[ishment] costs on used commuters” accounted for a $15 million 
+decrease in RAC’s operating profit that year, that the company “need[ed] to relook at FAS 125 
+calculations based on higher refurb costs,” that the used commuter inventory was projected to be 
+“higher than prior years” in 2000, that, if there is “any slip,” the commuter inventory “balance 
+will balloon.” 
+30. In addition, following a number of production and accounting problems that arose 
+at RAC as part of the year-end 1999 close, the subsidiary’s CEO stepped down from his 
+executive position, and Raytheon’s CEO traveled to the subsidiary to make it clear that RAC 
+personnel had to improve their processes to prevent similar issues from occurring in the future.  
+Upon learning of the year-end closing issues at RAC, Caine immediately revoked the recent 
+promotion and transfer of a senior RAC financial officer and directed him to return to RAC and 
+help solve the problems there. 
+31. Thereafter, in early 2000, RAC’s newly-installed CEO instructed his staff to 
+critically examine the subsidiary’s operations, and RAC’s Deputy CFO took the lead role in 
+identifying issues to be examined.  As part of this review, RAC personnel identified a potential 
+$220 million exposure related to the commuter assets on and off the balance sheet.  This estimate 
+was calculated by comparing “[p]rices which could be readily obtainable in today’s market” to 
+commuter book values. The market values used in the analysis were supplied by the lead 
+commuter sales officials at RAC and averaged from $500,000 to $1 million below the commuter 
+book values. 
+32. During this time period, Caine commissioned a review of RAC’s commuter 
+program by a separate audit firm and requested that Raytheon’s internal audit department also 
+examine RAC’s commuter accounting.  In addition, as Caine was aware, Raytheon’s outside 
+auditors were conducting extended procedures at RAC as part of the year-end audit process 
+given the issues that had previously arisen at the subsidiary, and the potential $220 million 
+commuter exposure was reviewed as part of this process as well.  However, based on overly 
+optimistic internal analyses prepared by RAC executives, which indicated that no “event of 
+impairment” had occurred, RAC’s commuter assets were not written down nor were RAC’s 
+commuter reserves adequately increased at that time. 
+33. In January 2000, Raytheon had issued an earnings advisory for the fourth quarter 
+of 1999 and the full year 2000 because of aircraft production delays at RAC, a restatement due to 
+RAC’s improper bill and hold accounting, higher interest expenses, a higher effective tax rate, 
+and other unfavorable results in its defense and other businesses.  Following this announcement, 
+Raytheon’s stock price fell approximately 17 percent in one day.  By March 2000, it was 
+reported that Raytheon’s bond and credit ratings might be further downgraded “[i]f corrective 
+7
+
+actions do not lead to material long-term improvements in overall performance and its balance 
+sheet, or if material new operating problems emerge….” 
+3. Raytheon’s Improper Accounting and Disclosures in 1999 
+34. Raytheon’s SEC filings for 1999 did not contain adequate disclosures of the 
+negative and adverse trends, uncertainties, risks, and other information related to RAC’s 
+commuter aircraft or the subsidiary’s commuter business. 
+35. Although certain forward-looking statements in Raytheon’s third quarter 1999 
+Form 10-Q, which was signed by Caine as the company’s CFO, did disclose that one of the 
+fourteen “important factors that could cause actual results to differ” was “the impact of recourse 
+obligations of Raytheon Aircraft [RAC] due to changes in the collateral value of financed 
+aircraft,” these statements did not reference commuter aircraft by name or describe how the 
+collateral value of these aircraft were particularly susceptible to negative changes due to the 
+current and anticipated market conditions for these planes.  In addition, these and other 
+statements in Raytheon’s third quarter 1999 Form 10-Q did not disclose that there were tens to 
+hundreds of millions of dollars of “risk” associated with the company’s portfolio of commuter 
+and general aviation receivables, as Caine and others at the company were aware at the time. 
+36. While Raytheon’s 1999 Form 10-K did refer to “commuter valuation costs” as 
+one of five factors affecting RAC’s “decline in operating income as a percent of sales in 1999,” 
+this disclosure failed to provide adequate information concerning the known material and 
+adverse risks, uncertainties, and trends posed by the commuters. 
+37. In addition, the forward-looking statements in Raytheon’s 1999 Form 10-K stated 
+that “the effect of market conditions, particularly as it affects the general aviation market, the 
+impact of competing products and pricing, [and] the impact on recourse obligations of RAC due 
+to changes in the collateral value of financed aircraft” were among the many “factors that could 
+cause actual results to differ,” but did not mention “commuter” aircraft by name or provide 
+adequate information about the negative trends, uncertainties, and risks concerning the 
+commuters that were known to management at the time.  Likewise, another set of forward-
+looking statements in Raytheon’s 1999 Form 10-K stated that “continued market acceptance of, 
+and government regulations affecting, 19-seat turboprop commuter aircraft” could affect RAC’s 
+future results of operations, but Raytheon did not disclose the significant information that it had 
+about the declining commuter market and the exposures facing the company. 
+38. These forward-looking statements were also inconsistent with disclosures in the 
+footnotes to the company’s 1999 financial statements, which misleadingly stated that “the 
+Company does not expect to incur any material losses against the net book value of the long-term 
+receivables” because “it is the Company’s policy to have the aircraft serve as collateral for the 
+commuter airline receivables;” that “any liability arising from these transactions will not have a 
+material effect on the Company’s financial position, liquidity, or results of operations” given 
+Raytheon’s experience to date with resale activities and pricing and the Company’s plan to 
+continue production into the foreseeable future; and that “[t]hese financial instruments are 
+recorded at estimated fair value.  No material gain or loss resulted from the sales of receivables.”  
+As certain members of Raytheon management were aware, the fair value of the commuter 
+8
+
+aircraft serving as collateral for the corresponding receivables was declining given the 
+deteriorating market conditions for these planes.  Yet, the company was not adequately 
+increasing its reserves for these anticipated short falls, causing significant potential future 
+liability under its recourse provisions to the revolving credit facility.  At the time, Caine 
+considered the off-balance sheet portfolio of commuter receivables to be performing from an 
+accounting standpoint since the ongoing substitutions of new or restructured notes for any 
+troubled receivables avoided actual defaults under the facility. 
+39. In addition, contrary to the company’s footnote disclosures, during 1999, RAC 
+continued an incorrect practice of using FAS 125 gains on commuter receivables sold into the 
+credit facility to set up equally off-setting commuter loss reserves.  As a result, Raytheon’s 
+reported financial statements did not accurately reflect the accounting impact of declining 
+commuter values. 
+40. For example, in the third quarter of 1999, RAC increased its “cushion” for 
+commuter losses by roughly $11 million given the improper FAS 125 gains it recognized on the 
+sale of commuter receivables into the credit facility.  RAC, however, subsequently reduced that 
+increase by roughly $7 million in the fourth quarter of 1999 that offset a significant FAS 125 loss 
+caused by a reduction in Raytheon’s credit rating.  These adjustments represented approximately 
+17 and 19 percent of the subsidiary’s reported operating income/loss in the third and fourth 
+quarters of 1999, respectively. 
+41. Also, during 1999, RAC still had not properly applied FAS 125 to its off-balance 
+sheet commuter receivables. As a result, RAC’s reported annual operating income should have 
+been reduced by at least $21 million (13 percent) at year-end. 
+4. In 2000, the Commuter Market Continued to Deteriorate 
+42. In 2000, a variety of internal and external sources continued to inform Raytheon 
+and RAC executives that the market for 1900s was in substantial decline.  These sources further 
+indicated that there were actual material commuter losses at RAC and that the potential losses 
+associated with the 1900 line were in the hundreds of millions of dollars. 
+43. In January 2000, Caine and other senior Raytheon and RAC officers were 
+informed that the company’s strategic planning department viewed RAC as having a substantial 
+negative “economic value added,” an internal business metric, due in large part to $240 million 
+in negative value and exposure associated with RAC’s off-balance sheet commuter and general 
+aviation receivables. 
+44. In February 2000, the same outside consultant that conducted the April 1999 
+external study reported to Raytheon executives that there would be “[c]ontinued downward 
+pressure on turboprop lease rates due to falling demand for new units and a growing supply of 
+used capacity” and that “demand for new [commuters] will average 7 to 12 sales annually,” well 
+below what RAC was planning to manufacture that year.  RAC, however, had exceeded the 
+consultant’s sales predictions in the prior year due in part to its continued willingness to accept 
+trade-ins of used commuters for the latest model (1900Ds). 
+9
+
+45. In March 2000, auditors with a major public accounting firm that had been 
+retained to perform a review of RAC’s “used commuter program exposures” informed Caine and 
+other members of senior Raytheon and RAC management that “the Company’s largest exposure 
+in the [commuter] portfolio is with potential returned aircraft” and that “the book values of 
+certain aircraft in the portfolio exceed the current market values.”  In particular, these auditors 
+identified a $115 million “shortfall” associated with RAC’s 1900Cs that were on and off the 
+balance sheet, assuming a strategy of selling the aircraft for cash at their fair market value.  The 
+auditors also noted that RAC personnel were “rejecting cash offers on commuter aircraft because 
+of the income statement repercussions . . . [implying that] the carrying amounts of commuter 
+airplanes exceed their fair market values.”  The auditors further noted that RAC only wrote down 
+used commuter asset values “when the Company enters into a new finance/lease transaction.”  
+The auditors also reported that RAC lacked formal and documented policies and practices 
+concerning the accounting for commuter aircraft, commuter loan restructurings, the creation of 
+commuter valuation reserves, and the monitoring of customer accounts and collections. 
+46. In April 2000, in response to Caine’s request, Raytheon’s internal audit 
+department prepared a report for Caine and other members of senior Raytheon and RAC 
+management that examined the items identified as part of the year-end closing process, as set 
+forth in Paragraph No. 31 above. Caine received a copy of the report’s executive summary and 
+certain attachments, which among other things stated that, although there was “[n]o event of 
+impairment prior to 12/31/99” regarding the commuters, there was an “[u]ndetermined but likely 
+to be significant” exposure related to these assets.  The attachments to the executive summary 
+also stated that there was another “undetermined” exposure associated with the subsidiary’s 
+commuter bad debt reserve, that the “[n]on-performing segment of [the] portfolio is increasing,” 
+and that there was “no formal collections process for non-performing customers” at RAC. 
+47. Between April and July 2000, in connection with the company’s efforts to sell 
+RAC and/or its portfolio of commuter financing receivables, Raytheon’s outside investment 
+bankers provided certain members of senior management with a series of valuation analyses for 
+the commuter receivables.  A July 2000 analysis indicated that a sale of RACC’s portfolio of 
+commuter receivables might generate losses of between $63 million and $622 million, depending 
+on the underlying assumptions, and that the value of discounted cash flows on the portfolio was 
+between $200 million and $273 million lower than the total loan balances, depending upon the 
+underlying interest rate assumptions.  Caine received a copy of this report. 
+48. Underlying the investment banker’s analysis was a July 2000 report from the 
+same major public accounting firm that had previously analyzed RAC’s “used commuter 
+program exposures.”  This report highlighted significant problems related to the commuters, 
+including high levels of delinquencies and repossessions and “between $10 million and $200 
+million of collateral exposure” that was not reflected by RAC’s accounting and restructuring 
+methodologies, such as the practice of recognizing losses only upon a new sale or lease of the 
+aircraft instead of upon return or repossession.  Caine received versions of this report and was 
+aware of its contents. 
+49. Also, in the Summer of 2000, a senior RAC executive informed Caine and 
+another senior Raytheon officer of his significant concern about a problem with the commuters 
+in the “half a billion dollar” range based on his view of the number of idle aircraft that were then 
+10
+
+in inventory and the substantial number of commuter returns that were forecasted at year-end.  
+Ultimately, this problem was addressed by transferring pension income to RAC to gradually 
+build up commuter reserves. 
+a. The Undisclosed Surplus Pension Income 
+50. In the third quarter of 2000, Caine approved the quarterly use of $14 million in 
+surplus pension income at RAC on a going forward basis to increase commuter reserves.  This 
+income was generated by an over-funded pension plan that had been retained by Raytheon after 
+the divestiture of another business unit and merged with a RAC pension plan.  As a result, RAC 
+recognized $14 million in surplus pension income each quarter on a going forward basis, which 
+was generated by the over-funded pension plan. 
+51. As Caine and others were aware, this surplus pension income was going to be 
+used to fund “a general commuter reserve” at RAC, which would increase the company’s 
+“ability to absorb losses” and “allow us to continue to sell more 1900Cs versus continuing to 
+lease them.”  In November 2000, a senior corporate financial officer told senior RAC executives 
+to “[a]nticipate that the $14M per quarter coming from the ‘over[-]funded pension income’ is 
+available indefinitely.” Thereafter, RAC personnel projected that they would continue to receive 
+$14 million in pension-related income per quarter through at least 2004, which would enable the 
+subsidiary to build up nearly $260 million in commuter reserves. 
+52. However, the surplus pension-related income was not separately identified and 
+disclosed in any of the company’s SEC filings because management viewed the amounts as 
+immaterial.  In fact, $14 million represented 24 to 353 percent of RAC’s reported quarterly 
+operating income/loss between the third quarter of 2000 and the second quarter of 2001 (which 
+ranged from a $4 million operating loss to $59 million in reported operating income).  This 
+income also eliminated the comparability of the segment’s current results with prior periods and 
+represented 17 percent of RAC’s reported annual operating income in 2000.  In addition, 
+Raytheon’s 2000 Form 10-K failed to disclose that, had the surplus pension income from the 
+discontinued operation not been reclassified to RAC’s 2000 results, the RAC segment would 
+have experienced a three-year decline in its reported annual operating income from $227 million 
+in 1998, to $163 million in 1999, to $136 million in 2000. 
+b. The Improper “Pooling” of Commuter Aircraft 
+53. In the fourth quarter of 2000, at the direction of a senior corporate financial 
+officer and others, RAC personnel instituted an improper “pooling” analysis when testing RAC’s 
+on-balance sheet commuter assets for impairment under FAS 121.  This approach pooled aircraft 
+on an aggregate basis, not on a plane-by-plane basis as required by GAAP.  Although 
+Raytheon’s outside auditors were informed of the approach, they did not agree with its use.  
+Pooling further enabled $45.7 million in “cushions” associated with low-book-value aircraft to 
+be used to off-set losses associated with higher-book-value aircraft.  These “benefits” were then 
+used to lower the book values of its used 1900Bs and 1900Cs in small amounts at year-end 2000, 
+and the company’s public filings contained no disclosure of the aircraft’s declining value. 
+11
+
+54. In addition, even though the company’s “pooling” analysis at year-end 2000 
+suggested that RAC did not need reserves on the 1900s that were held for sale, Caine and others 
+at the company kept $26.4 million in commuter reserves on RAC’s books and continued to use 
+the $14 million in excess pension-related income at the subsidiary each quarter going forward to 
+fund continued increases to a “general commuter reserve,” which indicated that the anticipated 
+losses associated with the 1900s were greater than the current level of reserves that had been 
+established at RAC. 
+c. The “Soft Landing” for the Commuters 
+55. By late 2000, Caine and other senior Raytheon and RAC officers were aware that 
+“[m]arket forces ha[d] created a non-performing asset problem” with the 1900s.  Specifically, 
+contemporaneous internal company documents show that, at December 31, 2000, RAC’s 
+inventory of used commuters had increased to over 100 airplanes due to an exceptionally high 
+number of commuter returns and repossessions at year-end, and significant commuter returns 
+were expected in the years ahead. 
+56. During January 2001, in response to a perceived “market shift” concerning the 
+commuters, RAC prepared a “1900 Business Plan” intended to “steer[] to a ‘soft landing’ in 4 
+years” by (i) further reducing the build rate for new 1900Ds to one plane per month (the 
+minimum production rate that the subsidiary could sustain without incurring an operating loss); 
+(ii) moving away from RAC’s historic commuter financing and leasing strategies to instead “sell 
+1900B[s and] 1900Cs for cash” at prices that were “well below” existing book values; and (iii) 
+building up RAC’s commuter reserves by at least an additional $240 million through the 
+continued use of surplus pension-related income to facilitate commuter sales. 
+57. The “reduced cash sale prices” were approved by Caine and others in senior 
+Raytheon management during January 2001, and the 1900 Business Plan projected that the 
+revised “cash sale” values for the commuters would create at least $60 million in anticipated 
+losses in 2001 alone. These losses, however, would be charged against the reserves that were 
+being built up at RAC through the use of surplus pension-related income and, thus, would not be 
+reflected in Raytheon’s reported financial statements. 
+58. Caine and others at the company were aware of the strategy to move to “cash 
+sales,” including the effort to “maximiz[e] conversion of 1900Cs for cash” and use “gross 
+margin generated by additional [commuter sales] to fund more sales.”  In January 2001, Caine 
+further identified that one of his “goals” for the coming year was to sell “$180 million of 1900B 
+and 1900C inventory, the proceeds of which will be used for debt reduction.”   
+59. Consistent with the company’s new commuter business plan, by February 2001, 
+RAC’s commuter sales force was instructed that “the operating lease program they had relied 
+upon [in] the previous few years to place used commuters was gone….  In its place were new 
+lower cash prices on 1900Cs and 1900Ds plus an emphasis on cargo sales.” 
+d. Raytheon’s Inadequate Disclosures in 2000 
+60. In his introductory remarks during the company’s second quarter 2000 earnings 
+call, which was held on July 20, 2000, Caine disclosed that Raytheon was “experiencing some 
+12
+
+pressure on pricing in the commuter line” and that “refurb[ishment] costs and remarketing costs 
+on used commuters were also higher this year than they were in the same period a year ago.”  
+When subsequently asked about this issue during the earnings call, Caine explained that “one of 
+the risk factors that we are trying to keep our eyes on is the commuter market and that would 
+include pricing in the commuter market, so we’re not trying to ring any alarm bells.  On the other 
+hand, it…is one of the risk factors for Raytheon Aircraft.”  Caine, however, did not disclose 
+relevant information that he possessed concerning the commuters during this call, including the 
+plan to begin recording the reassigned pension income within the RAC segment for the purposes 
+of building commuter reserves.   
+61. During the company’s third quarter 2000 earnings call, which was held on 
+October 19, 2000, Caine responded to certain questions concerning RAC’s commuter aircraft by 
+disclosing that “we have made some adjustments to our planning for the year with regard to used 
+aircraft and that’s part of what has hurt RAC cash flow this year to our plan, but those effects are 
+baked into our outlook.” Caine also disclosed that “[w]e admit that we’ve got a lot of work to do 
+between now and the end of the year in order to place not only commuter but also some GA 
+(general aviation) planes that would come back in to us on a trade-in basis, but we think we’ve 
+captured that in our forecast.” Caine, however, again did not disclose relevant information that 
+he possessed concerning the commuters, including that, in the third quarter of 2000, he had 
+approved the merger of the over-funded pension plan with a plan in the RAC segment in order to 
+use the surplus pension income to establish a “general reserve” to “absorb losses” for the 
+purposes of facilitating commuter sales at prices that were below book value. 
+62. Similarly, Raytheon’s SEC filings for 2000 did not contain adequate disclosures 
+of the negative, adverse, and material trends, uncertainties, risks, and other information described 
+above related to RAC’s commuter operations and the subsidiary’s commuter line.  Raytheon’s 
+SEC filings also did not disclose the $14 million in surplus pension income that was available to 
+RAC each quarter on a going forward basis from the over-funded pension plan, or the improper 
+testing of RAC’s on-balance sheet commuter assets on a “pooled” basis. In addition, Raytheon’s 
+2000 Form 10-K did not disclose the various elements of the “soft landing” plan for RAC’s 
+commuter line, including the decision to emphasize cash sales at prices that were “well below” 
+book values to address a perceived “market shift” in the commuter business. 
+63. Although Raytheon’s Forms 10-Q for the second and third quarter of 2000 did 
+cite “pricing pressure on commuter aircraft” as one of the factors affecting RAC’s operating 
+income, these disclosures did not adequately describe the substantial negative information 
+concerning the commuters that was known to management at the time.  While Raytheon’s third 
+quarter 2000 Form 10-Q also disclosed that “a downturn in demand could have a material 
+adverse effect on the company’s financial position or results of operations” and its 2000 Form 
+10-K stated that the company would “continue to…watch for any indications of a downturn in 
+demand for RAC’s aircraft,” these disclosures incorrectly suggested that management was not 
+yet aware of any such downturn in the commuter aircraft market or its severity.   
+64. In addition, while Raytheon’s SEC filings for 2000 contained disclosures 
+concerning the effect of overall market conditions in the forward-looking statements, these 
+disclosures did not provide adequate information concerning the deteriorating state of the 
+commuter aircraft market and the negative effect that this decline was having on RAC and 
+13
+
+commuter asset values. For example, Raytheon’s 2000 Form 10-K included the forward-looking 
+statement that the company’s “operating results may vary significantly over time for a variety of 
+reasons, many of which are outside of our control,” such as “the impact on recourse obligations 
+at Raytheon Aircraft due to changes in the collateral value of financed aircraft…[and] general 
+economic conditions, particularly the cyclical nature of the general aviation… market[] in which 
+we participate.” These disclosures made no mention of “commuter” aircraft by name and did not 
+reflect that company management was aware of significant losses related to RAC’s commuter 
+assets and anticipating that these losses would continue to grow in the future. 
+65. Also, other forward-looking statements in the company’s annual report disclosed 
+that some of the “[i]mportant factors that could cause actual results to differ” were “the effect of 
+market conditions, particularly in relation to the general aviation and commuter aircraft markets; 
+[and] the impact on recourse obligations of Raytheon Aircraft due to changes in the collateral 
+values of financed aircraft, particularly commuter aircraft.”  These statements were contrary to 
+other disclosures in the footnotes to the company’s 2000 financial statements, which 
+misleadingly stated that the company had a secure line of commuter financing receivables, that 
+any liability resulting from the sale of commuter receivables into the revolving credit facility 
+“will not have a material effect on the Company's financial position, or results of operations” 
+given Raytheon’s “experience to date with resale activities and pricing and the Company’s plan 
+to continue production into the foreseeable future,” and that “[n]o material gain or loss resulted 
+from the sales of receivables in 2000, 1999, or 1998.”  These disclosures did not reflect a move 
+to cash sales of commuter aircraft at prices that were well below book value, a significant 
+reduction in the 1900D build rate, actual material commuter losses at RAC, and potential losses 
+associated with the 1900 line in the hundreds of millions of dollars. 
+66. The footnotes to Raytheon's 2000 financial statements also disclosed that the 
+company sold commuter receivables to a bank syndicate and other financial institutions with 
+recourse against the company “at varying percentages, depending upon the character of the 
+receivables sold.” These footnotes further stated that the outstanding balance on those 
+receivables was over $1.7 billion year-end 2000.  However, these footnotes did not disclose the 
+high degree of recourse against the company on commuter receivables, which ranged up to 100 
+percent, and also failed to adequately disclose the significant declines in the commuter market 
+and the recent restructuring of several commuter receivables to keep them from defaulting. 
+67. Caine reviewed and approved the inaccurate filings and disclosures described in 
+Paragraph Nos. 60 to 66 above. 
+e. Raytheon’s Improper Accounting in 2000 
+68. As described in Paragraph Nos. 50 to 52 above, the establishment of $56 million 
+in additional commuter reserves through the transfer of surplus pension income to RAC between 
+the third quarter of 2000 and the second quarter of 2001 was inconsistent with GAAP.  No 
+adequate contemporaneous documentation supported the amount of these commuter loss 
+provisions, and the amount reserved corresponded only to the amount of the surplus pension 
+income available.  Caine and others were also aware of the surplus pension income and how it 
+was used to increase commuter reserves. 
+14
+
+69. Although Raytheon’s outside auditors did review the use of the surplus pension 
+income to establish additional commuter reserves at RAC, the auditors informed Caine and 
+others in October 2000 that there was a “need to enhance documentation” on these reserves.  
+According to Caine, he was advised that each quarterly reserve increase was supported by the 
+appropriate accounting analysis. However, Caine was never provided with any such analyses 
+supporting the need for equal $14 million additions to the commuter reserve quarter after quarter. 
+70. In 2000, Raytheon’s outside auditors also informed Caine and others that it was 
+“not appropriate” to pool commuter aircraft when testing for impairment under FAS 121 because 
+the planes “d[id] not represent a large pool of homogenous assets.”  The auditors, therefore, 
+proposed a $12 million audit adjustment, which represented the supposed “benefit” that the 
+company obtained through pooling.  With the knowledge of Raytheon’s auditors, this adjustment 
+was not booked because the amount was considered to be immaterial to the company’s 
+consolidated financial results.  Caine and others were aware of this decision.  The $12 million 
+audit entry, however, represented approximately 7 percent of RAC’s reported operating income 
+for 2000 and, thus, was material to the financial results reported for that segment. 
+71. In 2000, Raytheon’s outside auditors further informed Caine and other senior 
+Raytheon and RAC executives that RAC “ha[d] not appropriately accounted for the gain or loss 
+on notes sold to [the revolving credit facility]” or properly measured other components of the 
+FAS 125 calculation and, thus, offered to sell RAC an improved FAS 125 model.  After some 
+initial “resistance” from a senior corporate financial officer and another senior RAC financial 
+officer, the company did ultimately purchase and implement at the subsidiary the FAS 125 
+model proposed by the auditors before filing the 2000 Form 10-K. However, this model also 
+failed to comply with GAAP. Because much of the data serving as the inputs for this model was 
+incomplete and inaccurate, the new FAS 125 model materially misestimated the amount of 
+RAC’s various off-balance sheet assets and liabilities. 
+72. Also, the new FAS 125 model calculated a $22 million overstatement related to 
+prior period FAS 125 gains. As Caine and others were aware, this proposed audit entry was not 
+made because, among other reasons, it was deemed immaterial to the company’s consolidated 
+financial results. Such a charge, however, would have reduced RAC’s reported annual operating 
+income for 2000 by 13 percent (from $164 million to $142 million) and, thus, was material to the 
+segment. 
+73. Together, the $12 million proposed audit adjustment for incorrect FAS 121 
+accounting and the $22 million proposed audit adjustment for RAC’s incorrect FAS 125 
+accounting would have reduced RAC’s reported operating income by 20 percent. 
+74. Finally, had senior Raytheon and RAC management timely recognized losses 
+inherent in the planned “soft landing” of the commuter aircraft line, the company would have 
+been required to take a charge of at least $67 million at year-end 2000, and contemporaneous 
+internal company documents and other information indicate that Caine and other senior 
+Raytheon and RAC officers were expecting commuter losses of $240 million given the cash 
+sales prices that had been approved in the “soft landing.”  A charge of $67 million to $240 
+million at year-end 2000 would have reduced RAC’s reported annual operating income by at 
+least 41 to 146 percent and Raytheon’s 2000 profit before taxes by at least 8 to 27 percent. 
+15
+
+75. Caine reviewed the accounting described in Paragraph Nos. 68 to 74 above, and 
+he knew or should have known that it was inaccurate. 
+5. 	 In 2001, Caine Continued to Be Aware of the Ongoing Decline in the 
+Commuter Market, and the Commuter Assets Were Written Down 
+after September 11, 2001 
+76. Throughout 2001, Caine and other senior Raytheon executives continued to be 
+aware of the ongoing decline of the commuter market and how this decline was creating serious 
+operational issues at RAC, including substantial actual and anticipated losses associated with the 
+1900s on and off the company’s balance sheet. 
+a. 	 The First Quarter of 2001 
+77. In early 2001, Caine and others at Raytheon attempted to purchase risk insurance 
+for the cash flows associated with the 1900D notes receivable in the company’s off-balance sheet 
+commuter portfolio. During these discussions, the insurer informed certain Raytheon and RAC 
+executives that the $1.1 billion book value the 1900Ds, which RAC had financed and were off 
+Raytheon’s balance sheet, was approximately 20 percent higher than a third-party’s evaluation of 
+their current market value.  These executives subsequently briefed Caine on their discussions 
+with the insurer as well as their conclusions and analyses of the situation.  Ultimately, Caine and 
+others decided not to pursue an insurance strategy for the commuters since it was cost prohibitive 
+given the amount of coverage provided. 
+78. By April 2001, Caine and others at Raytheon were aware that RAC had not sold 
+any used commuters for cash under the “soft landing” plan during the first quarter and that recent 
+offers for used 1900Cs were “in the $1.2M range,” which was “far below” the initial “cash sale” 
+estimates of $2.2 million approved by management as part of the “soft landing.”  Caine and 
+others were further aware that “each cash order looks like it will require a great deal of focus and 
+effort to get the ball over the goal line. Simply put, it’s harder to sell for cash, but…we knew 
+this ‘going in.’” In response to this statement, one senior Raytheon executive explained that $1.5 
+million was a “more realistic” price for these used aircraft and further emphasized the need to 
+“raise cash” on these sales. 
+b. The First Quarter 2001 Earnings Call 
+79. During the first quarter 2001 earnings call, which was held on April 19, 2001, 
+Caine omitted reference to “commuter” aircraft from his introductory remarks, stating instead 
+that “Raytheon Aircraft revenue is down $178 million, $154 million related to new aircraft 
+deliveries and about $43 million related to a decline in used aircraft sales” and that, “[i]n 
+Raytheon Aircraft, we see some weakness in Q-1 from a bookings standpoint….  [O]ur booking 
+in the first quarter of this year were weak, relative to where we have been historically and also 
+weak relative to our plan for the year.  The used aircraft market is also of concern to us and we 
+will continue to watch the numbers of planes available on the used aircraft market as we move 
+through the second and third quarters. Our existing backlog, though, at Raytheon Aircraft is 
+strong and appears to be stable. We do have planes in forecast for sale in…Q-2, Q-3, and Q-4, 
+which as of yet are unsold. That is not unusual for us and we are watching carefully to see 
+16
+
+ 
+what’s happening in the market demand for both new and used aircraft and are going to be taking 
+a close look at our planned production rates for the second, third, and fourth quarters as we move 
+through the next 30 days.” 
+80. In addition, in response to an analyst question concerning “the 1900D used 
+aircraft model” and whether management had “seen weakening used aircraft prices there,” Caine 
+stated that, “during the first quarter, we…had a stronger leve l of activity around both new and 
+used 1900Ds that we might have planned for the year….  I don’t want you to take that to be too 
+strong a positive signal, but…I would say that th e 1900D was not a disappointment in the first 
+quarter.” Caine, however, did not disclose that, in January 2001, he and other senior Raytheon 
+executives had approved a reduction of the build rate for new 1900Ds to one aircraft per month 
+(the minimum line rate that RAC could sustain without incurring an operating loss).  Caine also 
+did not disclose the January 2001 reduction in used 1900D sale prices by as much as $900,000 
+below their average book value.  Caine further did not disclose the other elements of the “soft 
+landing,” including the reduction in sales prices for used 1900Cs to roughly $1 million below 
+their average book value and the continued quarterly use of $14 million in pension-related 
+income at RAC for the purposes of building up commuter reserves to facilitate sales at these 
+reduced prices. At the time, $14 million represented over 14 percent of the company’s first 
+quarter 2001 consolidated income from continuing operations of $97 million.   
+81. In response to another question concerning the previously discussed “weakness in 
+the new and used aircraft market,” Caine did state that “we have a number of airplanes in our 
+outlook for Q-2, Q-3, Q-4 which, as of yet, are unsold…  [T]he percentage unsold as of today is 
+probably a little higher than the percentage unsold was at this same time a year ago, and so we’re 
+watching this carefully, and…we’re  going to be taking a close look at our production rates over 
+the course of the next 30 days.” Caine, however, did not disclose that RAC had not sold any 
+used commuters for cash under the “soft landing” plan during the first quarter of 2001 or that 
+recent cash offers on used commuters were roughly $1 million below the previously approved 
+“soft landing” prices, as he was informed on April 17, 2001 (two days before the first quarter 
+2001 earnings call). 
+c. The Second Quarter of 2001 
+82. In May 2001, Caine received an e-mail, which indicated that a senior corporate 
+financial officer disapproved of the sale of $200 million in commuter receivables to an outside 
+party since it would occur at a $20 million (10 percent) discount.  Even though this senior 
+corporate financial officer was informed that RAC’s “surplus” pension-related reserves could be 
+used to off set this loss, he explained that “we need to understand what a 10% loss on the $200M 
+RACC portfolio sale does to our collateral value on the rest of the portfolio.  Any use of $20M of 
+pension reserves will severely limit our ability to sell on-balance sheet aircraft for cash.” 
+83. In June 2001, a RAC sales forecast informed Caine and others that “[a] clear trend 
+exists that prices will have to continue to be lowered to move inventory….  In order to get more 
+cash sales in Q4, the price will have to be lowered to between $1.1 - $1.5 MM.  This could create 
+accounting issues.” Caine and others subsequently received an e-mail from a senior executive in 
+RAC’s commuter business, which stated that it would be necessary to “discount heavily” and 
+offer 1900Cs at between $1.1 million to $1.5 million in order to make sales for cash.  These 
+17
+
+officers were further informed that RAC’s 2001 sales forecast was “contingent” upon these 
+values. 
+84. As Caine was aware, these transactions were subsequently blocked by a senior 
+corporate financial officer and others in the financial organization because “these deals could 
+cause a write down of the entire portfolio and, as a result, we need to sell the airplanes at a higher 
+value.” As set forth in internal company documents, “[w]e cannot afford to change NRVs [the 
+Net Realizable Values of the aircraft] below $2,500,000” due to the income statement 
+repercussions for the company. “Price integrity issues and limited reserves prevent us from 
+lowering prices to meet a large portion of the market.  Market pricing will require additional 
+reserves.” 
+85. In July 2001, at Caine’s request, the company’s investment bankers provided 
+Raytheon management with an update of earlier analyses of the company’s commuter portfolio.  
+This analysis indicated that, at the close of the second quarter, there was at least $113 million to 
+$198 million in losses associated with the on- and off-balance sheet commuters given the 
+difference between their book and assumed collateral values.  This analysis also indicated that 
+the value of the discounted cash flows from the on- and off-balance sheet commuters were $431 
+million to $528 million below their total book values.  Caine received a copy of this report. 
+d. The Second Quarter 2001 Earnings Call 
+86. During the second quarter 2001 earnings call, which occurred on July 19, 2001, 
+Caine stated that “we also had considerably fewer commuter aircraft shipped this year relative to 
+last year” and the “[n]umber of used aircraft sales was down considerably.”  Caine also stated 
+that inventory levels at RAC had increased and were, among other things, “a function of our 
+ability to remarket used commuter aircraft…in a tougher environment for used aircraft.”  Caine 
+further presented a slide that disclosed the historical and forecasted inventory levels of commuter 
+aircraft at RAC from June 2000 through December 2001.   
+87. In response to an analyst question concerning Raytheon’s off-balance sheet 
+obligations, Caine stated that, “[o]n the commuter side…we watch the performance of those 
+assets and the liquidity and credit quality of our customers very closely.  We have reserves… 
+against the assets in the portfolio in the aggregate and in some cases we apply specific reserves 
+to specific transactions if we have concerns about an individual credit or an individual asset.  We 
+review all of that regularly…. [T]he analysis that we have done with regard to the aging of the 
+receivables and the risks associated with some of the receivables, particularly in commuter, has 
+probably heightened our sensitivity relative to where we might have been a year ago.  I would 
+say that aging has gotten to be a little older.  We have more receivables that are, say, 90-plus 
+days past due today than we did a year ago or two years ago.  That’s always a concern.  That’s 
+not necessarily a problem, but it is certainly a concern and it’s one that we manage actively.  I 
+would also tell you that our reserve levels in the portfolio are higher today than they were a year 
+ago and we add to those reserves periodically, as required.”   
+88. However, Caine did not disclose that members of senior Raytheon and RAC 
+management had been restructuring the payment arrangements of several major commuter 
+customers to keep them from defaulting on their notes payable and, thus, triggering Raytheon’s 
+18
+
+recourse obligations to the credit facility.  Caine also did not disclose that, by the second quarter 
+of 2001, $56 million in pension-related income had been used at RAC to increase commuter 
+reserves (including $28 million in the first half of 2001, which represented 13 percent of the 
+company’s consolidated income from continuing operations for the six months ended July 1, 
+2001). Furthermore, as set forth in Paragraph No. 68, the way in which these additional 
+commuter reserves were established through the use of pension-related income did not comply 
+with GAAP. 
+89. In addition, in response to a follow-up question by another analyst, Caine stated 
+that the increases in the commuter reserves at RAC would be reflected in the segment’s reported 
+“operating income.”  However, as Caine was aware, these reserves were being established 
+through the undisclosed use of $14 million in pension-related income each quarter, which also 
+occurred “above the line.” As such, Raytheon’s financial statements did not accurately reflect 
+the negative impact that these commuter reserves were having on RAC’s reported operating 
+income. 
+90. Furthermore, one week before the July 2001 earnings call, Caine received an 
+analysis from Raytheon’s investment bankers, which indicated that there was upwards of $198 
+million in losses associated with the on- and off-balance sheet commuters at the close of the 
+second quarter given the difference between their book and collateral values and that the value of 
+the discounted cash flows from the on- and off-balance sheet commuter receivables were as 
+much as $528 million below their total book values. And, one day before this call, Caine was 
+informed that (i) the market price for future fleet sales of used 1900Cs was between $1.1 million 
+and $1.5 million per plane and (ii) senior executives in his finance department were blocking 
+these transactions because they “could cause a write down of the entire portfolio and, as a result, 
+we need to sell the airplanes at a higher value.”  Caine, however, did not disclose this 
+information during the July 2001 earnings call. 
+e. The August 2001 Commuter Summit 
+91. In August 2001, Raytheon convened a “commuter summit” at its corporate 
+headquarters to discuss the state of the commuter market and the negative effect this decline was 
+having on RAC’s commuter business. At this meeting, an outside consultant informed Caine and 
+others in senior Raytheon and RAC management that “[c]ompetitive market pressures are 
+intense. Critically, they are not anticipated to ease anytime soon….  Turboprop aircraft orders 
+have stagnated at best…. Only a handful of companies still operate 19-seat turboprops….  The 
+prognosis for U.S. 19-seat operators is not very good….  Downward pricing pressure is not 
+anticipated to ease as the number of surplus 20 to 35 seat turboprop aircraft grows, making them 
+more attractive as 19-seat replacements….  With turboprop aircraft demand falling and supply 
+raising, pricing must reflect basic market conditions not internal benchmarks.”  
+92. At this “commuter summit,” another outside consultant reported that estimates of 
+fair market value for the commuters were, on average, $2 million below book value for the 
+1900Cs and $1.3 million below book value for the 1900Ds.  At the time, the company had over 
+130 1900Cs and nearly 320 1900Ds on and off the balance sheet, making for an estimated 
+exposure of approximately $676 million. 
+19
+
+f. The First and Second Quarter 2001 Forms 10-Q 
+93. Despite the substantial information that management possessed concerning the 
+decline in RAC’s commuter aircraft business and the erosion of commuter asset values, the 
+company’s first quarter 2001 Form 10-Q did not adequately disclose these adverse views of and 
+developments in RAC’s commuter operations, including management’s decision to move from a 
+leasing to a cash sales strategy for used commuters. 
+94. For example, although this filing did state that, “[d]uring the first quarter of 2001, 
+RAC experienced softness in orders for new and used commercial aircraft,” that Raytheon 
+“remains concerned about the market outlook at RAC,” and that “[w]eak demand for RAC’s new 
+or used aircraft could have a material adverse effect on RAC’s financial position and results of 
+operations,” these disclosures discussed only “commercial” aircraft in general, which covered 
+several other product lines in addition to the commuters.  Because these and other disclosures 
+covered all of RAC’s “new and used” commercial aircraft, the company’s filing did not make 
+adequate disclosure of the negative risks and trends related to the commuters that were known to 
+senior management at the time. 
+95. Raytheon’s second quarter 2001 Form 10-Q, which was filed one week after the 
+August 2001 commuter summit, also did not adequately disclose the negative risks and trends 
+associated with the company’s commuter aircraft.  For example, Raytheon’s Form 10-Q 
+disclosed that RAC’s second quarter 2001 “[o]perating income was down primarily due to the 
+lower sales volume and margin pressure on T-6A, Beechjet, and used aircraft due to the current 
+market environment.  During 2001, RAC experienced softness in orders for new and used 
+commercial aircraft. The Company remains concerned about the market outlook at RAC.  
+During the second quarter of 2001, RAC responded to a softening market by announcing 
+workforce reductions and adjustments in production rates.”  These disclosures made no specific 
+mention of “commuter” aircraft and failed to adequately disclose the negative risks and trends 
+concerning the commuters that were known to senior management at the time.  
+96. The only disclosure specifically referencing “commuters” in the Management 
+Discussion and Analysis section of Raytheon’s second quarter 2001 filing concerned “[t]he aging 
+on RAC’s commuter customer financing receivables [which] has deteriorated over the past year.  
+Non-performance on these loans and leases, in the aggregate, could have a material adverse 
+effect on the Company’s liquidity.”  At this time, senior Raytheon officers had been informed 
+that there were hundreds of millions of dollars of actual and potential losses associated with 
+these receivables based on the analyses that the company’s investment bankers had performed 
+and the other information the company had received.  Thus, Raytheon’s Form 10-Q failed to 
+adequately disclose the significant declines in the commuter market, recent restructuring of 
+several commuter customers to keep them from defaulting on their notes payable, and the 
+substantial financial repercussions that would follow given the company’s recourse obligations 
+to the bank facility. 
+97. Also, both of Raytheon’s first and second quarter 2001 filings contained 
+inadequate disclosures about the potential effect of market conditions in their forward-looking 
+statements.  In particular, both Forms 10-Q stated that of the many “[i]mportant factors that 
+could cause actual results to differ” were “the effect of market conditions, particularly in relation 
+20
+
+to the general aviation and commuter aircraft markets; [and] the impact of recourse obligations 
+of Raytheon Aircraft due to changes in the collateral values of financed aircraft, particularly 
+commuter aircraft.” These disclosures, however, failed to provide investors with sufficient 
+information concerning the negative trends and risks associated with the commuters that were 
+known by management at the time.  The inclusion of these disclosures in the company’s forward-
+looking statements gave the inaccurate impression that Raytheon was not presently facing any 
+risks associated with its on- and off-balance sheet commuter assets during these time periods. 
+g. 	 Raytheon’s Equity Offering 
+98. In April and May 2001, Raytheon filed a Form S-3 and prospectus supplements in 
+connection with its $3 billion shelf registration and takedown of equity securities.  These filings 
+contained materially misleading statements and omissions concerning the commuters because: 
+(a) Raytheon’s Form S-3 incorporated prior filings by reference and thus 
+repeated the false and misleading statements from those periodic reports.  In addition, the 
+Form S-3 did not disclose the material and adverse trends and uncertainties that were 
+known to management at the time concerning the commuters.  The Form S-3 also 
+incorporated by reference “any future filings made by us…until we s ell all of the 
+securities.” As alleged below, these future filings were also misleading. 
+(b) In addition, the forward-looking statements of the Form S-3 contained 
+disclosures about “regional aircraft” and “price pressures within the market” but did not 
+specifically reference commuters by name.  Similarly, these forward-looking statements 
+disclosed that “a decline in demand in the market for our aircraft, would have an adverse 
+effect, which may be material, on our financial results,” but did not describe the declining 
+commuter market or RAC’s deteriorating commuter business.  Likewise, other forward-
+looking statements disclosed that “[t]he value of our securities may fluctuate as a result of 
+considerations that are difficult to forecast, such as…the im pact on recourse obligations 
+at Raytheon Aircraft Company due to changes in the collateral value of financed 
+aircraft…and general econom ic conditions, particularly the cyclical nature of the general 
+aviation and other commercial markets in which we participate.”  These forward-looking 
+statements, however, did not specifically mention the known risks posed by the 
+deteriorating state of the commuter market, RAC’s growing inventory of used commuter 
+aircraft, or the over-valued commuter financing receivables that were off the company’s 
+balance sheet. 
+99. Caine reviewed and approved the inaccurate filings and disclosures described in 
+Paragraph Nos. 93 to 98 above. 
+h. 	 Raytheon’s Improper Accounting and Disclosures in the Third 
+Quarter of 2001 and at Year-End 
+100. Although Raytheon’s on- and off-balance sheet commuter assets were over-
+valued by hundreds of millions of dollars as of August 31, 2001, it was not until after the terrorist 
+attacks on September 11th that management began the process of a write down.  However, much 
+of the information used to estimate fair value for the commuters was from three or four weeks 
+21
+
+earlier in August of 2001, and none of the publicly available data used in the write-down analysis 
+was post-September 11th.  Caine and another senior corporate financial officer also considered 
+offers that RAC had received from commuter customers during the most recent year, even 
+though these officers had previously refused to sell planes for these prices in July 2001 since 
+“these deals could cause a write down of the entire portfolio….”  Also, a post-September 11th 
+“top down, market study” upon which a senior Raytheon officer and Caine relied to support the 
+final charge estimated that there was $400 million to $500 million in pre-existing exposure on 
+the commuters as of July 2001.  This amount represented roughly 60 to 70 percent of the $693 
+million charge that was ultimately taken by the company.  As the Vice President of Investor 
+Relations informed senior management near completion of the write down, a survey of buy- and 
+sell-side analysts prior to the upcoming earnings call indicated that “defense companies get a free 
+pass this quarter” given recent events.  These analysts were further “expecting a $400-500 
+million charge” on the commuters, and they would be “irritated” with the company “if we do not 
+take this opportunity to adjust these values.” 
+101. Thus, in the third quarter of 2001, Raytheon stated that it had taken a $693 million 
+loss provision related to RAC’s commuter aircraft as “a result of continued weakness in the 
+commuter aircraft market and the impact of the events of September 11, 2001.”  This misleading 
+statement was repeated in substance in the company’s 2001 Form 10-K.  Given the charge that 
+the company should have taken at year-end 2000 to properly account for RAC’s on- and off-
+balance sheet commuter assets and the $240 million in commuter reserves that company 
+management planned to build to cover anticipated losses, the $693 million commuter loss 
+provision that Raytheon took in the third quarter of 2001 was materially overstated by at least 10 
+to 53 percent. 
+102. Raytheon’s SEC filings also did not disclose that the third quarter 2001 commuter 
+loss provision was largely determined by implementing for the first time a market-based measure 
+of portfolio loss under FAS 140, the successor to FAS 125.  Contrary to Raytheon’s prior public 
+disclosures, the company’s recourse liability obligations on the commuter receivables sold into 
+the credit facility had previously been calculated through a pooled, probable loss analysis. 
+103. Caine reviewed and approved the inaccurate filings and disclosures described in 
+Paragraph Nos. 101 to 102 above.  Caine further reviewed the accounting described in Paragraph 
+Nos. 101 to 102 above, and he knew or should have known that it was inaccurate. 
+E. 	 THE IMPACT OF THE IMPROPER ACCOUNTING AND DISCLOSURE 
+PRACTICES 
+104. As a result of the improper disclosure and accounting practices described above, 
+Raytheon filed at least nine quarterly reports, three annual reports, and two registration 
+statements that contained materially false and misleading disclosures and financial statements. 
+F. 	 LEGAL ANALYSIS 
+105. Section 17(a)(2) of the Securities Act prohibits a person from obtaining money or 
+property by means of any untrue statement of a material fact or any misleading omission of 
+material fact in the offer or sale of securities.  See 15 U.S.C. § 77q(a)(2). Section 17(a)(3) of the 
+22
+
+Securities Act prohibits a person from engaging in any transaction, practice, or course of 
+business which operates or would operate as a fraud or deceit upon the purchaser in the offer or 
+sale of securities. See 15 U.S.C. § 77q(a)(3). Information is material where there is a substantial 
+likelihood that a reasonable investor would consider the information important in making an 
+investment decision.  See Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing a 
+violation of Sections 17(a)(2) and (3) does not require a showing of scienter.  See Aaron v. SEC, 
+446 U.S. 680, 701-02 (1980). 
+106. Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13 
+require issuers with securities registered under Section 12 to file annual, quarterly, and other 
+reports with the Commission.  The obligation to file such reports embodies the requirement that 
+they be true and correct. See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 
+1978), cert. denied, 440 U.S. 913 (1979). Rule 12b-20 further requires the inclusion of any 
+additional material information that is necessary to make required statements, in light of the 
+circumstances under which they were made, not misleading.  Information regarding the financial 
+condition of a company is presumptively material.  SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 
+1985). No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 
+12b-20, 13a-1, and 13a-13. See, e.g., Savoy, 587 F.2d at 1167. Additionally, Item 303 of 
+Regulation S-K requires registrants to disclose “any known trends or uncertainties that have had 
+or that the registrant reasonably expects will have a material … unfavorable im pact on net sales 
+or revenues or income from continuing operations.”  17 C.F.R. § 229.303(a)(3)(ii).  The failure 
+to comply with Regulation S-K constitutes a violation of Section 13(a) of the Exchange Act. 
+107. Caine violated Sections 17(a)(2) and (3) of the Securities Act and caused certain 
+of Raytheon’s violations of Section 13(a) of the Exchange Act as well as Rules 12b-20, 13a-1, 
+and 13a-13 thereunder, through conduct in 2000 and 2001.  As described above, as Raytheon’s 
+CFO, Caine (i) failed to make or ensure full, accurate, and adequate disclosure of the known 
+trends and uncertainties associated with the company’s commuter line in Raytheon’s public 
+filings for 2000 and 2001, such as the deteriorating state of RAC’s commuter business and the 
+various means that the company was using to address this problem; (ii) failed to ensure that 
+Raytheon properly accounted for the resulting commuter losses that were known and anticipated 
+by management during 2000 and 2001, which led to material misstatements of the company’s 
+reported results on both a segment and a consolidated basis; and (iii) through such conduct, 
+caused Raytheon’s filing of at least six quarterly reports, two annual reports on Forms 10-Q and 
+10-K, and two sets of registration statements and prospectus supplements for May 2001 and 
+October 2001 offerings that contained inadequate disclosures and inaccurate financial 
+statements.   
+108. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make 
+and keep books, records and accounts that accurately and fairly reflect the transactions and 
+dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act requires such registrants to 
+devise and maintain a system of internal accounting controls sufficient to provide reasonable 
+assurances that, among other things, transactions are recorded as necessary to permit preparation 
+of financial statements in conformity with GAAP and to maintain the accountability of assets.  
+Rule 13b2-1 prohibits the falsification of any book, record, or account subject to Section 
+13(b)(2)(A).  No showing of scienter is necessary to establish violations of these provisions.  See 
+SEC v. McNulty, No. 94 CIV. 7114 (MBM), 1996 WL 422259, at *7 (S.D.N.Y. July 29, 1996). 
+23
+
+109. Caine caused certain of Raytheon’s violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rule 13b2-1 thereunder.  As described above, during 2000 
+and 2001, he failed to ensure that the company’s commuter assets and liabilities were properly 
+recorded in the company’s books and records.  He also failed to ensure that Raytheon designed 
+and maintained an adequate system of internal controls to ensure that the company properly 
+measured its commuter assets and liabilities.   
+110. Based on the foregoing, the Commission finds that Caine violated Sections 
+17(a)(2) and (3) of the Securities Act, and caused certain of Raytheon’s violations of Sections 
+13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act as well as Rules 12b-20, 13a-1, 13a-13 
+and 13b2-1 thereunder. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED that Respondent Caine cease and desist from 
+committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the 
+Securities Act and Rule 13b2-1 under the Exchange Act and from causing any violations and any 
+future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act, and Rules 12b-
+20, 13a-1, and 13a-13 thereunder. 
+By the Commission. 
+       N ancy M. Morris
+ Secretary 
+24
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+     SEC.gov | Collins & Aikman Corporation, David A. Stockman, J. Michael Stepp, Gerald E. Jones, David R. Cosgrove, John G. Galante, Elkin B. McCallum, Paul C. Barnaba, Christopher M. Williams and Thomas V. Gougherty 
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+              Collins & Aikman Corporation, David A. Stockman, J. Michael Stepp, Gerald E. Jones, David R. Cosgrove, John G. Galante, Elkin B. McCallum, Paul C. Barnaba, Christopher M. Williams and Thomas V. Gougherty
+           
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+        Collins & Aikman Corporation, David A. Stockman, J. Michael Stepp, Gerald E. Jones, David R. Cosgrove, John G. Galante, Elkin B. McCallum, Paul C. Barnaba, Christopher M. Williams and Thomas V. Gougherty
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20055 / March 26, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2581 / March 26, 2007 
+
+ AAERxxxxxxx  -->
+
+  Securities and Exchange Commission v. Collins & Aikman Corporation, David A. Stockman, J. Michael Stepp, Gerald E. Jones, David R. Cosgrove, John G. Galante, Elkin B. McCallum, Paul C. Barnaba, Christopher M. Williams and Thomas V. Gougherty, United States District Court for the Southern District of New York, SEC v. Collins & Aikman Corporation, et al. Civil Action No. 1:07-CV-2419(LAP) (S.D.N.Y. March 26, 2007)  
+
+  Washington, D.C., March 26, 2007  - The Securities and Exchange Commission today filed civil fraud charges against auto parts manufacturer Collins & Aikman Corporation ("C&A"), David A. Stockman ("Stockman"), who served as C&A's former Chief Executive Officer and Chairman of the Board of Directors, and eight other former C&A directors and officers.   
+
+ The SEC's complaint alleges that between 2001 and 2005, Stockman personally directed fraudulent schemes to inflate C&A's reported income by accounting improperly for supplier payments.  In furtherance of those schemes, the complaint alleges that Stockman and other defendants obtained false documents from suppliers designed to mislead C&A's external auditors.  According to the complaint, when aspects of the schemes were discovered in March 2005, Stockman embarked on a public campaign to mislead investors, potential financiers and others by minimizing the extent of the fraudulent accounting and hiding C&A's dire financial condition.  During the time Stockman was engaged in this fraudulent conduct, he was collecting millions of dollars of the management fees C&A paid Stockman's private equity fund, Heartland Industrial Partners.  The other former officers, including the Chief Financial Officer, Corporate Controller, and Treasurer, and a former member of C&A's Board of Directors, are alleged to have participated in the accounting schemes or the campaign to mislead investors.  The SEC and C&A have agreed to settle the charges against the company. 
+
+ In addition to Stockman, the other former C&A directors and officers charged in the complaint are: 
+
+  J. Michael Stepp, the former Chief Financial Officer of C&A and Vice-Chairman of its Board of Directors; 
+ Elkin B. McCallum ("McCallum"), a former member of C&A's Board of Directors; 
+ David R. Cosgrove, the former Corporate Controller of C&A; 
+ John G. Galante, the former Treasurer of C&A; 
+ Christopher M. Williams, the former Executive Vice President of C&A's Business Development Group; 
+ Gerald E. Jones, the former Chief Operating Officer and Executive Vice President of C&A's Fabrics Division. 
+ Paul C. Barnaba, the former Vice President and Director of Purchasing for C&A's Plastics Division; and 
+ Thomas V. Gougherty, the former Controller of C&A's Plastics Division. 
+  The Commission's complaint alleges that between late 2001 and early 2005, the defendants engaged in multiple fraudulent schemes and made materially false and misleading statements concerning C&A's financial condition and operating results in, among other things, filings with the Commission, offering documents, and press releases.  The allegations include the following. 
+
+   Between the fourth quarter of 2001 and the first quarter of 2003, Stockman and other defendants negotiated a series of "round-trip transactions" with McCallum.  These transactions were structured to give the appearance that C&A was receiving rebates that would increase C&A's income from a company McCallum owned.  In fact, because C&A repaid McCallum or his companies for each purported rebate, the transactions should have had no impact on C&A's income statement, and C&A's use of these transactions to inflate its income was improper.   
+
+ From at least as early as the second quarter of 2002 until the scheme was discovered in early 2005, C&A accounted improperly for actual rebates it received from its suppliers.  Some of these rebates were recognized in income prematurely, while others should never have been recognized in income at all.  At the direction of Stockman and other defendants, C&A's Purchasing Department solicited and received false confirmation letters from suppliers that purported to justify the immediate recognition of rebates in income, and were intended to mislead C&A's outside auditors if they questioned these transactions.     
+
+ Between the round-trip transactions and the improper accounting for rebates, C&A fraudulently and materially increased its reported income by over $49 million.  As a result, C&A overstated its reported pre-tax operating income (or reduced its loss) by ten percent or more in eight different quarters.         
+
+ In March 2005 questions from its outside auditor forced C&A to publicly acknowledge the improper accounting for supplier rebates.  However, Stockman, in concert with other defendants, engaged in a campaign to reassure investors, analysts and others that C&A was still economically viable, when in fact the company was on the verge of bankruptcy.  In press releases, an earnings call and a presentation to potential bond investors, Stockman, and other defendants, concealed C&A's liquidity crisis and made unreasonable financial projections.  As a result of these false and misleading statements, C&A obtained additional financing.  But when a more accurate picture of C&A's financial condition emerged a month later, C&A was forced to declare bankruptcy. 
+  C&A simultaneously settled the charges, without admitting or denying the Commission's allegations, by consenting to the entry of a final judgment permanently enjoining it from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.  The settlement is subject to the approval of the United States District Court for the Southern District of New York.   
+
+ The Commission's complaint alleges that the individual defendants violated and/or aided and abetted C&A's violations of the federal securities laws as follows: 
+
+  Stockman and Stepp violated Section 17(a) of the Securities Act; Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b 5, 13a-14, 13b2-1, and 13b2-2 thereunder, and aided and abetted C&A's violations of  Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b 20, 13a-1, 13a-11, 13a-13 thereunder;   
+
+ McCallum and Galante violated Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b 5, 13b2-1, and 13b2-2 thereunder, and aided and abetted C&A's violations of  Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b 20, 13a-1, 13a-11, 13a-13 thereunder;   
+
+ Cosgrove violated Section 17(a) of the Securities Act; Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b 5, 13b2-1, and 13b2-2 thereunder, and aided and abetted C&A's violations of  Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b 20, 13a-1, 13a-11, 13a-13 thereunder;   
+
+ Williams violated Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b 5 and 13b2-1 thereunder, and aided and abetted C&A's violations of  Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b 20 and 13a-11 thereunder;   
+
+ Jones, Barnaba and Gougherty violated Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b 5, 13b2-1, and 13b2-2 thereunder, and aided and abetted C&A's violations of  Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5,12b 20, 13a-1, 13a-11, 13a-13 thereunder; 
+  As to all of the individual defendants, the complaint seeks permanent injunctions against future violations of these provisions, officer-and-director bars, disgorgement of ill-gotten gains, with prejudgment interest, and civil penalties. 
+
+ Today the U.S Attorney's Office for the Southern District announced parallel indictments against Stockman and others.  The Commission acknowledges the assistance and cooperation in this investigation of the U.S. Attorney's Office for the Southern District of New York and the U.S. Postal Inspection Service. 
+ 
+ The Commission's investigation is continuing. 
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diff --git a/raw/aaer/2007/AAER-2585.pdf b/raw/aaer/2007/AAER-2585.pdf
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@@ -0,0 +1,178 @@
+UNITED STATES OF AMERICA 
+BEFORE THE 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55551 / March 28, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2585 / March 28, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12602 
+ 
+In the Matter of 
+ 
+EDWARD S. PLINER, CPA, 
+ 
+Respondent. 
+ORDER INSTITUTING ADMINISTRATIVE 
+PROCEEDINGS PURSUANT TO RULE 102(e) OF
+THE COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+ 
+I. 
+ 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
+the public interest that public administrative proceedings be, and hereby are, instituted against 
+Edward S. Pliner (“Pliner” or “Respondent”) pursuant to Rule 102(e)(3) of the Commission’s 
+Rules of Practice.1
+II. 
+ 
+ In anticipation of the institution of thes e proceedings, the Respondent has submitted an 
+Offer of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for 
+the purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject matter of 
+these proceedings, 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. 
+ 
+                                                 
+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. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that: 2
+ 
+1. Pliner, age 49, has been a Certified Public Accountant licensed in Massachusetts 
+at all relevant times.  During 1997 through February 2000, Pliner served as the lead engagement 
+partner on the audits of the financial statements for Raytheon Company (“Raytheon” or the 
+“company”).  From approximately April 2000 until December 2002, Pliner served as Raytheon’s 
+Controller and then became the company’s CFO. 
+2. Raytheon is a Delaware corporation, headquartered in Waltham, Massachusetts.  
+The company is an industry leader in defense, government electronics, space technology, and 
+business and special mission aircraft.  Between 1997 and 2001, Raytheon reported between $13 
+billion and $20 billion in net sales revenue annually and employed between 75,000 to 120,000 
+individuals.  During this time period and continuing through today, Raytheon’s securities have 
+been registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 
+1934 and are listed on the New York, Chicago, and Pacific Exchanges. 
+3. On March 15, 2007, the Commission filed a complaint against Respondent in 
+Securities and Exchange Commission v. Edward S. Pliner, Civil Action No. 07-cv-00495 (GK), 
+in the United States District Court for the District of Columbia.  Respondent neither admits nor 
+denies the allegations in that complaint.  On March 26, 2007, a final judgment was entered by 
+consent against Pliner, permanently enjoining him from committing violations of Sections 
+17(a)(2) and (3) of the Securities Act of 1933 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-13, and 
+13b2-1 promulgated thereunder.  The final judgment ordered Pliner to pay $325,000 in 
+disgorgement of certain past bonus amounts, $90,042 in prejudgment interest thereon, and a 
+$150,000 civil money penalty.   
+4. The Commission’s complaint alleges among other things that, between 1997 and 
+2001, Raytheon and certain members of its senior management made false and misleading 
+disclosures and used improper accounting practices that operated as a fraud by masking the 
+declining results and deteriorating business of Raytheon Aircraft Company (“RAC”) and 
+inaccurately reporting the company’s operating results on both a segmented and consolidated 
+basis.  According to the SEC’s complaint, certain of these disclosures and accounting practices 
+were undertaken by or with the knowledge of Pliner and others. 
+5. The Commission’s complaint also alleges that, as Raytheon’s lead auditor, Pliner 
+was aware of certain bill-and-hold and commuter aircraft accounting practices at RAC, which he 
+knew or should have known were improper.  Yet, he signed unqualified audit opinions for the 
+1997 and 1998 audits, which represented that the company’s financial statements “present fairly, 
+in all material respect, the financial position of Raytheon Company and Subsidiaries 
+                                                 
+2  The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or entity in 
+this or any other proceeding.  
+ 2
+Consolidated… and the results of their operations…in conformity with generally accepted 
+accounting principles.”   
+6. The Commission’s complaint further alleges that, as Raytheon’s Controller, Pliner 
+continued to be aware of and involved in certain on- and off-balance sheet commuter accounting, 
+which he knew or should have known did not accurately reflect the negative impact of declining 
+commuter values in Raytheon’s financial statements.  According to the Commission’s complaint, 
+Pliner further did not make or ensure the timely, accurate, and full disclosure of material trends 
+and uncertainties related to Raytheon’s commuter aircraft business in the company’s SEC filings 
+during 2000 and 2001, and he also did not ensure that the company maintained an adequate 
+system of internal accounting controls related to these assets. 
+7. According to the Commission’s complaint, RAC’s operating results would have 
+been reduced by at least $67 million (41 percent) at year-end 2000 had Pliner and others in 
+senior Raytheon and RAC management timely and appropriately recognized losses inherent in a 
+planned “soft landing” of the commuter aircraft line.  According to the Commission’s complaint, 
+at this time, these and other senior executives further expected commuter losses of $240 million 
+given the cash sales prices that had been approved in the “soft landing,” and a charge of $67 
+million to $240 million would have reduced Raytheon’s 2000 profit before taxes by at least 8 to 
+27 percent.   
+8. The Commission’s complaint alleges that Pliner and others caused Raytheon to 
+improperly take this charge in the third quarter of 2001, when the company wrote down its on-
+balance sheet commuter assets and increased reserves for its off-balance sheet commuter 
+receivables by a total of $693 million after the terrorist attacks of September 11th.  According to 
+the Commission’s complaint, given the charge that the company should have taken at year-end 
+2000, Raytheon’s third quarter 2001 commuter loss provision was materially overstated by at 
+least 10 to 53 percent. 
+IV. 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest 
+to impose the sanctions agreed to in the Respondent’s Offer. 
+ 
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+ 
+ A. Pliner is suspended from appearing or practicing before the Commission as an 
+accountant.  
+ 
+ B. After three (3) years from  the date of this Order, Pliner may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+ 
+  1. a preparer or reviewer, or a pe rson responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission. 
+Such an application must satisfy the Commission that Pliner’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public 
+ 3
+company for which he works or in some other acceptable manner, as long as he practices 
+before the Commission in this capacity; and/or 
+ 
+  2. an independent accountant.  Su ch an application must satisfy the 
+Commission that: 
+ 
+  (a) Pliner, or the public accounting fi rm with which he is associated, is 
+registered with the Public Company Accounting Oversight Board (“Board”) in accordance with 
+the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Pliner, 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; and  
+ 
+(c) Pliner has resolved all discip linary 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) Pliner acknowledges his res ponsibility, 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.   
+ 
+ C. The Commission will consider an appl ication by Pliner to resume appearing or 
+practicing before the Commission as an accountant provided that his accountant status is 
+current and he has resolved any disciplinary issues with the applicable board of accountancy.  
+However, if the resolution of any disciplinary action by a board of accountancy is dependent 
+on reinstatement by the Commission, the Commission will consider an application on its other 
+merits.  The Commission’s review may include consideration of, in addition to the matters 
+referenced above, any other matters relating to Pliner’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  
+      Secretary 
+ 4
\ No newline at end of file
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@@ -0,0 +1,1390 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Martin E. Kenney, Jr. 
+     
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+     
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+        Martin E. Kenney, Jr.
+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20064 /April 2, 2007 
+
+ Accounting and Auditing Enforcement 
+Release No.  2589  /April 2, 2007 
+
+  Securities and Exchange Commission v. Martin E. Kenney, Jr. , Civil Action No. 05-Civ-7944 (S.D.N.Y. filed September 13, 2005, amended March 23, 2007) (SAS) 
+
+ Former CEO of WRC Media, Inc. Settles SEC Action 
+
+ The Securities and Exchange Commission ("Commission") announced today that, on March 30, 2007, the United States District Court for the Southern District of New York entered final judgment against Martin E. Kenney, Jr. in the federal civil enforcement action filed by the Commission in September 2005.  Kenney was the former Chief Executive Officer and a former Director of WRC Media, Inc. ("WRC"), a provider of educational materials for the kindergarten through high school market.   
+
+ The Judgment permanently enjoins Kenney from aiding and abetting violations of Section 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 12b-20, 15d-1, 15d-11, and 15d-13 promulgated thereunder.  The Judgment also requires Kenney to pay a $60,000 civil penalty.  Kenney consented to the Judgment without admitting or denying the allegations in the Commission's amended complaint. 
+
+ The Commission's amended complaint alleged that Kenney aided and abetted WRC's improper recognition of $1.2 million in revenue from a purported sale of educational software to the Monroe City, Louisiana School District ("Monroe transaction").  Specifically, the amended complaint alleged that, in December 2002, Kenney and a sales team returned to Louisiana to obtain a replacement contract from the district superintendent after learning that a previous version of the contract could not be used to recognize revenue in 2002.  While the replacement contract did not mention any requirement of Monroe City School Board approval, school board approval was still required.  Because the replacement contract was contingent upon school board approval, the Commission alleged that the Monroe transaction did not meet the criteria under generally accepted accounting principles (GAAP) for revenue recognition.  As a result, WRC filed financial reports with the Commission that materially misstated WRC's fourth quarter 2002 results.  Kenney was substantially involved in the negotiation of the Monroe transaction and therefore aided and abetted WRC in violating Section 15(d) of the Exchange Act and Exchange Act Rules 12b-20, 15d-1, 15d-11, and 15d-13. 
+
+ For additional information concerning this matter, see  Litigation Release No. LR-19373  (September 13, 2005). 
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diff --git a/raw/aaer/2007/AAER-2591.txt b/raw/aaer/2007/AAER-2591.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3e550ba8c09994ad4ad1fcace98df31e33f56d39
--- /dev/null
+++ b/raw/aaer/2007/AAER-2591.txt
@@ -0,0 +1,1406 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Tenet Healthcare Corporation, David L. Dennis, Thomas B. Mackey, Christi R. Sulzbach, and Raymond L. Mathiasen 
+     
+     
+     
+     
+     
+     
+     
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+              Tenet Healthcare Corporation, David L. Dennis, Thomas B. Mackey, Christi R. Sulzbach, and Raymond L. Mathiasen
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Tenet Healthcare Corporation, David L. Dennis, Thomas B. Mackey, Christi R. Sulzbach, and Raymond L. Mathiasen
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20067 / April 2, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2591 / April 2, 2007 
+
+  Securities and Exchange Commission v. Tenet Healthcare Corporation, David L. Dennis, Thomas B. Mackey, Christi R. Sulzbach, and Raymond L. Mathiasen , United States District Court for the Central District of California, Civil Action No. CV 07-2144 RGK (AGRx) 
+
+ 
+
+ On April 2, 2007, the Securities and Exchange Commission filed civil fraud charges in federal district court against Tenet Healthcare Corporation and its former chief financial officer and co-president, its former chief operating officer and co-president, its former general counsel and chief compliance officer, and its former chief accounting officer for failing to disclose to investors that Tenet's strong earnings growth from 1999 to 2002 was driven largely by its exploitation of a loophole in the Medicare reimbursement system.  Once Tenet finally revealed its scheme to the investing public and admitted that its strategy was not sustainable, the market value of Tenet's stock plunged by over $11 billion. 
+
+ During the relevant time, Tenet was based in Santa Barbara, Calif., and was the second largest publicly traded healthcare company in the United States.   
+
+ To settle the charges, Tenet agreed to pay a civil penalty of $10 million.  The SEC will seek to have these funds placed into a Fair Fund for distribution to harmed investors pursuant to the Sarbanes-Oxley Act.  Without admitting or denying the allegations in the SEC's complaint, Tenet also agreed to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933 and 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. 
+
+ In addition to Tenet, the SEC's complaint names Thomas B. Mackey, age 58, of Keswick, Va., Tenet's former chief operating officer and co-president; Christi R. Sulzbach, age 52, of Santa Barbara, Calif., the former general counsel and chief compliance officer; David L. Dennis, age 58, of Los Angeles, the former chief financial officer and co-president; and Raymond L. Mathiasen, age 63, of Los Angeles, the former chief accounting officer.  Dennis and Mathiasen have agreed to settle the Commission's charges. 
+
+ The Commission's complaint alleges that between 1999 and 2002, Tenet engaged in an unsustainable strategy to reach its earnings targets by deliberately exploiting the Medicare reimbursement system.  Tenet's scheme involved a loophole in the Medicare reimbursement system related to "outlier payments," which are designed to compensate hospitals for caring for extraordinarily sick Medicare patients.  Tenet's management realized that Tenet could inflate its revenue from outlier payments by simply increasing the gross charges set by its hospitals.  From 1999 to 2002, Tenet's outlier revenue more than tripled and Tenet's earnings goals were surpassed year after year.  Tenet's outlier growth from fiscal 1999 to fiscal 2002 accounted for over 54% of its cumulative growth in earnings per share from operations.  Similarly, by fiscal 2002, Tenet's outlier revenue comprised over 40% of its earnings per share. 
+
+ The complaint alleges that Tenet, acting through Dennis, Mathiasen, Mackey, and Sulzbach, misled the investing public by failing to disclose Tenet's strategy, its impact on revenues and earnings, and its unsustainability in the portion of its public filings with the Commission known as "Management's Discussion and Analysis of Financial Condition and Results of Operations," commonly referred to as MD&A. 
+
+ In part as a result of its outlier scheme, Tenet received enough income to set aside funds in improper general reserves.  Tenet, with Mathiasen's approval, created general reserves totaling approximately $107 million by the end of Tenet's 2002 fiscal year.  These inappropriate reserves resulted in material misstatements to Tenet's financial statements for fiscal years 2000 through 2004. 
+
+ Mathiasen and Dennis each agreed to settle the Commission's charges without admitting or denying the allegations.  Mathiasen agreed to be permanently enjoined from violating Section 17(a) of the Securities Act and Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder, to pay a civil penalty of $240,000, and to be barred from serving as an officer or director of a public company for five years.  A certified public accountant, Mathiasen also agreed to be permanently denied the privilege of appearing or practicing before the Commission as an accountant under Rule 102(e) of the Commission's rules of practice. 
+
+ Dennis agreed to be permanently enjoined from future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder, and to pay a $150,000 civil penalty.  The penalties paid by Mathiasen and Dennis's penalties personally will also be added to the Fair Fund for investors along with Tenet's payment.  
+
+ The settlements by Tenet, Dennis, and Mathiasen are subject to approval by the court. 
+
+  The Commission's complaint charges Mackey and Sulzbach with committing violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting Tenet's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  The complaint seeks permanent injunctions against future violations of these provisions, orders barring each of them from serving as an officer or director of a public company, disgorgement of ill-gotten gains, with prejudgment interest, and civil penalties.  
+
+ On March 30, 2006, the Commission charged three of Tenet's outside auditors with improperly changing audit work papers in connection with the audit completed during the period of the defendants' scheme.  See  http://sec.gov/news/press/2006-45.htm . 
+
+ 
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diff --git a/raw/aaer/2007/AAER-2593.pdf b/raw/aaer/2007/AAER-2593.pdf
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diff --git a/raw/aaer/2007/AAER-2596.pdf b/raw/aaer/2007/AAER-2596.pdf
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diff --git a/raw/aaer/2007/AAER-2596.txt b/raw/aaer/2007/AAER-2596.txt
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--- /dev/null
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@@ -0,0 +1,164 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55623 / April 12, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2596 / April 12, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12616
+       
+      :  
+ :  
+ :   
+ In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+    LESLEY DON COLE (CPA),   : 102(e) OF THE COMMISSION’S RULES OF 
+      : PRACTICE, MAKING FINDINGS, AND 
+    Respondent.    : IM POSING REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :   
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Lesley 
+Don Cole (“Respondent” or “Cole”) 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. Cole, age 46, of Roland, Arkansas, was employed as an audit partner with Moore 
+Stephens Frost, PLC (“Moore Stephens”) from approximately December 1989 until April 2003.  
+Cole is currently a partner with Huffman Webb Smith & Cole, PLC, an accounting firm located in 
+Little Rock, Arkansas.  Cole is licensed as a CPA in Arkansas, Alabama, and Georgia.  He 
+registered as a CPA in Oklahoma.     
+ 
+2. At all relevant times, UCAP was a Colo rado corporation with its principal place of 
+business in Aurora, Colorado.  UCAP operated a mortgage banking business until it ceased 
+operations on approximately April 30, 2004.  UCAP’s common stock was registered with the 
+Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) 
+from 1996 through August 23, 2005, and the company was required to file reports with the 
+Commission on Forms 10-KSB and 10-QSB.  At all relevant times, UCAP’s common stock traded 
+in the Pink Sheets (on www.pinksheets.com, a service of Pink Sheets LLC).  On August 23, 2005, 
+the Commission revoked UCAP’s securities registration pursuant to Section 12(j) of the Exchange 
+Act.   
+ 
+ 3. On _______, 2006, the Commission filed a complaint against Cole in SEC v. 
+Jimmy Lynn Bradley, et al., Civil Action No. 06-____, United States District Court for the District 
+of Colorado.  On ____, 2006, the court entered an order permanently enjoining Cole, by consent, 
+from future violations of Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 
+thereunder, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the 
+Exchange Act and Rules 12b-20 and 13a-1 thereunder.  The court further ordered that Cole pay a 
+$25,000 civil penalty. 
+ 
+4. The Commission’s complaint alleged, among other things, that Cole knowingly 
+allowed UCAP fraudulently to overstate revenue by recording only half of a revenue adjustment 
+necessary to make UCAP’s financial statements comply with generally accepted accounting 
+principles (“GAAP”) and to overstate the value of real estate.  Together, these actions enabled 
+UCAP to meet falsely a key financial covenant required to save the company’s sole line of 
+ 3
+credit.  Additionally, the Commission’s complaint alleged that Cole knowingly allowed UCAP to 
+record revenue from a real estate transaction with a related party and fail to record an expense for 
+a settlement agreement between UCAP and a third party.  Some of the terms and conditions of 
+the settlement agreement were contained in UCAP’s 2002 Form 10-KSB, but the financial 
+statements did not contain an accrual for the liability.  Moreover, the Commission’s complaint 
+alleged that Cole caused Moore Stephens to issue an unqualified audit report, falsely stating that 
+the audit had been performed in accordance with generally accepted auditing standards, and that 
+the financial statements were free of material misstatements and were presented in conformity 
+with GAAP.  As a result, UCAP’s financial statements for the annual period ended September 
+30, 2002 understated the company’s pre-tax net loss by over $1.8 million, or 26 percent, and 
+were therefore false and misleading.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Cole’s Offer. 
+ 
+ Accordingly, it is hereby ORDE RED, effective immediately, that: 
+ 
+A. Cole is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five years from the date of th is 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; 
+ 4
+   (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 re sponsibility, 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 Co mmission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his state CPA license is current 
+and he has resolved all other disciplinary issues with the applicable state boards of 
+accountancy.  However, if state licensure is dependant on reinstatement by the Commission, 
+the Commission will consider an application on its other merits.  The Commission’s review 
+may include consideration of, in addition to the matters referenced above, any other matters 
+relating to Respondent’s character, integrity, professional conduct, or qualifications to appear 
+or practice before the Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       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/2007/AAER-2597.txt b/raw/aaer/2007/AAER-2597.txt
new file mode 100644
index 0000000000000000000000000000000000000000..22d7c1b3b8e7db870096cae4f58fb1a4e163c43d
--- /dev/null
+++ b/raw/aaer/2007/AAER-2597.txt
@@ -0,0 +1,1375 @@
+
+
+ 
+ 
+   
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20082 / April 19, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2597 / April 19, 2007 
+
+  SEC v. Sanjay Kumar and Stephen Richards , 04 Civ. 4104 (E.D.N.Y.)(Glasser, I.L.). 
+
+ Final Judgment Entered Against Defendant Sanjay Kumar 
+
+ 
+
+ The Securities and Exchange Commission announced that on April 13, 2007, the United States District Court for the Eastern District of New York entered a final judgment on consent against Sanjay Kumar, the former CEO and Head of Sales at Computer Associates International, Inc., ("CA"). The Final Judgment against Kumar does not impose a civil penalty or disgorgement based on Kumar's obligation to pay restitution payments in the criminal action,  United States v. Kumar et ano. , S2-04 Cr. 846 (ILG). Kumar consented, without admitting or denying the allegations against him, to a judgment that reincorporates equitable relief previously ordered by the Court, including permanent injunctions prohibiting Kumar and Richards from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a) and 13(b) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 promulgated thereunder, and an order barring Kumar from serving as an officer or director of a publicly held company. 
+
+ Previously, on April 24, 2006, Kumar pleaded guilty to eight felony criminal charges in the related criminal case brought by the United States Attorney's Office for the Eastern District of New York. On November 27, 2006, Judge I. Leo Glasser sentenced Kumar to serve a 12 year prison term. On April 13, 2007, Judge Glasser entered a Stipulation and Order in the criminal action imposing a Restitution Judgment against Kumar in the amount of $798,600,000, and directing Kumar to pay $40 million on or before April 30, 2007, $10 million on or before July 31, 2007, and $2 million on or before December 31, 2008. Judge Glasser directed Kumar to pay the balance of the restitution obligation upon release from incarceration by annual payments of 20% of Kumar's income. 
+
+ On September 22, 2004, the Commission filed complaints alleging that Kumar and violated the anti-fraud and other provisions of the federal securities laws. The Commission alleged that from 1998 to 2000, CA routinely kept its books open to record revenue from contracts executed after the quarter ended in order to meet Wall Street quarterly earnings estimates. In total, CA prematurely recognized over $3.3 billion in revenue. In addition, Kumar obstructed the Commission's investigation into the company's accounting practices. 
+
+ The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter. 
+
+ For further information see Litigation Releases No.  18552  (January 22, 2004), No.  18665  (April 8, 2004), No.  18891  (September 22, 2004), No.  18954  (November 2, 2004), No.  19730  (June 19, 2006), and No.  19898  (November 3, 2006). 
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diff --git a/raw/aaer/2007/AAER-2598.txt b/raw/aaer/2007/AAER-2598.txt
new file mode 100644
index 0000000000000000000000000000000000000000..97904c48b5d32a44ce33d67364c907897e8bc958
--- /dev/null
+++ b/raw/aaer/2007/AAER-2598.txt
@@ -0,0 +1,1377 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20083 / April 20, 2007 
+
+ Accounting and Auditing Enforcement Release  No. 2598 / April 20, 2007 
+
+  Securities and Exchange Commission v. Bernard Shinder , Civil Action No. 6:05-cv-0139 (M.D. Fla.). 
+
+ Florida Court Orders Boca Raton Man Charged With Fraud To Pay $120,000 Penalty 
+
+ The Securities and Exchange Commission today announced that the federal court in Orlando entered a final judgment on April 16, 2007 against Bernard Shinder, of Boca Raton, Florida, ordering him to pay a $120,000 penalty. 
+
+ Shinder, without admitting or denying the allegations against him, consented to the entry of the judgment in the United States District Court for the Middle District of Florida. 
+
+ This judgment concludes the Commission's litigation concerning Bio One Corp., a nutritional supplement company located in Winter Springs, Florida where Shinder served as CFO.  The Commission's complaint alleged fraud and other securities law violations against Shinder and Bio One's former CEO Armand Dauplaise. 
+
+ Shinder had previously consented to a permanent injunction that enjoins him from future violations of the federal securities laws and bars him from acting as an officer or director of any public company. 
+
+ For additional information, including details of the complaint's allegations and the prior injunctions against Shinder and Dauplaise, see Litigation Release Nos.  19387  (Sept. 22, 2005), No.  19643  (April 6, 2006), and No.  19808  (Aug. 17, 2006). 
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diff --git a/raw/aaer/2007/AAER-2599.txt b/raw/aaer/2007/AAER-2599.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a0f759d423613f50b01994e22faf1ad8d3c001a0
--- /dev/null
+++ b/raw/aaer/2007/AAER-2599.txt
@@ -0,0 +1,1374 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20084 / April 23, 2007 
+
+ Accounting and Auditing Enforcement  Release No.  2599 / April 23, 2007 
+
+  Securities and Exchange Commission v. Richard M. Scrushy , Civil Action No. 03-J 0615 S (N.D. Ala.) (Judge Inge P. Johnson). 
+
+ Healthsouth Founder Settles SEC Fraud Action for $81 Million 
+
+ The Securities and Exchange Commission announced today that the United States District Court for the Northern District of Alabama has entered a Final Judgment against defendant Richard M. Scrushy that permanently bars Scrushy from serving as an officer or director of a public company, permanently enjoins Scrushy from committing future violations of the antifraud and other provisions of the federal securities laws, and requires Scrushy to pay $81 million in disgorgement and civil penalties. 
+ The Commission's complaint in this action charges Scrushy with directing a $2.6 billion financial fraud at the HealthSouth Corporation during the years 1996 through 2002.  Scrushy was one of HealthSouth's founders, and was chairman of its Board of Directors and its chief executive officer during the relevant period of the fraud.   
+ The Complaint alleges that, at Scrushy's direction, HealthSouth's overstated its revenue by more than $2.6 billion from the second quarter of 1996 through the third quarter of 2002.  This overstatement led directly to quarterly and annual overstatements of net income and retained earnings.  The Commission's complaint charges that, by the end of 2002, HealthSouth was claiming to have over $1.5 billion in accumulated retained earnings, when in fact the Company had operated at a significant loss over its entire corporate history.  The HealthSouth fraud resulted in one of the largest accounting restatements in American corporate history. 
+ The Final Judgment orders Scrushy to pay $81,000,000, comprised of $3,500,000 in civil penalties and $77,500,000 in disgorgement, with the disgorgement amount subject to an offset for any amounts paid in judgments or settlements in certain derivative, corporate, and class action lawsuits seeking recovery of the same money as the Commission.  The Final Judgment provides that, upon a motion to the Court, the civil penalties paid by Scrushy may be distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002, in this case by asking the Court to add these sums to the Fair Fund already established as a result of the Company's settlement.  The Final Judgment permanently prohibits Scrushy from acting as an officer or director of a public company, and Scrushy has consented to refrain from seeking modification or removal of this prohibition for at least five years from the entry of the Final Judgment.  The Final Judgment permanently restrains and enjoins Scrushy from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 promulgated thereunder.   
+ Scrushy consented to the entry of the Final Judgment without admitting or denying any of the allegations in the Commission's complaint.  In his Consent to this settlement, which is incorporated into the Final Judgment, Scrushy has agreed to refrain from seeking indemnification or reimbursement from any third-party for any part of the $81 million required by the Final Judgment, whether that sum is paid directly to the Commission or paid to satisfy judgments or settlements in the lawsuits for which Scrushy claims an offset against the $77.5 million disgorgement amount. 
+ The Commission has previously settled related actions with respect to HealthSouth [Release No.  LR 19280 ] (June 23, 2005); Emery Harris [Release No.   LR 18700 ] (May 10, 2004); Kenneth Livesay [Release No.  LR 18843 ] (August 23, 2004); Michael Martin and Malcolm McVay [Release No.  LR 18904 ] (September 28, 2004); Kay Morgan [Release No.  LR 18941 ] October 23, 2004; Angela Ayers and Virginia Valentine [Release No.  LR 19123 ] (March 7, 2005); Kathy Edwards [Release No.  LR 19322 ] (August 2, 2005);  William Owens [Release No.  LR-19743 ] (June 28, 2006); and Weston Smith [Release No.  LR 19766 ] (July 20, 2006).  
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diff --git a/raw/aaer/2007/AAER-2600.txt b/raw/aaer/2007/AAER-2600.txt
new file mode 100644
index 0000000000000000000000000000000000000000..73820da438ac2707c6189b9368d4ab8f6e8ef3c0
--- /dev/null
+++ b/raw/aaer/2007/AAER-2600.txt
@@ -0,0 +1,1377 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
+ 
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+     SEC.gov | Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants 
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+              Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants
+           
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+        Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20089 / April 25, 2007 
+
+ Accounting and Auditing Enforcement Release No.  2600 / April 25, 2007 
+
+  SEC v. Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants , Civil Action No. 00-2873 (D.N.J. filed June 14, 2000) 
+
+ SEC Settles With Former Cendant Corporation Accounting Executive for Role in Cendant Financial Fraud 
+
+ 
+
+ The U.S. Securities and Exchange Commission (Commission) today announced that it had submitted to the U.S. District Court for the District of New Jersey for filing a proposed settled Final Judgment as to Defendant Anne M. Pember and Relief Defendant Carleton H. Pember IV, in the Commission's previously filed civil injunctive action against Anne M. Pember (Pember) and others,  Securities and Exchange Commission v. Cosmo Corigliano, Anne M. Pember, Casper Sabatino, and Kevin T. Kearney, Defendants, and Agnes T. Corigliano, Carleton H. Pember IV, and Mary Louise Scully, Relief Defendants , Civil Action No. 00-2873 (D.N.J). The Commission filed its injunctive action on June 14, 2000. The Commission's complaint in that action alleged that for several years the management of CUC International Inc. (CUC) operated a fraudulent scheme that added hundreds of millions of dollars to the reported operating income of CUC and, subsequently, of its corporate successor, Cendant Corporation (Cendant). On July 25, 2000, the Commission amended its complaint and, among other things, named Pember's spouse, Carleton H. Pember IV, as a relief defendant. 
+
+ The proposed final judgment would permanently enjoin Pember from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, 13b2-2, and 14a-9. The proposed final judgment also would bar Pember, pursuant to Section 21(d)(2) of the Exchange Act, from serving as an officer or director of a public company and would order her to provide written notification to the successor corporate entities of Cendant that she unconditionally and irrevocably consents to the immediate cancellation and termination of all her existing options to purchase common stock in those successor entities. Finally, the proposed final judgment would order Pember and Carleton Pember to pay disgorgement in the aggregate amount of $100,000. Pember and Carleton Pember each consented to the entry of the proposed final judgment, without admitting or denying the allegations of the Commission's amended complaint. 
+
+ From 1989 to 1997, Pember was Controller of CUC's largest division, the Comp-U-Card division. Beginning in June 1997, she became CUC's Controller and continued in that position until the December 1997 merger of CUC and HFS Incorporated. That merger formed Cendant. From the time of the merger until March 1998, she was part of the management of the accounting unit at Cendant Membership Services, the post-merger name for the former CUC business units. The Commission's amended complaint alleged that, while in those positions, Pember played an important role in the CUC/Cendant financial fraud. 
+
+ As part of the settlement, Pember agreed to settle a proposed administrative proceeding against her pursuant to Rule 102(e) of the Commission's Rules of Practice, to be based on the entry of the proposed injunction. Pursuant to her offer, Pember would consent to the issuance of a Commission order permanently suspending her from appearing or practicing before the Commission as an accountant, without admitting or denying the findings set forth therein. 
+
+ Finally, the Commission noted that the Office of the U.S. Attorney for the District of New Jersey has announced that, on January 29, 2007, in her related criminal prosecution, Pember was sentenced to two years probation and 200 hours of community service. The Office stated that, during her sentencing, the U.S. District Judge noted Pember's cooperation in the government prosecution of the former Chairman and Vice Chairman of Cendant. 
+
+  See also  Litigation Release No.  16587  (June 14, 2000); Litigation Release No.  16910  (Feb. 28, 2001); Litigation Release No.  18102  (April 24, 2003); Litigation Release No.  18711  (May 14, 2004). 
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diff --git a/raw/aaer/2007/AAER-2601.txt b/raw/aaer/2007/AAER-2601.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7bc6e4de39ae95ab2ea018bd9b50b8529f76eb6b
--- /dev/null
+++ b/raw/aaer/2007/AAER-2601.txt
@@ -0,0 +1,1376 @@
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+              Merle D. Lewis, Richard R. Hylland, Kipp D. Orme, and Kurt D. Whitesel
+           
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+        Merle D. Lewis, Richard R. Hylland, Kipp D. Orme, and Kurt D. Whitesel
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20091 / April 25, 2007 
+
+ Accounting and Auditing Enforcement  Release No. 2601 / April 25, 2007 
+
+ 
+ SEC v. Merle D. Lewis , (United States District Court for the District of South Dakota, Civil Action No. 07 - 4057)  SEC v. Richard R. Hylland , (United States District Court for the District of South Dakota, Civil Action No. 07 - 4058)  SEC v. Kipp D. Orme , (United States District Court for the District of South Dakota, Civil Action No. 07 - 4060)  SEC v. Kurt D. Whitesel , (United States District Court for the District of South Dakota, Civil Action No. 07 - 4059)
+ 
+
+ SEC Charges Four Former Officers of NorthWestern Corporation with Financial and Disclosure Fraud 
+
+ The Securities and Exchange Commission today filed separate complaints against four former officers of NorthWestern Corporation ("NorthWestern"), a Midwestern utility company headquartered in South Dakota.  The Commission's complaints, each filed in the United States District Court for the District of South Dakota, allege that Merle D. Lewis, NorthWestern's former chief executive officer; Richard R. Hylland, NorthWestern's former chief operating officer; Kipp D. Orme, NorthWestern's former chief financial officer; and Kurt D. Whitesel, NorthWestern's former controller; overstated the performance of NorthWestern and its key telecommunications subsidiary, Expanets, Inc. ("Expanets"), in 2002 during the same period that NorthWestern completed securities offerings totaling more than $800 million.  The Commission's complaints further allege that, after restating its financial results for the first three quarters of 2002, and disclosing Expanets' true financial position and results of operations, NorthWestern declared bankruptcy in 2003. 
+ The Commission alleges that, in NorthWestern's quarterly filings, debt and equity offering filings, and other public information, these four defendants were responsible for overstating performance and concealing problems at Expanets and NorthWestern.  The Commission alleges that each defendant knew or was reckless in not knowing about the inaccuracy of NorthWestern's public claims that Expanets' new computer system was "operational" or "fully operational."  The Commission further alleges that each defendant knew or was reckless in not knowing that Expanets had failed to take appropriate charges for uncollectible accounts receivable and billing adjustments related to the computer system problems, resulting in the overstatement of NorthWestern's income from continuing operations by 90% in the second quarter of 2002 and 109% in the third quarter of 2002.  The Commission also alleges that each defendant was responsible for NorthWestern's failure to disclose that a material portion of Expanets' and NorthWestern's income was derived from the reduction of various accounting reserves and through Expanets' receipt of unusual non-compete payments.  Finally, the Commission alleges that each defendant was responsible for NorthWestern's failure to disclose significant intercompany cash advances to its subsidiaries during the first half of 2002, which impacted the company's liquidity position and demonstrated the subsidiaries' continuing financial difficulties. 
+ The Commission's complaints charge Lewis, Hylland, Orme and Whitesel with violations of Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933.  The complaints also charge each defendant with violating Exchange Act Rule 13b2-1, and with aiding and abetting NorthWestern's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.  The complaints further charge Lewis, Hylland and Whitesel with violating Section 13(b)(5) of the Exchange Act, and charge Lewis, Orme and Whitesel with violating Exchange Act Rule 13b2-2.  The Commission seeks permanent injunctions, civil penalties and officer and director bars against each defendant.  
+ Lewis, Hylland, Orme and Whitesel, without admitting or denying the allegations in the Commission's complaints, each consented to the entry of a final judgment permanently enjoining him from violating or aiding and abetting violations of the provisions he allegedly violated, and to a five-year officer and director bar.  Lewis and Hylland each consented to pay $150,000 in civil penalties, Orme consented to pay a $100,000 civil penalty, and Whitesel consented to pay a $25,000 civil penalty. 
+  For additional information on related Commission actions, see Sec. Exch. Act Rel. No. 34-55416 (March 7, 2007). 
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diff --git a/raw/aaer/2007/AAER-2602.txt b/raw/aaer/2007/AAER-2602.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7114dc41179d37d8b2f07eacb20a2fefec5cba39
--- /dev/null
+++ b/raw/aaer/2007/AAER-2602.txt
@@ -0,0 +1,1410 @@
+
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+              Baker Hughes Incorporated and Roy Fearnley
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+        Baker Hughes Incorporated and Roy Fearnley
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20094 / April 26, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2602 / April 26, 2007 
+
+  SEC v. Baker Hughes Incorporated and Roy Fearnley , Civil Action No. H-07-1408, United States District Court for the Southern District of Texas (Houston Division) (EW) (Filed April 26, 2007) 
+
+ SEC Charges Baker Hughes With Foreign Bribery and With Violating 2001 Commission Cease-and-Desist Order 
+
+ Baker Hughes Subsidiary Pleads Guilty to Three Felony Charges in Criminal Action Filed by Department of Justice; Criminal Fines, Civil Penalties and Disgorgement of Illicit Profits Total More Than $44 Million 
+
+ 
+
+ On April 26, 2007, the Securities and Exchange Commission filed a settled enforcement action in the United States District Court for the Southern District of Texas charging Baker Hughes Incorporated, a Houston, Texas-based global provider of oil field products and services, with violations of the Foreign Corrupt Practices Act ("FCPA"). Baker Hughes has agreed to pay more than $23 million in disgorgement and prejudgment interest for these violations and to pay a civil penalty of $10 million for violating a 2001 Commission cease-and-desist Order prohibiting violations of the books and records and internal controls provisions of the FCPA.  In the Matter of Baker Hughes Incorporated , Admin. Proc. No. 3-10572 (September 12, 2001). In the same complaint, the SEC also charged Roy Fearnley, a former business development manager for Baker Hughes, with violating and aiding and abetting violations of the FCPA. Fearnley has not reached any settlement with the Commission regarding these charges. 
+
+ The SEC's complaint alleges that Baker Hughes paid approximately $5.2 million to two agents while knowing that some or all of the money was intended to bribe government officials, specifically officials of State-owned companies, in Kazakhstan. The complaint alleges that one agent was hired in September 2000 on the understanding that Kazakhoil, Kazakhstan's national oil company at that time, had demanded that the agent be hired to influence senior level employees of Kazakhoil to approve the award of business to the company. Baker Hughes retained the agent principally at the urging of Fearnley. According to the complaint, Fearnley told his bosses that the "agent for Kazakhoil" told him that unless the agent was retained, Baker Hughes could "say goodbye to this and future business." Baker Hughes engaged the agent and was awarded an oil services contract in the Karachaganak oil field in Kazakhstan that generated more than $219 million in gross revenues from 2001 through 2006. Baker Hughes, the complaint alleges, paid the agent $4.1 million to its bank account in London but received no identifiable services from the agent. The complaint also alleges that in 1998 Baker Hughes retained a second agent in connection with the award of a large chemical contract with KazTransOil, the national oil transportation operator of Kazakhstan. Between 1998 and 1999, Baker Hughes paid over $1 million to the agent's Swiss bank account, despite a company employee knowing by December 1998 that the agent's representative was a high-ranking executive of KazTransOil. 
+
+ The SEC's complaint against Baker Hughes also alleges violations of the books and records and internal controls provisions of the FCPA in Nigeria, Angola, Indonesia, Russia, Uzbekistan and Kazakhstan. In addition to violating the FCPA, certain of this conduct occurred after September 12, 2001, and consequently violated the Commission's 2001 cease-and-desist Order. Specifically, the complaint alleges that between 1998 and 2005, Baker Hughes made payments in Nigeria, Angola, Indonesia, Russia, Uzbekistan and Kazakhstan in circumstances that reflected a failure to implement sufficient internal controls to determine whether the payments were for legitimate services, whether the payments would be shared with government officials, or whether these payments would be accurately recorded in Baker Hughes' books and records. 
+
+ For example, the complaint alleges that 
+
+  from 1998 to 2004, Baker Hughes authorized commission payments of nearly $5.3 million to an agent (who worked in Kazakhstan, Russia and Uzbekistan) under circumstances in which the company failed to determine whether such payments were, in part, to be funneled to government officials in violation of the FCPA;   
+
+   in Indonesia, between 2000 and 2003, Baker Hughes paid certain freight forwarders to import equipment into Indonesia using a "door-to-door" process under circumstances in which the company failed to adequately assure itself that such payments were not being passed on, in part, to Indonesian customs officials;   
+
+   in Nigeria, between at least 2001 and 2005, Baker Hughes authorized payments to certain customs brokers to facilitate the resolution of alleged customs deficiencies under circumstances in which the company failed to adequately assure itself that such payments were not being passed on, in part, to Nigerian customs officials; and   
+
+   in Angola, from 1998 to 2003, Baker Hughes paid an agent more than $10.3 million in commissions under circumstances in which the company failed to adequately assure itself that such payments were not being passed on to employees of Sonangol, Angola's state-owned oil company, to obtain or retain business in Angola. 
+  Without admitting or denying the allegations in the complaint, Baker Hughes has consented to the entry of a final judgment permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"). Baker Hughes also has agreed to disgorge $19,944,778, and to pay prejudgment interest thereon in the amount of $3,133,237.41, and to pay $10,000,000 as a civil penalty for the company's violations of the prior Commission cease-and-desist Order. Under the terms of the final judgment, Baker Hughes will also retain an independent consultant to review the company's FCPA compliance and procedures. 
+
+ The Commission also filed, in the same complaint, a contested action against Roy Fearnley, a former business development manager for Baker Hughes, seeking to permanently enjoin Fearnley from violating Sections 30A and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and aiding and abetting Baker Hughes' violations of Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and seeking disgorgement, prejudgment interest and civil penalties. 
+
+ The Commission acknowledges Baker Hughes' cooperation in the investigation. 
+
+ In a related criminal proceeding, the United States Department of Justice filed criminal FCPA charges against Baker Hughes and its wholly-owned subsidiary Baker Hughes Services International, Inc., with an office in Atyrau, Kazakhstan. Baker Hughes Services International, Inc. entered a guilty plea before the Honorable Gray H. Miller, United States District Judge for the Southern District of Texas, and agreed to plead guilty to one count of violating the anti-bribery provisions of the FCPA, one count of aiding and abetting the falsification of the books and records of Baker Hughes, and one count of conspiracy to violate the FCPA, and to pay a criminal fine of $11 million. The Department of Justice has also entered into an agreement with Baker Hughes to defer prosecution for two years on charges of violating the anti-bribery and books and records provisions of the FCPA. Under the agreement, the company will retain for a period of three years a monitor to review and assess the company's compliance program and monitor its implementation of and compliance with new internal policies and procedures. 
+
+ The staff acknowledges the cooperation and assistance of the U.S. Department of Justice, Fraud Section. The staff also acknowledges the help provided, in the form of mutual legal assistance, by the Isle of Man Financial Supervision Commission, HM Procureur (Attorney General) for Guernsey, and by the authorities of the United Kingdom and Switzerland. 
+
+ 
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2007/AAER-2606.txt b/raw/aaer/2007/AAER-2606.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4fcbccdf277ff755e11f0df3a4ec2bfa8afb3aa6
--- /dev/null
+++ b/raw/aaer/2007/AAER-2606.txt
@@ -0,0 +1,1369 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20104 / May 3, 2007 
+
+ Auditing and Accounting Enforcement Release No. 2606 / May 3, 2007 
+
+  Securities and Exhange Commission v. Gary V. Morris , Civil Action No. 4:04-CV-3096 (S.D. Tex.) 
+
+ Claims Dismissed Against Former Halliburton Officer for Failure to Disclose a 1998 Change in Accounting Practice 
+
+ 
+
+ The Securities and Exchange Commission announced that the U.S. District Court in Houston has dismissed the Commission's claims against Gary V. Morris, Halliburton's former chief financial officer. The district court's order came at the request of the Commission to dismiss the claims "in the interests of justice." The Commission's case, filed in 2004, concerned Halliburton's failure to disclose a 1998 change to its accounting practice. As a result of that undisclosed change, the Commission alleged that Halliburton's public statements regarding its income in 1998 and 1999 were materially misleading. 
+
+ In 2004, Halliburton and its former controller, Robert C. Muchmore, Jr., settled the Commission's enforcement actions by consenting to a Commission order to cease and desist from committing or causing future securities law violations. Additionally, Halliburton and Muchmore paid penalties of $7.5 million and $50,000 respectively, in a related civil action. Halliburton's penalty for the disclosure failure reflected lapses in the company's conduct during the course of the Commission investigation, which commenced in mid-2002. 
+
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diff --git a/raw/aaer/2007/AAER-2607.pdf b/raw/aaer/2007/AAER-2607.pdf
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@@ -0,0 +1,275 @@
+ 
+ 
+ 
+  UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+Securities Exchange Act of 1934 
+Release No. 55725 / May 8, 2007 
+ 
+Accounting and Auditing Enforcement 
+Release No.  2607 / May 8, 2007 
+ 
+Administrative Proceeding 
+File No.  3-12630  
+                                                                     
+     :  ORDER INSTITUTING CEASE-AND- 
+In the Matter of   :  DE SIST PROCEEDINGS, MAKING 
+     :  FINDINGS, AND IMPOSING A CEASE- 
+MOTOROLA, INC.,   :  AND-D ESIST ORDER PURSUANT TO  
+     :   S E C T I O N  2 1 C  O F  T H E  S E C U R I T I E S  
+Respondent.    :  EXCHANGE ACT OF 1934 
+     :  
+                                                               : 
+ 
+I. 
+  
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against Motorola, Inc. (“Motorola” 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 Respondent and the subject matter of these proceedings, 
+which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist 
+Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of 
+the Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 2
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+A. Summary 
+ 
+1. This case involves a round-trip of cash between Motorola and Adelphia 
+Communications Corporation (“Adelphia”).  Pursuant to a purported marketing support agreement 
+entered into in 2001, Adelphia paid money to Motorola which was immediately returned to 
+Adelphia in the form of marketing support payments.  No marketing was specified in the 
+agreement and no marketing was done pursuant to the agreement.  Adelphia used Motorola’s 
+marketing support payments to falsify its earnings in 2000 and 2001. 
+2. In the Fall of 2000, Adelphia, a cable television system owner and operator, asked 
+Motorola, a vendor that provided digital cable television set-top boxes used by Adelphia, to enter 
+into a marketing support agreement for the stated purpose of helping Adelphia fund its roll-out of 
+digital cable television service.  Adelphia proposed to pre-fund Motorola’s marketing support 
+payment obligation through a retroactive and offsetting price increase applied to digital cable 
+television set-top boxes Motorola had supplied Adelphia in the past and was to supply Adelphia in 
+the future pursuant to a pre-existing purchase contract. 
+3. The marketing support agreement, which was not finalized until March 2001, was 
+backdated to the prior fiscal year and applied retroactively to set-top boxes that had already been 
+sold to Adelphia.  The agreement also contained a false reason for the retroactive price increase.   
+4. The transaction had no economic substance, amounting to a round-trip of cash, and 
+was designed by Adelphia to increase artificially its Earnings Before Interest, Taxes, Depreciation, 
+and Amortization (“EBITDA”) by reducing operating costs by the amount of the marketing support 
+payments from Motorola.  In this manner, Adelphia was able to use the transaction to reduce 
+improperly its operating costs and increase its earnings by approximately $18.3 million in 2000 
+and $28 million in 2001. 
+5. Motorola knew or should have known that Adelphia was misusing the marketing 
+support agreement.  The marketing support agreement was backdated to a prior fiscal year, it 
+applied retroactively to set-top boxes that had already been sold to Adelphia, and it contained a false 
+reason for the price increase.  Motorola executives also knew that (i) the marketing support 
+agreement did not identify any marketing to be done by Adelphia and Motorola did not require that 
+any marketing be done pursuant to the agreement; (ii) the transaction was a round-trip transfer of 
+cash; and (iii) Motorola accounted for the transaction as economically neutral to Motorola.        
+ 
+ 
+                                                 
+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. 
+ 3
+B. Respondent 
+6. Motorola is a Delaware corporation, with corporate headquarters in Schaumburg, 
+Illinois.  Motorola is a global manufacturer and seller of wireless, broadband, and automotive 
+communications technologies.  At all relevant times, Motorola’s common stock was registered 
+with the Commission pursuant to Section 12(b) of the Exchange Act and was publicly traded on 
+the New York Stock Exchange.   
+C. Relevant Entity
+7. Adelphia is a Delaware corporation, headquartered in Greenwood Village, 
+Colorado.  During the relevant period, Adelphia was headquartered in Coudersport, Pennsylvania.  
+Adelphia owns, operates, and manages cable television systems and other related 
+telecommunications businesses.  On March 27, 2002, Adelphia announced that it was liable for 
+approximately $2.3 billion in debt that it had previously failed to disclose.  In May 2002, certain 
+members of the Rigas family, who controlled and held officer and director positions with 
+Adelphia, resigned and Adelphia disclosed that it expected to restate its financial statements for 
+fiscal years 2000 and 2001.  On July 18, 2002, the Commission filed SEC v. Adelphia 
+Communications Corporation, et al., 02 Civ. 5776 (PKC) (S.D.N.Y.), alleging that widespread, 
+multifaceted financial fraud occurred at Adelphia.  On May 31, 2005, the U.S. District Court for 
+the Southern District of New York entered a consent order enjoining Adelphia 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 Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 under the Exchange Act. 
+D. Facts
+Background 
+8. In January 2000, Motorola acquired General Instrument Corporation (“General 
+Instrument”) for $17 billion in stock.  General Instrument was integrated into Motorola as its 
+broadband communications sector and was a major supplier of digital cable television set-top 
+boxes to Adelphia both prior to and after its integration into Motorola.  In fiscal year 2000, the 
+sector’s earnings accounted for approximately 43% of the combined earnings reported by all of 
+Motorola’s profitable sectors in that year.    
+9. In May 2000, Adelphia and Motorola entered into a purchase agreement that 
+governed the pricing of digital cable television set-top boxes through December 2001 based upon 
+the contemplated purchase by Adelphia of 1.6 million set-top boxes over the life of the contract.  
+The purchase agreement did not require Adelphia to purchase any set-top boxes and it did not 
+provide for a penalty if Adelphia purchased less than the 1.6 million set-top boxes contemplated by 
+the agreement.    
+10. In June 2000, Adelphia realized that its second quarter reported EBITDA would fall 
+below analysts’ expectations.  Adelphia executives devised a plan to inflate artificially EBITDA by 
+reducing operating costs through the purported marketing support agreement with Motorola. 
+ 4
+11. In late August 2000, Adelphia approached Motorola with the idea of entering into 
+the marketing support agreement.   
+Key Factors That Should Have Put Motorola On Notice That Adelphia Was Not Using The 
+Marketing Support Agreement For Its Intended Purpose 
+12. Between August 2000 and March 2001, when the marketing support agreement 
+documents were signed, the executives who reviewed, or were told the substance of, the proposed 
+transaction, were confronted with the following unusual facts unique to this transaction:   
+ 
+• Adelphia’s request was the first time any customer had asked the Motorola executives to 
+increase the price of Motorola’s products; 
+ 
+• The marketing support agreement, which Adelphia provided to Motorola, contained a false 
+reason for the price increase;  
+ 
+• Motorola executives insisted as a condition to entering into the transaction that Adelphia 
+provide a letter from its counsel that Adelphia would not use the transaction in contravention of  
+federal regulations governing cable television rates.  Instead, an Adelphia finance executive who 
+was later implicated in Adelphia’s fraud sent a short confirmatory letter to Motorola without 
+advising Motorola whether its counsel had been consulted;  
+ 
+• The marketing support agreement did not contain any details of marketing to be done by 
+Adelphia and required no input from Motorola’s marketing department;   
+ 
+• The marketing support agreement was backdated and the price increase and marketing 
+support payment obligation were made retroactive to the beginning of the prior fiscal year and 
+applied to products that had already been sold to and paid for by Adelphia; 
+ 
+• The transaction was a “wash” transaction with no economic impact on Motorola; and  
+ 
+• Motorola did not treat the transaction as a marketing transaction for accounting purposes.   
+ 
+Motorola Asked Adelphia To Purchase More Set-Top Boxes Than Adelphia Needed In 
+Exchange For Signing The Marketing Support Agreement 
+ 
+13. Shortly before the marketing support agreement was due to be signed in March 
+2001, Adelphia’s orders for set-top boxes declined below the number called for under the May 
+2000 purchase agreement.  Motorola knew that Adelphia did not need any additional set-top boxes 
+at that time, but told Adelphia that it wanted Adelphia to purchase 100,000 additional set-top 
+boxes.  Adelphia agreed to make the purchase before the marketing support agreement was signed 
+and before the close of Motorola’s first quarter for fiscal year 2001. 
+ 
+ 
+ 5
+Motorola Signed The Backdated Marketing Support Agreement And Made A Retroactive 
+Marketing Support Payment  
+ 
+14. On or about March 21, 2001, Motorola signed the marketing support agreement 
+documents that were backdated to the prior fiscal year.  The marketing support agreement did not 
+specify any marketing to be done by Adelphia and it contained a false reason for the price increase.  
+In the document memorializing the price increase, Motorola stated falsely that the purpose of the 
+price increase was to secure “incremental component volumes and factory capacity” to meet 
+Adelphia’s needs.  In fact, Motorola executives knew that the true purpose of the price increase was 
+to pre-fund Motorola’s marketing support payment obligation to Adelphia.     
+15. In May 2001, Motorola made the first $18.3 million marketing support payment for 
+marketing purportedly done in 2000.  The payment was funded by Adelphia three days earlier 
+when it paid Motorola the retroactive price increase on set-top boxes previously purchased by 
+Adelphia in 2000.      
+ 
+Motorola Again Asked Adelphia To Purchase More Set-Top Boxes Than It Needed And 
+Defrayed The Costs Of Warehousing The Boxes In A Third-Party Warehouse In Exchange 
+For Maintaining The Marketing Support Agreement 
+ 
+16. In early June 2001, Adelphia told Motorola that it would be reducing its orders of 
+set-top boxes due to decreased demand.  Motorola knew that Adelphia had excess inventory that 
+would carry it to the middle of the following year.  Nevertheless, Motorola insisted that Adelphia 
+purchase an additional 150,000 set-top boxes.  Motorola proposed to finance the purchase through 
+Motorola Credit Corporation, so that Adelphia would be able to pay for the additional set-top 
+boxes in two installments over a period of one year and Motorola would be able to record the sales 
+before the close of its second fiscal quarter.   
+ 
+17. To implement the deal and protect Motorola, Motorola insured the Adelphia 
+receivable.  Motorola knew or should have known that Adelphia did not actually need any 
+additional set-top boxes, so it offered Adelphia credits that could be used for other Motorola 
+services, including marketing, to offset the cost of warehousing the 150,000 set-top boxes in a 
+third-party warehouse.  Adelphia agreed to purchase the additional set-top boxes before the close 
+of Motorola’s second quarter for fiscal year 2001.    
+ 
+Motorola Agreed To Increase Its Marketing Support Payment Obligation In Exchange For 
+Adelphia’s Agreement To Purchase More Set-Top Boxes In 2002 
+ 
+18. In mid-December 2001, at the end of Adelphia’s fiscal year, Adelphia asked 
+Motorola to amend the marketing support agreement to require that Motorola make an additional 
+$10 million marketing support payment for 2001 funded by an another retroactive price increase 
+on set-top boxes previously delivered to Adelphia.  Motorola agreed to the amendment after 
+Adelphia agreed to purchase 200,000 set-top boxes in 2002.  The amended marketing support 
+agreement contained the same false reason for the price increase that the original agreement 
+contained.   
+ 
+ 6
+                                                
+Adelphia Used The Marketing Support Agreement To                                                 
+Artificially Decrease Marketing Expenses And Increase EBITDA 
+19. Adelphia recorded the marketing support payments as a contra-expense to 
+marketing costs.  This accounting treatment lowered the amount of recorded marketing expenses 
+and, in turn, artificially inflated Adelphia’s EBITDA.  Adelphia recorded the price increases paid 
+to Motorola as capital expenditures, which are depreciated over time and, therefore, have no 
+impact on EBITDA and a minimal impact on earnings.   
+20. In total, from April 2000 through December 2001, Adelphia recorded improperly 
+approximately $46.3 million in marketing support payments as reductions in current operating 
+expenses, with the intended effect of inflating its reported EBITDA by $46.3 million over that 
+period.  Adelphia’s accounting treatment violated Generally Accepted Accounting Principles 
+(“GAAP”) because it reflected the round-trip transaction as decreasing its reported expenses and 
+increasing its reported earnings when it did not have that effect.     
+Legal Analysis 
+21. The Exchange Act and Exchange Act rules require every issuer of registered 
+securities to file reports with the Commission that accurately reflect the issuer’s financial 
+performance and provide other true and accurate information to the public. 
+22. Adelphia violated Section 13(a) and Rules 13a-1, 13a-13, and 12b-20 by filing with 
+the Commission reports from April 2000 through December 2001, each containing materially false 
+and misleading earnings in the financial statements for each reporting period. 
+23. Adelphia violated Section 13(b)(2)(A) by improperly recording the marketing 
+support payments as a contra-expense to Adelphia’s marketing costs, and by recording as capital 
+expenditures the artificial price increase on the set-top boxes.  Certain officers of Adelphia 
+knowingly falsified, and caused others to falsify, Adelphia’s books, records and accounts, 
+including the fraudulent journal entries of the price increases and marketing support payments.   
+24. Section 21C of the Exchange Act provides that the Commission may issue a cease-
+and-desist order against a person who is “a cause of [another person’s] violation, due to an act or 
+omission the person knew or should have known would contribute to such violation.”2  Based on 
+the conduct described above, Respondent was a cause of Adelphia’s violations of Sections 13(a) 
+and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 of the Exchange Act.  
+ 
+ 
+ 
+2  Where the primary violations underlying a finding that a person is “a cause of” violations 
+do not themselves require a finding of scienter, the standard of liability for being “a cause of” such 
+violations under Section 21C of the Exchange Act is negligence. See KPMG LLP v. SEC, 289 F. 
+3d 109, 112 (DC Cir. 2002). 
+ 7
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanction 
+agreed to in Respondent’s Offer. 
+ Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
+A. Respondent cease and desist from committing or causing any violations and any 
+future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 
+and 13a-13 thereunder.  
+B. Respondent is herby ordered pursuant to Section 21C(e) of the Exchange Act to pay 
+disgorgement in the amount of $18 million and prejudgment interest in the amount of $7 million, 
+for a total payment of $25,000,000.  Within 10 days of entry of this Order, Motorola shall deliver 
+this payment into the Registry of the Court for the United States District Court for the Southern 
+District of New York in the case captioned Securities and Exchange Commission v. Adelphia 
+Communications Corp., et al., 02 Civ. 5776 (PKC).  Simultaneously, Motorola shall transmit by 
+hand delivery to the Clerk of the Court, United States District Court for the Southern District of 
+New York, a letter specifying that the payment is made in connection with the Commission’s 
+administrative proceeding and a copy of the letter shall be simultaneously transmitted by facsimile 
+to Alistaire Bambach, Assistant Regional Director, Division of Enforcement, Securities and 
+Exchange Commission, Northeast Regional Office, 3 World Financial Center, New York, NY 
+10281 (212) 336-1324 (facsimile).  In accordance with Rule 1102 of the Commission’s Rules of 
+Practice [17 C.F.R. 201.1102], the procedures set forth herein shall govern the distribution of any 
+funds paid pursuant to this Order.   
+ 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/2007/AAER-2608.txt b/raw/aaer/2007/AAER-2608.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bd36a5660ca7ae2865dd40c0742b74cc168431cb
--- /dev/null
+++ b/raw/aaer/2007/AAER-2608.txt
@@ -0,0 +1,1371 @@
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+              Penthouse International, Inc., Charles Samel and Jason Galanis
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+        Penthouse International, Inc., Charles Samel and Jason Galanis
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+ U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20110 / May 10, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2608 / May 10, 2007 
+
+  SEC v. Penthouse International, Inc., Charles Samel and Jason Galanis , 05 CV 0780 (RWS) (S.D.N.Y.) 
+
+ 
+
+ The Securities and Exchange Commission today announced that it has settled its enforcement action against Penthouse International, Inc., Charles Samel, a former Director and Executive Vice-President of Penthouse, and Jason Galanis, a former shareholder. On April 27, 2007, the Honorable Robert W. Sweet of the United States District Court for the Southern District of New York entered final judgments that permanently enjoined Samel and Galanis from violating Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, and from aiding and abetting violations of Section 15(d) of the Exchange Act, and Rules 12b-20, 15d-11, and 15d-13 thereunder, and in the case of Samel, Rule 15d-14 as well. Penthouse was also permanently enjoined from violations of these provisions. In addition, Samel and Galanis were each ordered to pay civil penalties of $60,000 and are barred for a period of five years from serving as officers or directors of public companies. Penthouse, Samel and Galanis, without admitting or denying the allegations in the complaint, consented to the entry of these final judgments. 
+
+ The Securities and Exchange Commission filed its action against Penthouse, Samel and Galanis on January 24, 2005. The Commission's complaint alleged that Penthouse, Samel and Galanis engaged in accounting fraud and financial reporting violations at Penthouse in connection with the company's Form 10-Q for the quarter ended March 31, 2003. According to the complaint, Penthouse improperly included as revenue on the financial statements for that quarter $1 million received as an up-front payment in connection with a five-year website management agreement. The inclusion of the $1 million payment under the agreement increased Penthouse's reported revenue by approximately 9%, from $11,072,000 to $12,072,000 and changed a quarterly net loss of $167,000 to a purported net profit of $828,000. The Complaint alleged that Penthouse's Form 10-Q was materially misleading in several other respects. For example, the Commission alleged that it bore an unauthorized electronic signature of Robert C. Guccione, Penthouse's principal executive officer and principal financial officer, and thus represented that Guccione had reviewed and signed it, and the accompanying Sarbanes-Oxley certification. According to the complaint, this representation was false, as Guccione had not seen or approved the filing of the Form 10-Q or the Sarbanes-Oxley certification. Further, according to the complaint, Penthouse's auditors and outside counsel also had not reviewed the filing, a fact that also was not disclosed in the filing. 
+
+ The Comission's complaint alleged that Samel and Galanis prepared and filed the false Form 10-Q, and they did so knowing or recklessly disregarding that Guccione had not seen or approved it, that Penthouse's auditor had not performed its required review of the Form 10-Q, and that it would be improper to include the $1 million payment as revenue for the quarter ended March 31, 2003. 
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diff --git a/raw/aaer/2007/AAER-2613.txt b/raw/aaer/2007/AAER-2613.txt
new file mode 100644
index 0000000000000000000000000000000000000000..43777ce1f20a0c80a4ef0ceeef791439ddefdd37
--- /dev/null
+++ b/raw/aaer/2007/AAER-2613.txt
@@ -0,0 +1,96 @@
+ UNITED STATES OF AMERICA 
+ before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55842 / June 1, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2613 / June 1, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12646 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+   ROBIN R. SZELIGA (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 Robin 
+R. Szeliga (“Respondent” or “Szeliga”) 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. Szeliga, age 46, of Littleton, Colorado, was employed with Qwest 
+Communications International Inc. (“Qwest”) from approximately 1997 to August 2003.  Szeliga 
+was Qwest’s chief financial officer and executive vice president of finance from March 2001 to 
+July 2002. Prior to that, she was Qwest’s senior vice president of financial planning and analysis 
+and reporting. Szeliga was a certified public accountant (“CPA”) licensed in Colorado at the time 
+of her misconduct.  
+2. Qwest, based in Denver, Colorado, is a telecommunications and Internet 
+services company.  At all relevant times, Qwest’s common stock was registered with the 
+Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the "Exchange 
+Act"). Qwest’s common stock trades on the New York Stock Exchange.   
+3. On March 15, 2005, the Commission filed a complaint against Szeliga in 
+SEC v. Joseph P. Nacchio, et al. (Civil Action No. 05-cv-00480-MSK-CBS) in the United States 
+District Court for the District of Colorado.  On May 30, 2007, the court entered an order 
+permanently enjoining Szeliga, 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, 13b2-1 and 13b2-2 
+thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act 
+and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.  Szeliga was also ordered to pay 
+$226,135 in disgorgement of ill-gotten gains, plus $100,917 in prejudgment interest, and a 
+$250,000 civil money penalty.  The court further ordered that Szeliga be barred permanently from 
+acting as an officer or director of any issuer that has a class of securities registered pursuant to 
+Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the 
+Exchange Act. 
+4. The Commission’s complaint alleged, among other things, that from at 
+least April 1, 1999 through March 31, 2002, Szeliga and others at Qwest engaged in a massive 
+financial fraud that hid from the investing public the true source of the company’s revenue and 
+earnings growth. The complaint alleged that to meet aggressive targets for Qwest’s revenue and 
+earnings growth, Qwest fraudulently and repeatedly relied on immediate revenue recognition 
+2
+
+from one-time sales of assets known as “IRUs” and certain equipment, while falsely claiming to 
+the investing public that the revenue was recurring.  The complaint also alleged that Szeliga 
+fraudulently and materially misrepresented Qwest’s performance and growth to the investing 
+public, failed properly to account for IRU sales transactions in Qwest’s financial statements, and 
+caused the company to report falsely approximately $3 billion in revenue.  The complaint alleged 
+that Szeliga failed to make required accounting disclosures about IRUs to the investing public.  
+In addition, the complaint alleged that, to meet revenue targets, Szeliga caused the manipulation 
+of revenue associated with Qwest Dex, formerly a wholly-owned subsidiary of Qwest.  
+Additionally, the complaint alleged that Szeliga fraudulently lowered liabilities related to 
+employee vacations to increase artificially Qwest’s earnings to meet revenue and growth targets.  
+The complaint further alleged that Szeliga sold Qwest stock knowing that Qwest had issued 
+materially false information to the investing public in violation of the insider trading prohibition 
+of the securities laws. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Szeliga’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+Szeliga 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/2007/AAER-2615.pdf b/raw/aaer/2007/AAER-2615.pdf
new file mode 100644
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Binary files /dev/null and b/raw/aaer/2007/AAER-2615.pdf differ
diff --git a/raw/aaer/2007/AAER-2616.txt b/raw/aaer/2007/AAER-2616.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0d656082c4a148aad4061dc7e9d6f78360a152c0
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+++ b/raw/aaer/2007/AAER-2616.txt
@@ -0,0 +1,194 @@
+ 
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55858 / June 5, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2616 / June 5, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12652        CORRECTED 
+ 
+In the Matter of 
+ 
+INTERNATIONAL BUSINESS 
+MACHINES CORPORATION,  
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934  
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against International Business Machines Corporation 
+(“IBM” 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. 
+ 
+ 2
+                                                
+ On the basis of this Order and Res pondent’s Offer, the Commission finds1 that:   
+  
+Respondent 
+ 
+IBM, a New York corporation based in Armonk, New York, is a world-wide information 
+technology corporation.  IBM’s stock is registered pursuant to Section 12(b) of the Exchange Act.  
+IBM stock trades on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock 
+Exchange, and on other exchanges in the United States and around the world. 
+ 
+Summary 
+ 
+ This matter involves a misleading chart presented by IBM during an April 5, 2005 
+conference call with analysts, which was simultaneously webcast, and included in a Form 8-K filed 
+with the Commission, relating to the impact that the company’s decision to expense employee 
+stock options would have on its first quarter 2005 (“1Q05”) and fiscal year 2005 (“FY05”) 
+earnings results.  
+  
+ During the conference call, IBM announced that beginning in 1Q05 it would report stock 
+options as an expense in its financial statements and advised analysts to adjust their earnings 
+models to account for the change.  At the time, IBM expected that its stock options expense for 
+1Q05 would have a $0.10 impact on first quarter earnings per share results and estimated a $0.39 
+impact on FY05 earnings per share results.  IBM did not disclose this information during the 
+conference call or in its subsequently filed Form 8-K.  IBM included a misleading chart in its 
+presentation which was understood by many analysts to indicate that the earnings per share impact 
+of the stock options expense would be $0.14 for 1Q05 and $0.55 for FY05, thereby causing 
+analysts to lower their 1Q05 and FY05 earnings per share estimates by these amounts.  By 
+engaging in this conduct, IBM violated the reporting provisions of the federal securities laws.   
+ 
+Discussion 
+ 
+ On April 5, 2005, one week af ter the SEC staff issued SAB 107 (regarding the reporting of 
+employee stock options as an expense), and less than two weeks before IBM released its 1Q05 
+financial results, IBM announced that it would begin to report employee stock options as an 
+expense in its financial statements for 1Q05.  During the presentation (the text of which was filed 
+with the Commission in a Form 8-K), IBM also advised analysts to update their 2004 models, for 
+comparability, and their 2005 models to reflect the change.  IBM explained to analysts that they 
+should reduce their 2004 earnings per share figures by $0.14 for the first quarter and by $0.55 for 
+the year, which were the actual amounts of stock options expense that IBM had disclosed in its 
+2004 pro-forma disclosures.  IBM also said “(t)his is an accounting change and does not impact 
+underlying business dynamics.  Therefore, for purposes of your models, updated 2005 expectations 
+should reflect the same level of year-to-year profit improvement as current estimates.”   
+ 
+ Furthermore, IBM said that it had taken step s that would result in lower stock options 
+expense for 2005 compared to their 2004 pro-forma expense and that any savings would be used to 
+offset a previously announced $1 billion year-to-year increase in pension expense for 2005.  
+ 
+1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+ 3
+During IBM’s January 2005 earnings announcement, IBM had said that for 2005 it expected a $1 
+billion year-to-year increase in its pension expense.  This was approximately $200 million more 
+than the $800 million year-to-year increase IBM had anticipated for 2005 and had announced in 
+October 2004.  IBM had also said in January that it would take steps over the course of 2005 to 
+overcome the $1 billion year-to-year increase in its pension expense.  IBM identified “divesting the 
+PC business,” “redesigning (its) equity program with premium priced options,” and “globalizing 
+(its) business” as actions it would take to help overcome the increased pension expense.     
+ 
+ During the April 5, 2005 conference call, IBM’s management did not make any statements 
+about the amount by which analysts should reduce their 2005 estimates to account for options 
+expensing.  IBM did present a chart which many analysts read to indicate that the stock option 
+expense would reduce 1Q05 and FY05 earnings per share estimates by $0.14 and $0.55, 
+respectively.  At the time, IBM expected that its stock options expense would have only a $0.10 
+impact on 1Q05 earnings per share results, or $0.04 less than the first quarter 2004 pro-forma 
+expense, and IBM estimated that its stock option expense would have only a $0.39 impact on 
+FY05 earnings per share results, or $0.16 less than the pro-forma amount for the full year 2004.  
+IBM did not disclose this information during the April 5 announcement or in its Form 8-K.  
+ 
+Although IBM considered disclosing that its 1Q05 stock options expense would be $0.03 to 
+$0.04 less than the first quarter 2004 pro-forma expense, management rejected the idea due, at least 
+in part, to concern that analysts would add back the year-to-year reduction to their earnings per 
+share estimates instead of using the reduction to offset the increase in pension expense.  
+Management wanted to avoid this because it would have increased the expected growth rate that 
+analysts had set for IBM, which would have been difficult for the company to achieve because of 
+the year-to-year increase in pension expense.  However, as discussed above, the amount of the 
+increase in IBM’s pension expense for 2005 had been disclosed in October 2004 and updated in 
+January 2005 and, therefore, had been available for analysts to factor into their 2005 models.   
+ 
+ After IBM’s April 5 announcement, many an alysts reduced their earnings per share 
+estimates for 2005 by the same amount as the 2004 pro-forma expense, $0.14 for 1Q05 and $0.55 
+for FY05.  The average of analysts’ earnings per share estimates was reduced to $0.90 for 1Q05 
+and to $5.07 for FY05.  Many analysts’ reports reflected that IBM’s earnings per share estimates 
+were lowered by $0.14 and $0.55 per share for 1Q05 and FY05, respectively, to account for stock 
+options expenses.   
+ 
+ On April 14, 2005, after the market’s close, IBM announced its 1Q05 financial results.  The 
+announcement of 1Q05 results was formerly scheduled for April 18, 2005.  IBM disclosed 
+earnings of $0.85 per share, which was $0.05 less than the amount that many analysts were 
+expecting following the April 5 presentation.  IBM also disclosed that its equity compensation 
+expense was $0.10 per share for 1Q05, or $0.04 lower than what many analysts had understood 
+IBM’s April 5 misleading chart to have indicated it would be.  IBM’s stock price dropped $6.94 
+the next day, or over 8%, closing at $76.33. 
+ 
+ 
+ 
+ 
+Violations 
+ 
+ 4
+ Section 13(a) of the Exchange Act and Rule 13 a-11 thereunder require issuers of registered 
+securities to file certain reports.  15 U.S.C. § 78m(a); 17 C.F.R. § 240.13a-11.  Under Rule 13a-11, 
+issuers are required to file current reports on material corporate developments on Form 8-K.  17 
+C.F.R. § 240.13a-11.  In addition, issuers may choose to file certain reports on Form 8-K, as was 
+done in this matter.  Exchange Act Rule 12b-20 requires, in addition to information required to be 
+in a report, any material information “necessary to make the required statements, in the light of the 
+circumstances under which they are made not misleading.”  17 C.F.R. § 240.12b-20.  Information 
+is material if there is a “substantial likelihood that the disclosure of the omitted fact would have 
+been viewed by the reasonable investor as having significantly altered the ‘total mix’ of 
+information made available.”  Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988) (quoting TSC 
+Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).  Information regarding a company’s 
+earnings is one of the most important considerations in making an investment decision. 
+ 
+IBM violated the above reporting provisions by filing with the Commission a materially 
+misleading Form 8-K.  The filing contained materially misleading information about the amount of 
+IBM’s stock options expense and the impact it would have on IBM’s earnings per share.  The 
+Form 8-K created the impression that IBM’s stock options expense would be greater than what 
+IBM actually expected it to be for 1Q05 and FY05.  In light of the statements made in the Form 8-
+K, IBM should have also included in its Form 8-K additional information it knew at the time 
+relating to its stock options expense for 1Q05 and FY05, (i.e., that it expected the expense to have 
+a $0.10 impact on earnings per share in 1Q05, and that it estimated the expense to have a $0.39 
+impact on earnings per share for FY05).  By failing to include this information in its disclosure, 
+IBM violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder.   
+  
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent IBM’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ Respondent IBM cease and desist from committing or causing any violations and any future 
+violations of Sections 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder.   
+ 
+ 
+ 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/2007/AAER-2618.txt b/raw/aaer/2007/AAER-2618.txt
new file mode 100644
index 0000000000000000000000000000000000000000..753b9070cb68c03b452950d7b7c224f721a71c52
--- /dev/null
+++ b/raw/aaer/2007/AAER-2618.txt
@@ -0,0 +1,276 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55931 / June 20, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2618 / June 20, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-12661 
+ 
+ 
+In the Matter of 
+ 
+ALLIED CAPITAL 
+CORPORATION,  
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Allied Capital Corporation (“Allied” 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 over 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 Responde nt’s Offer, the Commission finds that:  
+ 
+ 
+ 2
+Respondent 
+ 
+1. Allied Capital Corporation, incorporated in Maryland and headquartered in 
+Washington, D.C., is a closed-end management investment company that has elected to be 
+regulated as a business development company (“BDC”) pursuant to Section 54 of the Investment 
+Company Act of 1940 (“Investment Company Act”).  Allied provides privately negotiated debt 
+and equity financing to middle market companies, with a primary focus on private finance.  
+Allied’s securities are registered pursuant to Section 12(g) of the Exchange Act.  Allied makes 
+periodic filings with the Commission pursuant to Section 13(a) of the Exchange Act. 
+ 
+Summary 
+ 
+2. From the quarter ended June 30, 2001 through the quarter ended March 31, 2003, 
+Allied violated recordkeeping and internal controls provisions of the federal securities laws relating 
+to the valuation of certain securities in its private finance portfolio for which market quotations 
+were not readily available.  During the relevant period, Allied failed to make and keep books, 
+records, and accounts which, in reasonable detail, supported or accurately and fairly reflected 
+certain valuations it recorded on a quarterly basis for some of its securities.  In addition, Allied’s 
+internal controls failed to provide reasonable assurances that Allied would value these securities in 
+accordance with generally accepted accounting principles.  Further, from the quarter ended June 
+30, 2001 through the quarter ended March 31, 2002, Allied failed to provide reasonable assurances 
+that the recorded accountability for certain securities in its private finance portfolio was compared 
+with existing fair value of those same securities at reasonable intervals by failing to: (a) provide its 
+board of directors (“Board”) with sufficient contemporaneous valuation documentation during 
+Allied’s March and September quarterly valuation processes; and (b) maintain, in reasonable 
+detail, written documentation to support some of its valuations of certain portfolio companies that 
+had gone into bankruptcy. 
+ 
+3. Allied has implemented new valuation pr ocesses, more detailed recordkeeping, and 
+a series of additional controls and procedures over its valuation processes.  
+ 
+Background
+ 
+4. As a BDC, Allied is requir ed to value its private finance security portfolio pursuant 
+to the requirements in Section 2(a)(41) of the Investment Company Act.  Because the large 
+majority of Allied’s investments in its private finance portfolio are securities for which market 
+quotations are not readily available, Section 2(a)(41)(B)(ii) of the Investment Company Act 
+requires that Allied’s Board determine the fair value of its portfolio securities in good faith.  The 
+fair value of securities for which market quotations are not readily available is the price Allied 
+would reasonably expect to receive on a current sale of the security.1  By the end of the relevant 
+                                                 
+1 See AICPA Audit and Accounting Guide - Investment Companies (Sect. 2.35-2.39), which incorporates 
+Accounting Series Release No. 118 (“ASR 118”).  The Commission has provided interpretative guidance related to 
+financial reporting in the Accounting Series Releases, which is included in the Codification of Financial Reporting 
+Policies.  Thus, conformity with the ASR 118 is required by Commission rules and is consistent with GAAP.  See 
+also Articles 1-01(a) and 6.03 of Regulation S-X. 
+ 3
+period, Allied’s private finance portfolio recorded at fair value grew to over $1.7 billion, which 
+represented approximately 65% of Allied’s total assets, and included investments in 
+approximately 152 portfolio companies.
+ 
+5. From the quarter ended June 30, 2001 through the quarter ended March 31, 2003, 
+however, Allied failed to make and keep books, records, and accounts which, in reasonable detail, 
+supported the valuations of certain of its securities for which market quotations are not readily 
+available  (“private finance investments”).  With respect to 15 private finance investments 
+reviewed by staff, Allied could not produce sufficient contemporaneous documentation to support, 
+or which accurately and fairly reflected, its Board’s determination of fair value.  Instead, in some 
+instances, the written valuation documentation Allied presented to its Board for these investments 
+failed to include certain relevant indications of value available to it (as further discussed below) 
+and sometimes introduced changes to key inputs used to calculate fair value from quarter to quarter 
+without 
+sufficient written explanation of the rationale for the changes (e.g., changes from 
+EBITDA to revenue-based valuations and in some instances, changes in multiples used to derive 
+enterprise value).  The written valuation documentation retained by Allied for these private 
+finance investments does not reflect reasonable detail to support the private finance investment 
+valuations recorded by Allied in its periodic filings during the relevant period.  
+ 6. The following are three examples of insufficient recordkeeping of Allied’s private 
+finance investments during the relevant period.
+ 7. Company A - During the relevant period, Allied held a debt investment in 
+Company A, a telecommunications company.  Allied was unable to produce contemporaneous 
+written documentation, in reasonable detail, to support its valuation of Company A during the 
+quarters ended June 30, 2001 and September 30, 2001.  Specifically, Allied’s valuation of 
+Company A for these quarters was derived, in part, by including revenues from discontinued 
+lines of business to establish fair value.  Allied maintains that it used a reduced multiple to offset 
+any potential overstatement that would have otherwise resulted from the inclusion of those 
+revenues, but it did not provide the Board with contemporaneous written documentation, in 
+reasonable detail, to support this claim.  In addition, Allied did not retain the valuation 
+documentation it presented to the Board for Company A for the quarters ended December 31, 2001 
+and March 31, 2002.  Allied valued its $20 million subordinated debt investment in Company A 
+at $20 million (i.e., cost) in its Forms 10-Q for the quarters ended June 30, 2001 and September 
+30, 2001.  In its 2001 Form 10-K and its Form 10-Q for the period ended March 31, 2002, Allied 
+valued its $20 million subordinated debt investment in Company A at $10.3 million.  Allied 
+subsequently wrote down its subordinated debt investment in Company A to $245,000 in its Form 
+10-Q for the quarter ended June 30, 2002. 
+8. Company B - During the relevant period, Allied held a subordinated-debt 
+investment in Company B, a direct marketing company.  Allied was unable to produce 
+contemporaneous documentation, in reasonable detail, to support the basis for its valuation of 
+Company B for the quarter ended March 31, 2003.  Specifically, Allied’s valuation was based, in 
+large part, on a potential future buyout event by Allied that was preliminary in nature.  Allied 
+maintains that – as a general practice – the Board would have discussed why this particular 
+potential future buyout event was significant enough to form the basis of its valuation of Company 
+ 4
+B, but it could not provide contemporaneous written documentation in reasonable detail to support 
+this claim.  Further, Allied’s valuation documentation did not fully reflect Allied’s consideration of 
+competing buyout offers for Company B, which, if accepted, would have reduced the fair value of 
+Allied’s investment.  Allied valued its $16.5 million subordinated debt investment in Company B 
+at $14.3 million in its Form 10-Q for the quarter ended March 2003.  Allied subsequently wrote 
+down its subordinated debt investment in Company B from $14.3 million to $50,000 in its Form 
+10-Q for the quarter ended June 30, 2003. 
+9. Company C - During the relevant period, Allied held a subordinated debt 
+investment in Company C, an office supply company.  Allied was unable to produce 
+contemporaneous documentation, in reasonable detail, to support the basis for its valuation of 
+Company C from the quarter ended September 30, 2001 through the quarter ended March 31, 
+2002.  For example, Allied’s written valuation documentation failed to include all relevant facts 
+available to it regarding Company C’s deteriorating financial condition, including the fact that 
+Company C had lost one of its largest customers as a result of the terrorist attack on the World 
+Trade Center.  Allied valued its subordinated debt investment in Company C at $8 million in its 
+Forms 10-Q and Form 10-K for the quarters ended September 30, 2001 through March 31, 2002 
+and subsequently wrote that investment down to $50,000 in its Form 10-Q for the quarter ended 
+June 30, 2002. 
+ 10. Allied also failed to implement internal accounting controls relating to its private 
+finance investment valuations that were sufficient to provide reasonable assurances that these 
+valuations were fairly stated in accordance with generally accepted accounting principles, or other 
+criteria applicable to its financial statements.  For example, there were certain instances where 
+Allied did not provide its Board (or its valuation committee) with sufficient written information to 
+support the Board’s determinations of fair value.2  For example, in several instances, the written 
+valuation documentation presented to the Board was incomplete or inadequate to support the fair 
+value recorded by Allied (e.g., enterprise values were listed on worksheets without any 
+explanation; necessary inputs and/or calculations were either missing or incomplete).  In other 
+instances, Allied’s valuation documentation during the relevant period contained unexplained 
+departures from, or changes to, key inputs from quarter to quarter.  During the relevant period, 
+Allied did not provide its Board with written valuation documentation from prior periods.  At least 
+one Board member, however, maintained prior period valuation documentation during a portion of 
+the relevant period, but Allied did not regularly provide the Board with comparative information 
+about prior period inputs until the quarter ended September 30, 2003. 
+ 11. In addition, from the quar ter ended June 30, 2001 through the quarter ended March 
+31, 2002, the valuation documentation presented to Allied’s Board during the March and 
+September quarterly valuation processes consisted of quantitative worksheets that failed to provide 
+an adequate explanation of the various inputs.  For example, changes in valuations from quarter to 
+quarter were not always explained in reasonable detail in the written documentation.  Moreover, 
+Allied did not prepare a written description of the quantitative and qualitative analyses used to 
+                                                 
+2 Allied’s failure to provide the Board with such information is inconsistent with the guidance in ASR 118 that a 
+fund’s board must satisfy itself that “all appropriate factors relevant to the value of securities for which market 
+quotations are not readily available have been considered . . .”  See supra n.1.  
+ 5
+develop its valuations until the quarter ended June 30, 2002.  During this period, Allied also failed 
+to maintain, in reasonable detail, written documentation to support some of its valuations of certain 
+portfolio companies that had gone into bankruptcy.  While Allied maintains that its Board 
+members and employees engaged in discussions before and during the Board meetings to satisfy 
+themselves with the recorded valuations for Allied’s private finance investments, the written 
+valuation documentation retained by Allied for certain private finance investments does not 
+reflect reasonable detail to support the private finance investment valuations recorded by Allied in 
+its periodic filings during the relevant period.3
+ 12.  During the relevant period, Allied private finance department personnel typically 
+recommended the initial valuations on the investment deals on which they worked.  While there 
+were some existing independent checks of Allied’s valuation process, these checks, standing alone, 
+did not provide a sufficient assessment of the objectivity of valuations of the private finance 
+investments.  For example, the valuation committee assigned to review each investment on a 
+quarterly basis was comprised, in large part, of private finance managing directors and principals.  
+Allied has since implemented new valuation processes, more detailed recordkeeping, and a series 
+of additional controls and procedures over its valuation processes, including, but not limited to:  
+quarterly valuation assistance from third-parties; and the establishment of a new Chief Valuation 
+Officer position to oversee the valuation process.  
+ 13. As a result of the conduct described a bove, Allied 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.  See, e.g., In the Matter of Morgan Stanley, Admin. Proc. File No. 3-11725, 
+Exchange Act Release No. 50632, 2004 SEC Lexis 2573 (Nov. 4, 2004) (finding, in relevant part, 
+that Morgan Stanley’s failure to maintain documentation to support its bond valuations violated 
+Section 13(b)(2)(A)).   
+ 
+14. As a result of the conduct describe d above, Allied also violated Section 
+13(b)(2)(B)(ii) of the Exchange Act, which requires reporting companies to devise and maintain a 
+system of internal accounting controls sufficient to provide reasonable assurances that transactions 
+are recorded as necessary to permit preparation of financial statements in accordance with 
+generally accepted accounting principles, or other criteria applicable to its financial statements.  
+See, e.g., In the Matter of Morgan Stanley, Admin. Proc. File No. 3-11725, Exchange Act Release 
+No. 50632, 2004 SEC Lexis 2573 (Nov. 4, 2004) (finding, in relevant part, that Morgan Stanley’s 
+failure to maintain internal controls sufficient to ensure that it valued its bond positions and its 
+aircraft in accordance with GAAP violated Section 13(b)(2)(B)). 
+ 
+15. As a result of the conduct describe d above, Allied also violated Section 
+13(b)(2)(B)(iv) of the Exchange Act, which requires reporting companies to provide reasonable 
+                                                 
+3 Commission guidance provides that “. . . directors should take into consideration all indications of value available 
+to them in determining the ‘fair value’ assigned to a particular security.  The information so considered together 
+with, to the extent practicable, judgment factors considered by the board of directors in reaching its decisions should 
+be documented in the minutes of the directors’ meeting and the supporting data retained for the inspection of the 
+company’s independent accountant.”  See ASR 118. 
+ 6
+assurances that the recorded accountability for assets is compared with the existing assets at 
+reasonable intervals and appropriate action is taken with respect to any differences. 
+  
+IV. 
+In determining to accept the Offer, the Commission considered remedial acts that 
+were undertaken by Respondent and the cooperation that Respondent afforded the 
+Commission staff.  
+V. 
+ 
+Undertakings 
+ 
+ Respondent has undertaken fo r a period of two years from the entry of this Order to: 
+ 
+ 1. Continue to employ a Ch ief Valuation Officer, or a similarly structured officer-
+level employee, to oversee its quarterly valuation process. 
+ 
+ 2. Continue to employ third-party valuati on consultants to assist in its quarterly 
+valuation process for private finance investments in a manner consistent with the Respondent’s 
+current practices.   
+ 
+VI. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Allied’s Offer. 
+ 
+ Accordingly, the Commission HEREBY ORDERS, pursuant to Section 21C of the 
+Exchange Act, that:  
+ 
+A. Respondent Allied cease and desist from committing or causing any violations and 
+any future violations of Sections 13(b)(2)(A); 13(b)(2)(B)(ii) and 13(b)(2)(B)(iv) of 
+the Exchange Act; and  
+ 
+B. Respondent shall comply with the undertakings enumerated in Section V above. 
+ 
+ 
+ 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/2007/AAER-2619.txt b/raw/aaer/2007/AAER-2619.txt
new file mode 100644
index 0000000000000000000000000000000000000000..65e388dd6f61ee4aaf54eb665fa79f1e19c35e40
--- /dev/null
+++ b/raw/aaer/2007/AAER-2619.txt
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+
+ Litigation Release No. 20159 / June 20, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2619 / June 20, 2007 
+
+  SEC v. Jeffrey McMahon , Civil Action No. H-07-2051 (SDTX) (June 20, 2007) 
+
+ SEC Charges Former Enron Executive Jeffrey McMahon With Violating Federal Securities Laws 
+
+ Defendant Barred From Serving as Officer or Director of Public Company and Ordered to Pay $300,000 
+
+ 
+
+ The Securities and Exchange Commission today charged former Enron Treasurer and Chief Financial Officer Jeffrey McMahon with violating the antifraud provisions of the federal securities laws and with aiding and abetting Enron's violations of the reporting and record keeping provisions. McMahon simultaneously settled with the Commission without admitting or denying the allegations in the Complaint. As part of the settlement agreement, which is subject to the approval of the U.S. District Court, McMahon has agreed to a permanent injunction and to be barred from acting as an officer or director of a public company for five years. In addition, McMahon will pay disgorgement and prejudgment interest in the amount of $150,000 and a civil penalty of $150,000. 
+
+ Specifically, the Commission's Complaint alleges that McMahon participated in a fraudulent transaction involving the "sale" of an interest in Nigerian power generating barges to Merrill Lynch that allowed Enron to improperly report $12 million in earnings in the fourth quarter of 1999. Enron never should have recorded profits from this purported sale because the risks and rewards of ownership in the barges never passed to Merrill Lynch due to an oral side agreement made by McMahon and others. The Complaint also alleges that while serving as Enron's Treasurer from April 1998 through March 2000, McMahon made false and misleading statements to the national credit rating agencies regarding Enron's financial position and cash flow. The Complaint alleges that the false and misleading statements included statements about Enron's cash flow from operations that failed to disclose that a portion of such cash flow was a result of structured financings and debt-like obligations that had nothing to do with Enron's operations or trading business. In addition, the Complaint alleges that McMahon made additional false and misleading statements to the rating agencies after he became Enron's Chief Financial Officer on October 24, 2001 through Enron's bankruptcy filing in December 2001. 
+
+ McMahon has agreed to be enjoined permanently from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting the violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13. 
+
+ In settlement of this action, McMahon also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with a right to reapply after three years. 
+
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diff --git a/raw/aaer/2007/AAER-2620.pdf b/raw/aaer/2007/AAER-2620.pdf
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@@ -0,0 +1,483 @@
+ 
+ 
+  
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+  
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55933 / June 20, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2620 / June 20, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12662 
+ 
+ 
+In the Matter of 
+ 
+CAMBREX CORPORATION, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Cambrex Corporation (“Cambrex” 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.   
+   2
+ 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Co mmission finds that:   
+ 
+Respondent 
+  
+1. Cambrex is a Delaware corporation with headquarters in East Rutherford, New 
+Jersey.  Cambrex supplies human health and bioscience products to the life sciences industry, 
+produces feed additives and intermediates for the animal health/agriculture markets, and 
+manufactures other specialty and fine chemicals.  For the fiscal year ended December 31, 2005, 
+Cambrex had net revenues of $455,097,000 and a net loss of $110,458,000.  Cambrex’s common 
+stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades 
+on the New York Stock Exchange. 
+ 
+Summary 
+ 
+2. Between at least 1997 through 2001, Cambrex accrued an imbalance of 
+approximately $17.1 million in its intercompany accounts.  Of that amount, approximately $3.5 
+million was erroneously reflected as income when it in fact should have been accounted for as an 
+operating expense, and Cambrex could not ascertain whether another $2.6 million was similarly 
+booked improperly, though it also treated this figure as if it had been reflected as income.  As a 
+result, Cambrex issued erroneous periodic and annual reports.    
+ 
+3. The erroneous filings occurred because Cambrex failed to reconcile its 
+intercompany accounts on a monthly basis.  Cambrex failed to reconcile its intercompany accounts 
+for three principal reasons.  First, Cambrex did not adequately staff its internal accounting function.  
+Second, Cambrex lacked a functional intercompany transaction policy.  Third, when Cambrex 
+instituted projects to perform a historical reconciliation of its intercompany accounts, the projects 
+were not completed.  Cambrex failed to reconcile the intercompany accounts even though its 
+outside auditor provided Cambrex with several management letters that warned of potential 
+ramifications if the imbalance was not fixed. 
+ 
+4. Cambrex’s failure to reconcile its intercompany accounts continued until the end of 
+2002, when Cambrex was forced to address the issue because of the certification requirements of 
+the newly-enacted Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).  A Cambrex subsidiary’s 
+controller initially refused to sign a Sarbanes-Oxley-related internal sub-certification because of his 
+awareness of the problems reconciling the intercompany accounts.  His refusal triggered a series of 
+discussions by Cambrex’s audit committee concerning the issue.  In December 2002, Cambrex 
+hired a new CFO with a strong accounting background, who finally devoted adequate resources to 
+the task of reconciling the historical imbalances. 
+ 
+5. As a result, in January 2003, Cambrex announced that it would restate its financial 
+results for the years ending December 31, 1997, through December 31, 2001 (the “Restatement 
+   3
+Period”).  Cambrex stated that it had overstated pre-tax income by a total of $6.1 million, or $5.1 
+million after taxes, over the fiscal years 1997 through 2001.  Net income was overstated by $1.3 
+million, $2.9 million, $0.2 million and $0.8 million in 2001, 2000, 1999, and 1998, respectively, 
+and understated by $0.1 million in 1997. 
+ 
+Background 
+ 
+A. Intercompany Accounts at Cambrex 
+ 
+6. Cambrex has approximately fourteen operating subsidiaries located throughout the 
+world.  In order to record and account for activity, such as the transfer of expenses, assets, or 
+liabilities, conducted between these affiliated companies, Cambrex utilizes intercompany accounts. 
+ 
+7. Intercompany transactions are supposed to be booked through an identical 
+corresponding charge by each side of a given transaction or expense, which, if done properly, 
+would have no impact on Cambrex’s consolidated assets, liabilities, expenses, or revenues.  For 
+example, if Cambrex corporate (“Corporate”) agrees to absorb an expense incurred by a subsidiary, 
+if recorded correctly, Corporate should record a debit to an expense account, increasing the 
+expense on Corporate’s income statement, and a credit to an intercompany account on its balance 
+sheet.  The subsidiary should record a credit to an expense account on its income statement and a 
+debit to an intercompany account on its balance sheet.  If Corporate were to initially record and pay 
+for an expense that should be charged to a subsidiary, the above entries should be reversed.  In both 
+instances, as a result of these identical credits and debits, the accounts would net to zero and there 
+would be no impact on Cambrex’s consolidated assets, liabilities, expenses, or revenues.   
+ 
+8. Within Corporate, Cambrex’s internal accounting group, known as the finance 
+department (“Finance Department”), was responsible for, among other things, reviewing and 
+reconciling the intercompany accounts.  During the relevant time periods, the Corporate Finance 
+Department was supervised by the Controller.  A designated employee, usually the most junior, 
+was supposed to review the intercompany accounts as part of a process to ensure that all 
+intercompany accounts balanced and were properly netted-out in consolidation.  To do this, the 
+employee used computer software that alerted the employee if an imbalance existed, in which case 
+the employee was then supposed to access separate software that essentially operated as Cambrex’s 
+general ledger, to view the detail behind the specific transactions that caused an imbalance within a 
+particular intercompany or group loan account.  
+ 
+9. Once discrepancies were identified, the Finance Department was tasked with 
+resolving the difference through discussions with relevant personnel at the subsidiary.  If no 
+agreement could be reached, the Corporate Controller was supposed to make a unilateral, final 
+decision about how to treat the discrepancy.  During the Restatement Period, this process did not 
+occur.  Instead of reconciling the difference, the designated Finance Department employee simply 
+logged the discrepancies.   
+ 
+10. The intercompany accounts were incorporated into Cambrex’s financial statements 
+during the monthly consolidation process.  Because of its many subsidiaries, Cambrex performed a 
+   4
+multi-level consolidation that generated a single, final balance sheet, incorporating Corporate as 
+well as both the domestic and international subsidiaries.  The consolidation was performed at the 
+close of every month, in order to generate monthly financial reports, comparing the actual results 
+reported by the sites with their forecasted and prior year’s results.  During the consolidation 
+process, Cambrex would identify the sum of all intercompany imbalances (those entries where 
+both sides to an intercompany transaction did not book the same dollar figure).  Under Generally 
+Accepted Accounting Principles, it is necessary to eliminate intercompany transactions in the 
+consolidation process.  Cambrex erroneously believed it eliminated its intercompany imbalances 
+by entering the sum of all the imbalances in a line item, known as a “top side adjustment,” on its 
+consolidated balance sheet.  The top-side adjustment was only made on the balance sheet – and not 
+the income statement – because of a long-standing but erroneous assumption that the imbalanced 
+intercompany accounts did not affect Cambrex’s income statement. 
+ 
+11. In fact, under certain circumstances, Cambrex’s imbalanced intercompany accounts 
+did affect its income statement.  This occurred when, for example, a subsidiary recorded an 
+expense that it intended to transfer to Corporate where, in order to transfer the expense, it should 
+have recorded a credit to an expense account to reduce its operating expenses on its income 
+statement and a debit to an intercompany account on its balance sheet.  When Corporate, however, 
+did not book an offsetting entry to increase its expenses and adjust its intercompany account, this 
+resulted in an understatement of consolidated expenses and an overstatement of consolidated 
+income in Cambrex’s consolidated financial statement.  Similarly, there were instances where 
+Corporate intended to transfer certain fringe benefit expenses
+ to a subsidiary and Corporate 
+recorded one amount and the subsidiary recorded a different amount resulting in a corresponding 
+understatement or overstatement of consolidated expenses, which also affected Cambrex’s 
+consolidated income statement. 
+ 
+B. Cambrex Failed to Perfor m Monthly Reconciliations of the Intercompany Accounts. 
+  
+12. During the Restatement Period, Cambrex did not reconcile its intercompany 
+accounts on a monthly basis.  This failure contributed to a growing imbalance that needed to be 
+corrected through a historical reconciliation.  Although Cambrex executives were aware of the 
+problem – and were specifically told by its auditor in 1999 that the failure to reconcile 
+intercompany accounts could ultimately impact earnings – they took only limited and inadequate 
+steps to address the issue.  The historical reconciliation project was started several times, only to be 
+quickly abandoned.  Throughout, Cambrex failed to provide adequate staffing to the reconciliation 
+project.  
+ 
+13. The Corporate Finance Department was inadequately staffed to reconcile the 
+intercompany accounts.  In addition, Cambrex’s limited accounting staff prioritized other 
+responsibilities, such as monthly and periodic financial reporting, over the monthly intercompany 
+reconciliation.  In fact, Finance Department personnel believed that other group responsibilities 
+took precedence over the monthly intercompany reconciliation.  As a result, most personnel 
+responsible for the internal accounting function made only a limited effort, if any, to perform a 
+monthly reconciliation.  These personnel rarely communicated with Cambrex subsidiaries 
+concerning discrepancies in intercompany accounts, and did not ensure that such discrepancies 
+   5
+were remedied, but only logged the existence of these unresolved balances.  Furthermore, the 
+Finance Department experienced considerable staff turnover and new employees were not trained 
+to handle the monthly reconciliation. 
+ 
+14. The individuals directly responsible for supervising these employees were aware 
+that the intercompany imbalances were not being fully reconciled on a monthly basis and that the 
+Finance Department was not properly staffed to do so.  As a result, these individuals took 
+insufficient steps to ensure that the intercompany accounts were regularly reconciled. 
+ 
+15. Although Cambrex maintained an intercompany transaction policy, it was not 
+shown to various employees responsible for its implementation.  The policy’s instructions were not 
+followed because several individuals tasked with reconciling the intercompany accounts never saw 
+the document.  In addition, this document offered conflicting guidance by simultaneously 
+mandating that the accounts be reconciled on a monthly basis and allowing unreconciled items to 
+be carried into the following month.  It was also unclear whether the document was intended to 
+cover all intercompany transactions or a more limited subset of transactions.  Moreover, while the 
+document required that a schedule of all intercompany balances be completed and sent to 
+Corporate as part of the quarterly reporting process, such schedules were not always prepared.  
+ 
+16. A supervisor responsible for the reconciliation of the intercompany accounts was 
+aware of an intercompany transaction policy and knew that certain steps outlined in the policy 
+were being taken, yet he did not recall reviewing it or consulting it.  Although at various times the 
+company set out to perform a historical reconciliation – often terming the project a “high priority” 
+– the project was never completed.  Cambrex failed to complete the historical reconciliation even 
+though Cambrex’s auditor warned that Cambrex’s failure to properly reconcile the unbalanced 
+accounts could affect the reported income statement in its financial disclosures. 
+ 
+C. Cambrex Failed to Reconcile the Historical  Imbalance in its Intercompany Accounts. 
+ 
+17. By failing to reconcile the intercompany accounts on a monthly basis, Cambrex 
+generated a lengthy backlog of unreconciled entries.  In order to determine the proper treatment of 
+the entries underlying the imbalance, it became necessary to perform a historical reconciliation of 
+the intercompany accounts.   
+ 
+18. However, during the Restatement Period, Cambrex did not reconcile the historical 
+imbalance.  This failure occurred because Cambrex did not employ sufficient personnel to perform 
+the historical reconciliation and Cambrex never completed several reconciliation initiatives.  These 
+failures occurred even though Cambrex’s auditor warned that Cambrex’s failure to properly 
+reconcile the unbalanced accounts could affect the reported income statement in Cambrex’s 
+financial disclosures. 
+ 
+19. Cambrex relied on its internal accounting personnel to reconcile the imbalanced 
+historical entries.  However, much like the monthly reconciliation process, Cambrex did not 
+employ sufficient manpower or devote adequate resources to complete the historical 
+reconciliations.  Again, supervisors were aware that the Finance Department was not performing 
+   6
+the historical intercompany reconciliation and was not properly staffed to do so.  In fact, there were 
+two substantial periods of time, each lasting several months, when Corporate performed no work to 
+reconcile the historical imbalance.  
+ 
+20. Each year between 1999 and 2001, Cambrex instituted projects, at the direction of 
+Finance Department supervisors, to reconcile the historical intercompany account imbalance.  
+None of the reconciliation projects, one of which included assistance from an employee outside the 
+Finance Department and an accountant employed by Cambrex’s outside auditor, was completed, 
+and many steps set forth in the various plans were either not taken or left incomplete.  Furthermore, 
+Cambrex supervisors never took adequate steps to determine whether the internal accounting 
+personnel had reconciled the intercompany account imbalances or why these tasks had not been 
+completed.  
+ 
+21. Even when Cambrex identified a serious problem within the intercompany 
+accounts, it took insufficient corrective steps.  For instance, during 2001, Cambrex discovered that 
+a subsidiary had been consistently incorrectly booking payments for fringe benefits.  Upon 
+discovering these errors, Cambrex and its personnel had direct evidence that a certain portion of 
+the reconciliation resulted in an income effect on its P&L, which refuted a long-standing 
+assumption about the nature of the imbalances.  Yet, even after learning of this error, Cambrex did 
+not take adequate measures to complete the historical reconciliation and determine the full extent 
+of any adjustment needed to be made.  
+ 
+D. Cambrex Did Not Adequately Address Management Letters From its Auditor. 
+   
+22. Cambrex failed to reconcile the historical intercompany imbalance in spite of 
+several annual warnings by its auditor of the consequences of such a failure. 
+ 
+23. In early 1999, Cambrex’s outside auditor issued a management letter to Cambrex 
+for its audit for the year ended December 31, 1998 (“1998 Management Letter”).  The 1998 
+Management Letter outlined key issues arising from that year’s audit and recommended changes.  
+Among the suggestions was a recommendation titled: “Reconciliations over Intercompany 
+Transactions Should Be Improved.”  The recommendation stated the following: 
+ 
+The Company should improve the adequacy of intercompany balance reconciliations.  This 
+issue, if not addressed, may result in a misstatement of intercompany accounts and not 
+allow for proper elimination of such at the consolidated level.  This could result in an 
+unfavorable impact to earnings in the period discovered. 
+ 
+We recommend that the Company implement procedures to identify and reconcile 
+intercompany transactions. 
+ 
+24. In its response to the 1998 Management Letter, Cambrex’s management stated that 
+it agreed with its outside auditor’s observation and recommendation.  It also stated that, “[a] draft 
+policy is currently issued which addresses the procedures required to confirm intercompany 
+balances between subsidiaries on a monthly basis.”  The 1998 Management Letter, along with 
+   7
+Cambrex management’s response, were provided to Cambrex’s audit committee. 
+ 
+25. After receiving the 1998 Management Letter, neither Cambrex management, nor its 
+audit committee, took the necessary steps to reconcile the historical imbalances or address the 
+failures to reconcile the accounts on a monthly basis.  Furthermore, no steps were taken to 
+determine if Cambrex’s accounting department was following the intercompany policy. 
+ 
+26. Cambrex’s auditor issued another management letter to Cambrex in the beginning 
+of 2000, which covered the 1999 audit.  In this letter, the auditor stated that Cambrex did not have 
+an intercompany policy and did not perform periodic reconciliation of balances.  Cambrex’s 
+auditor warned that, if unchecked, the unreconciled accounts could result in an inability to “detect a 
+misstatement” and “an unexpected and unfavorable impact to earnings in the period discovered.”  
+Cambrex’s auditor recommended that Cambrex “implement procedures to reconcile intercompany 
+account balances at least quarterly.”  In its response, Cambrex noted that it had “initiated a project 
+to bring intercompany accounts into balance” and, once finished, they would be “reconciled 
+formally as part of the quarterly management reporting process.”  Cambrex also claimed to be 
+evaluating “the feasibility of implementing an automated balancing feature for intercompany 
+transactions in the [computer] system.”  The management letter for the 1999 audit, and Cambrex 
+management’s response were provided to Cambrex’s audit committee. 
+ 
+27. Again, Cambrex did not follow through in its response and, as a result, did not 
+fulfill the steps needed to reconcile the intercompany and group loan accounts.  The project that 
+Cambrex initiated to reconcile the accounts was never completed.  Cambrex also did not begin 
+formally reconciling the account balances on a quarterly basis, and an automated balancing feature 
+was not implemented. 
+ 
+28. During the next two years, Cambrex’s auditor provided Cambrex with management 
+letters for the 2000 and 2001 audits that were not distributed to the audit committee.  In the 
+management letters, the auditor stated that periodic reconciliations of intercompany balances were 
+still not being performed, and reiterated their recommendation that Cambrex implement procedures 
+to reconcile intercompany balances on a quarterly basis.  It was also noted that the management 
+letter from 2000 (for the 1999 audit) was still applicable.  Cambrex management did not provide a 
+response to these comments. 
+ 
+E. Effect of Sarban es-Oxley Act on the Reconciliation Project 
+ 
+29. Cambrex did not adequately address its historical reconciliation problems until the 
+end of 2002, after issues were raised concerning the certification of Cambrex’s financial 
+disclosures pursuant to Sarbanes-Oxley.  In order to complete the CEO and CFO certifications 
+required by Sarbanes-Oxley, Cambrex required sub-certifications from all of its Corporate and 
+subsidiary Controllers concerning the accuracy of its financial reporting.  When the controller for 
+one of Cambrex’s subsidiaries initially refused to sign the sub-certification because of his 
+awareness of the problems concerning the intercompany accounts, this refusal prompted a series of 
+discussions by the Audit Committee.  In December 2002, Cambrex hired a new CFO who engaged 
+additional accounting staff and consultants and mobilized a strong reconciliation effort.  As a 
+   8
+result, Cambrex finally devoted sufficient resources to reconcile all of the historical imbalances. 
+ 
+F. Cambrex’s Restatement 
+ 
+30. At the close of trading on January 23, 2003, Cambrex issued a press release 
+announcing that it would restate its financial results for the years ended December 31, 1997, 
+through December 31, 2001, after discovering “certain discrepancies” in its intercompany 
+accounts.  In its annual report for fiscal year 2002 filed on March 20, 2003, Cambrex stated that 
+“certain administrative and other charges were not properly expensed in [] prior periods” and, as a 
+result, Cambrex had overstated pre-tax income by $6.1 million, or $5.1 million after taxes, for the 
+fiscal years 1997 through 2001.  Net income was overstated by $1.3 million, $2.9 million, $0.2 
+million and $0.8 million in 2001, 2000, 1999, and 1998, respectively, and understated by $0.1 
+million in 1997. 
+ 
+31. As a result of its 2003 restatement, Cambrex’s pre-tax earnings and net income 
+were affected as follows: 
+ 
+Increase (Decrease) in Reported Amounts 
+($Millions except EPS) 
+ 
+   Year  Pre-tax Earnings Net Income EPS
+       1997-1999        ($0.9)               ($.9)  ($.03) 
+2000         ($3.5)               ($2.9)  ($.11) 
+  2001                    ($1.7)    ($1.3)  ($.05)  
+ 
+The change in pre-tax earnings as a result of the restatement represented a downward revision of 
+.60%, 5.29% and 4.79% for the years 1997-1999, 2000, and 2001, respectively.  Pre-tax earnings 
+for these years, following the restatement, were $152.2, $66.4, and $34.7 (millions) for 1997-
+1999, 2000, and 2001, respectively.  Similarly, the restatement reflected a decrease in net income 
+of .95%, 6.20% and 4.95% for 1997-1999, 2000, and 2001, respectively, corresponding to 
+restated net income for those periods, of $94.2, $46.8, and $25.5 (millions), respectively. 
+ 
+32. Cambrex’s $6.1 million overstatement consisted of approximately $3.5 million that 
+Cambrex identified as having been erroneously booked as a reduction of operating expenses, 
+which resulted in an increase in the income reported on Cambrex’s income statement, and another 
+$2.6 million that it was unable to determine whether to treat as having impacted its income or 
+balance statement.  To be conservative, Cambrex treated the $2.6 million as impacting income. 
+ 
+   9
+G. Legal Standards 
+ 
+33. Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, 
+records, and accounts that, in reasonable detail, accurately and fairly reflect transactions and asset 
+dispositions, and Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a 
+system of internal controls sufficient to provide reasonable assurances that transactions are 
+recorded as necessary to permit the preparation of financial statements in accordance with 
+generally accepted accounting principles. 
+ 
+34. Section 21C of the Exchange Act provides that the Commission may order any 
+person who is or was a cause of a violation of any provision of the Exchange Act, due to an act or 
+omission the person knew or should have known would contribute to the violation, to cease and 
+desist from committing or causing such violation. 
+ 
+H. Conclusions  
+ 
+35. Cambrex failed, over at least a five-year period, to correct long standing 
+deficiencies in the handling of its intercompany accounts, and failed to reconcile its intercompany 
+accounts on a monthly or periodic basis.  As a result, Cambrex’s books, records and accounts did 
+not, in reasonable detail, accurately and fairly reflect its intercompany accounts or income 
+statement. 
+ 
+36. By its failure to implement a system of internal controls sufficient to prevent the 
+intercompany and group loan accounts from becoming imbalanced, and its failure, on several 
+occasions, to rectify the intercompany and group loan imbalance problem after becoming aware of 
+it, Cambrex failed to implement internal accounting controls relating to its intercompany and group 
+loan accounts which were sufficient to provide reasonable assurances that these accounts were 
+accurately stated in accordance with generally accepted accounting principles. 
+ 
+37. As a result of the conduct described above, Cambrex 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. 
+ 
+38. Cambrex, as a result of the conduct described above, also violated 
+Section 13(b)(2)(B) which requires all reporting companies to devise and maintain a system of 
+internal accounting controls sufficient to provide reasonable assurances that transactions are 
+recorded as necessary to permit preparation of financial statements in accordance with generally 
+accepted accounting principles. 
+ 
+Cambrex’s Remedial Efforts 
+ 
+39. In determining to accept the Offer, the Commission considered remedial acts 
+promptly undertaken by Respondent and cooperation afforded the Commission staff. 
+  
+   10
+ 
+ 
+Undertakings 
+   
+ Cambrex has undertaken to: 
+ 
+40. Reconcile account balances between and among Cambrex and any of its related 
+entities (hereinafter, the “intercompany accounts”) on a monthly, quarterly and annual basis;  
+ 
+41. Institute formal, written policies and procedures for reconciling the intercompany 
+accounts on a monthly, quarterly and annual basis, including, but not limited to, the 
+implementation of internal controls adopted to ensure that such reconciliation takes place; 
+ 
+42. For at least two (2) years from the date of the Order, Cambrex shall designate an 
+experienced accountant within its Finance Department to function as the Intercompany and Group 
+Loan Review Accountant.  This individual will be responsible for ensuring compliance with 
+paragraphs 40-41 above; 
+ 
+43. For at least two (2) years from the date of the Order, the Cambrex Controller (or 
+individual with equivalent authority) will certify, at the end of each quarterly reporting period, that: 
+(i) he or she has supervised the Intercompany and Group Loan Accountant; and (ii) Cambrex has 
+complied with paragraphs 40-42 above;  
+ 
+44. For at least two (2) years from the date of the Order, Cambrex will employ its 
+outside auditor to conduct an annual review of its intercompany accounts, the reconciliation of 
+these accounts and the compliance with the undertakings in this settlement.  The company shall 
+cooperate fully with its outside auditor and shall provide the auditor with access to its files, books, 
+records, and personnel as reasonably requested for the review.  The results of the review will be 
+presented, both in writing and orally, to both the Chief Financial Officer and the Chief Executive 
+Officer no more than 30 days after the conclusion of the annual audit and in writing to the 
+Commission’s staff no more than 30 days after the conclusion of the annual audit; 
+ 
+45. Maintain and preserve the certifications, pursuant to paragraph 43, for a period of 
+ten (10) years from the date of the Order; 
+ 
+46. Provide a written report, within one hundred twenty (120) calendar days of the date 
+of the Order to the Commission’s staff that details Cambrex’s implementation of the undertakings 
+articulated in paragraphs 40-45; and 
+ 
+47. Cambrex shall send all reports, notices and other written communications with the 
+Commission’s staff in connection with this Order to David Rosenfeld, Associate Regional 
+Director, United States Securities and Exchange Commission, 3 World Financial Center, Room 
+4300, New York, New York 10281. 
+ 
+ 
+   11
+IV. 
+ 
+ In view of the foregoing, the Commission d eems it appropriate to impose the sanctions 
+agreed to in Respondent Cambrex’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Respondent Cambrex cease and desist from committing or causing any violations 
+and any future violations of Sections 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act.  
+ 
+ B. Respondent shall comply with th e undertakings in Section III above. 
+ 
+   
+ 
+ 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/2007/AAER-2621.txt b/raw/aaer/2007/AAER-2621.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0c0958d651e7bc259fbe4234b2139fb9fc64cb13
--- /dev/null
+++ b/raw/aaer/2007/AAER-2621.txt
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+
+ U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20163 / June 22, 2007 
+
+ Accounting and Auditing Release No. 2621 / June 22, 2007 
+
+  SEC v. Graham , United States District Court, District of Massachusetts, Civil Action No. 07-11152 (RWZ) 
+
+ Commission Charges Former Intervoice CFO of Texas Company in Fraudulent Scheme to Inflate Revenue 
+
+ 
+
+ The Commission announced today that it had filed a civil fraud action in Massachusetts federal court against Rob Roy J. Graham, the former CFO of Intervoice, Inc., for engaging in a fraudulent scheme to inflate Intervoice's revenues and misstate other important financial metrics so as to deceive investors as to the company's true financial condition. Graham, a resident of Dallas, Texas, has agreed to settle with the Commission without admitting or denying the allegations in the complaint. Under the settlement, Graham agreed to the entry of an order that enjoins him from future violations of the antifraud and books and records provisions of the securities laws, imposes a permanent officer and director bar, and requires payment of over $200,000 for civil penalties and disgorgement. 
+
+ The Commission's complaint, dated June 21, 2007, alleges that the scheme involved the improper recognition of revenue from a series of transactions that resulted in Intervoice's publication of materially false and misleading financial statements in four financial periods between 2000 and at least 2002. As set forth in the complaint, Graham negotiated and approved transactions between Intervoice and its distributors that were each subject to significant, ongoing, post-transaction obligations and thus did not qualify for revenue recognition under Intervoice's policies or generally accepted accounting principles (GAAP). The complaint alleges that, as to certain transactions, Graham agreed in advance to reconfigure the hardware and software products, or to substitute products of commensurate value, in order to meet the needs of its distributors' ultimate end users, thereby precluding revenue recognition under GAAP. As to other transactions, the complaint alleges that Graham requested distributors to take products in advance of their receiving orders from end customers, and agreed to allow the distributors to return the products without penalty if the end customers failed to purchase the products. According to the complaint, Graham failed to document these terms, and, in some cases, affirmatively misled Intervoice's external auditors by providing false information and documents. In addition, the complaint also alleges that, during 2001, Graham helped one of Intervoice's suppliers, Speechworks International, Inc., to improperly recognize revenue by falsifying documents that he knew the company would use to deceive its own auditors. 
+
+ The complaint further alleges that during the fourth quarter of fiscal 2001, Graham negotiated a transaction in which Intervoice paid $900,000 to Speechworks in exchange for Speechworks amending a stock warrant that it had previously issued to Intervoice. The amendment purported to permit Intervoice to immediately exercise the warrant and resell the underlying shares as freely trading shares pursuant to a specific registration exemption. The complaint alleges, however, that because of the $900,000 payment to Speechworks, these shares were not eligible for the exemption and should have been issued to Intervoice as restricted stock. Nonetheless, the complaint alleges, Intervoice improperly sold the shares of Speechworks' stock as freely-trading shares and earned gross proceeds of $21.4 million. 
+
+ The complaint alleges that through his fraudulent conduct Graham violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, aided and abetted Intervoice's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and aided and abetted Speechworks' violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. I addition to injunctions and a permanent officer and director bar, Graham has consented to the entry of a judgment that requires disgorgement of $75,000 with $33,270.37 in prejudgment interest, and a civil penalty of $100,000. 
+
+ In a related proceeding, the Commission filed a civil action against Richard J. Westelman and Steven Forman, the former CFO and controller of Speechworks (now a part of Nuance, Inc.), and Arthur Haberman, Speechworks' former director of finance, for their role in the improper transactions with Intervoice. Westelman and Haberman have agreed to settle with the Commission without admitting or denying the Commission's allegations. The Commission's action against Forman is pending in the Massachusetts federal district court. For further information, see Litigation Release No. 20164. 
+
+ The Commission's investigation is continuing. 
+
+ A copy of the Commission's complaint is attached. 
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diff --git a/raw/aaer/2007/AAER-2623.txt b/raw/aaer/2007/AAER-2623.txt
new file mode 100644
index 0000000000000000000000000000000000000000..81c86851e1283d567932817872a79ec5d9a58291
--- /dev/null
+++ b/raw/aaer/2007/AAER-2623.txt
@@ -0,0 +1,524 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  55954 / June 25, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2623 / June 25, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12666 
+ 
+In the Matter of 
+ 
+INTERNATIONAL BUSINESS 
+MACHINES CORPORATION,  
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND- 
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE 
+AND-DESIST ORDER PURSUANT TO  
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 
+   
+ 
+ 
+ 
+ 
+ 
+I. 
+ 
+ The United States Securities and Exch ange Commission (“Co mmission”) deems it 
+appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 
+21C of the Securities Exchange Act of 1934 (“Ex change Act”), against International Business 
+Machines Corporation (“IBM” or “Respondent”). 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) whic h the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdic tion 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 Impo sing a Cease-and-Desist  Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds1 that: 
+ 
+A. SUMMARY
+ 
+ In 2000 and 2001, IBM assisted Dollar Gene ral Corporation’s commission of accounting 
+fraud through a sham transaction.  The transaction was conceived by an IBM Business Unit 
+Executive (the “IBM BUE”) and was designed to achieve a particular accounting result for Dollar 
+General.  In addition, IBM maintained inaccurate books and records in 2000 and 2001 that resulted 
+from, among other things, revenue recognition errors by various IBM business units in a number of 
+countries around the world that departed fr om Generally Accepted Accounting Principles 
+(“GAAP”).   
+ 
+ In 1999, IBM and Dollar General agreed that Dollar General would lease new electronic 
+cash registers from IBM to replace Dollar General’s old Omron-brand cash registers.  As originally 
+planned, Dollar General would phase out the ol d registers and purchase the new IBM equipment 
+over a multi-year period.  In the second half of 2000, however, IBM, through the IBM BUE, 
+suggested that Dollar General accelerate the ro ll-out of new IBM equipment by leasing for 
+approximately $10 million all of the new equipmen t by the end of 2000.  This would have the 
+result of increasing IBM’s revenue for fiscal y ear 2000.  Dollar General initially rejected the 
+proposal, however, due to an accounting problem.  Sp ecifically, if Dollar General replaced all of 
+the Omron equipment, it would be required to wr ite off the book value of that equipment as an 
+expense.  This “book loss” problem, as it became known, in turn, would have a negative impact on 
+Dollar General’s earnings for its fiscal year 2000, which ended February 2, 2001. 
+ 
+ IBM, through the IBM BUE, devised a way to solve Dollar General’s “book loss” problem.  
+Specifically, the IBM BUE proposed that IBM would purchase the old Omron equipment for 
+approximately $11 million.  By selling the equipmen t at that price, Dollar General would avoid 
+most of the negative consequences of having to  write off the book value of the equipment that 
+would have occurred if it simply replaced the ol d registers with the new IBM equipment.  The 
+proposed “purchase,” however, was not a bona fide  transaction because, among other reasons, 
+IBM’s purchase price for the Omron equipment was repaid to IBM by an offsetting increase in the 
+amount that Dollar General was to pay for the new IBM equipment.  In addition, although IBM 
+agreed to buy the Omron equipm ent for more than Dollar Genera l was going to pay for the new 
+IBM registers, IBM knew that th e Omron equipment was worthless, IBM intended to destroy it, 
+and ultimately IBM never took possession of any of the sales registers.  Nevertheless, the 
+                                                 
+1   The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
+ 
+ 
+ 
+ 
+ 
+ 
+3
+“purchase” occurred and Dollar General remo ved the Omron equipment from its books and 
+minimized the negative impact on its earnings in fiscal year 2000.   
+ 
+ In addition, IBM in 2000 and 2001 maintained inaccurate books and records as a result of 
+numerous discrete revenue recognition errors (many of which were errors with respect to the 
+timing of recognition as between quarters and which were discovered and corrected by IBM) 
+totaling approximately $577 million in revenues over that two-year period. 
+ 
+B. RESPONDENT AND RELATED ENTITY
+ 
+ IBM, headquartered in Armonk, New York, and incorporated in New York, manufactures 
+and sells computer services, hardware and software.  IBM stock is registered under Section 12(b) 
+of the Exchange Act and is listed on the New York Stock Exchange.   
+ 
+ Dollar General Corporation, a Tennessee corporation headquartered in Goodlettsville, 
+Tennessee, is a discount retailer of general merchandise.  Dollar General’s common stock is 
+registered under Section 12(b) of the Exchange Act and is listed on the New York Stock 
+Exchange.
+2
+ 
+C. THE OMRON TRANSACTION
+ 
+ 1. IBM Proposal For An A ccelerated Roll-Out Is Rejected 
+ 
+ In 1999, Dollar General decided to lease new electronic cash registers from IBM’s Retail 
+Store Solutions business unit to replace Dollar Gene ral’s old Omron-brand cash registers over a 
+multi-year roll-out period.  In November of 20 00, IBM, through the IBM BUE, suggested that 
+Dollar General accelerate the roll-out of the new electronic cash registers by leasing all the 4,224 
+remaining registers under the agreement before December 31, 2000.  IBM offered to lease the new 
+equipment to Dollar General for approximately $10 million, which includ ed a one million dollar 
+discount to encourage Dollar General to agree to the deal.  After receiving the proposal, Dollar 
+General concluded that the negative impact on Do llar General’s earnings for its fiscal year 2000 
+from writing off the remaining book value for the Omron registers would outweigh the benefit of 
+the transaction.   
+                                                 
+2   On April 7, 2005, the SEC filed a settled enforcemen t action against Dollar General and certain of its 
+former officers and employees in the United States District Court for th e Middle District of Tennessee.  Securities 
+and Exchange Commission v. Dollar General Corp., et al., Civil Action No. 3:05-0283.  Dollar General consented to 
+the entry of a final judgment permanently enjoining it from violating the antifraud, internal controls, books and 
+records, and periodic reporting provisio ns of the federal securities laws, speci fically, Section 17(a) of the Securities 
+Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 
+13a-11, 13a-11, and 13a-13 thereunder.  The Commission ’s complaint included allegations relating to the Dollar 
+General transaction with IBM that is one of the subjects of this Order. 
+ 
+ 
+ 
+ 
+ 
+ 
+4
+ 
+Dollar General rejected IBM’s offer on November 29, 2000, explai ning to the IBM BUE 
+that it was not worth it to Dollar General to ac quire the new registers in 2000 because of the 
+additional expense Dollar General would incur in  writing off the remaini ng book value of the 
+company’s old equipment.  In ternal communications at IBM make clear that IBM understood 
+Dollar General’s accounting issue, specifically th e write-off of the remain ing book value, was a 
+significant obstacle to completing the December 2000 roll-out of the IBM equipment. 
+ 
+2. IBM Proposes “Purchase” of Omron Registers To Solve Dollar General’s  
+  Accounting Concern 
+ 
+On behalf of IBM, the IBM BUE devised and proposed a solution to, as he wrote in an e-
+mail, “help fix [Dollar General’s] Omron book value issue.”  Specifically, IBM offered to 
+“purchase” the Omron registers from Dollar Ge neral to accomplish the goal of helping Dollar 
+General to minimize the impact of writing off the book value of Dollar General’s Omron registers.  
+On November 30, 2000, the IBM BUE contacted Dollar General’s Treasurer and Dollar General’s 
+vice president of information services to di scuss a proposal to ad dress Dollar General’s 
+“accounting concerns.”  The proposal was that Dollar General lease, by December 31, 2000, all of 
+the new equipment then currently scheduled to be leased in future years.  If Dollar General agreed, 
+IBM would “purchase” the Omron registers for a specified amount and would offset that purchase 
+price by increasing the price Dollar General would pay to lease the new IBM registers by 
+approximately the same amount.  Initially, the proposal was that the Omron purchase price would 
+be repaid immediately by Dollar General; ultimately, IBM agreed that its “purchase price” would 
+be repaid over time by Dollar General as part of the financing arrangements for the new 
+equipment.   
+ 
+ At the same time that IBM agreed to “pur chase” the Omron registers, the IBM BUE and 
+various other IBM personnel knew that the Omron equipment was worthless.  For example, an 
+IBM Asset Manager had determined by December 5, 2000, that the Omron registers had no value 
+to IBM and communicated this to  an IBM Client Manager.  The IBM Client Manager also 
+understood that IBM was going to dispose of the Omron equipment it was planning to purchase 
+from Dollar General.  In addition, an IBM Busi ness Operations Manager for the North American 
+sales team for IBM’s Retail Store Solutions checked with an IBM contractor to see if there was any 
+market value for the Omron registers.  The contractor told the IBM Business Operations Manager 
+that there was no domestic resale value for the equipment.  Finally, the IBM BUE ultimately told 
+Dollar General that the Omron registers were worthless to IBM and that IBM intended to destroy 
+them. 
+ 
+IBM allowed Dollar General to set the “purchase” price for the equipment.  After 
+considering the book value of the Omron registers, Dollar General determined that the best price 
+ 
+ 
+ 
+ 
+ 
+ 
+5
+would be between $10 million and $11 million and co mmunicated that to IBM.  Thus, IBM was 
+asked to pay as much or more  for the worthless Om ron registers as IBM had proposed Dollar 
+General would pay for the new IBM equipment. 
+ 
+The IBM BUE and others at IBM also understood from the outset that the purchase price it 
+proposed to pay for the older regi sters would not be at risk beca use it would be repaid by Dollar 
+General in the form of an increased lease price for the new equipment.  In effect, there was no 
+“purchase” of Omron equipment; instead the amount was to be a loan from IBM to Dollar General.  
+Internal IBM documents make clear the relationship between the Omron purchase price and the 
+offsetting price increase for IBM equipment.  For example, in a December 3, 2000, email, the IBM 
+BUE described the new price for the IB M equipment as $20,530,000 – over double the 
+approximately $10 million originally contemplat ed.  The new purchase price now took into 
+account the price of the Omron equipment, which, at that time, was specified in the email as 
+$10,030,000. 
+ 
+The entire transaction was to be financed by IBM.  The financing terms for Dollar General 
+were to involve “one payment of $10,030,000 in February 2001, and the rest [of the $20,530,000] 
+deferred with a payment start date of August 2001.”  Under these terms, the portion of the purchase 
+price attributed to the Omron equipment would be promptly reimbursed, while the amount Dollar 
+General owed on the new IBM equipment would be  financed over a longer period.  Moreover, 
+during the course of negotiations, there was a ne xus between the price of the Omron equipment 
+and the final price.  For example, in a December 15, 2000 email written by the IBM BUE, he 
+explained that since Dollar General was “now asking for the $10,030,000 to go to $11,030,000, we 
+will need to do a similar analysis for $19,620,480 + $1,000,000 more in Omron for a new total of 
+$20,620,480 financed.” 
+ 
+It was clear to certain IBM and Dollar General personnel th at the only reason for the 
+purported purchase of the Omron equipment was to solve Dollar General’s accounting issues.  The 
+IBM BUE, for example, wrote in a December 3, 2000 email that “a buyback of the Omron 
+equipment will erase the book loss issue, removing this as an obstacle to a more rapid roll-out.”  In 
+the same email, the IBM BUE also stated that the proposed purchase should “significantly reduce 
+or eliminate any negative P&L issues, and remove the lurking book loss issue.”  In turn, as Dollar 
+General evaluated the offer, the company was seeking to determine whether the new proposal put 
+Dollar General in a better position than it would ha ve been if it held to the original roll-out 
+schedule.   In a December 5, 2000 email, the IBM BUE wrote:  “The Customer is evaluating two 
+things.  Can we help fix their Omron book value issue (which we can and have already agreed to) 
+and what is the comparative [net present value] of our best offer in December versus their current 
+plan of acquiring [the equipment] . . . .” 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+6
+In addition, completing the Omron “purchase” would incr ease IBM’s earnings for the 
+quarter by allowing it to close the accelerated ro ll-out transaction.  The IBM BUE wrote in an 
+email that “this would be quite a nice deal to put this much business this far forward at a time when 
+IBM desperately needs to show revenue growth.”  In addition, the IBM BUE had a direct incentive 
+to close the deal.  His annual b onus was based in part on the tota l revenue from the sales “price” 
+for the new IBM equipment (which was artificially  inflated to offset th e purchase price for the 
+Omron transaction).  Specifically, almost 50% of the IBM BUE’s bonus for 2000 was attributable 
+to the Dollar General transaction.   
+ 
+3. IBM and Dollar General Finalize Contract Terms 
+ 
+After negotiating the terms of the financing an d other arrangements over the course of a 
+few weeks, IBM and Dollar Gene ral finalized the two-part tr ansaction by agreements dated 
+December 22, 2000.  Under one agreement, IBM agreed to purchase 14,070 Omron registers from 
+Dollar General for $11,098,672, with payment to be made to Dollar General no later than January 
+31, 2001 – just two days before the end of Dolla r General’s fiscal year 2000.  On the same day, 
+Dollar General signed a separate agreement co mmitting the company to lease 4,224 new IBM 
+registers for approximately $21 million.  That purchase price was to be financed by IBM Credit 
+Corporation and would be repaid by Dollar General over five years, starting in January 2001.   
+ 
+4. IBM “Buys” the Omron Registers 
+ 
+IBM and the IBM BUE understood that Dollar General needed to receive the check for the 
+sale of the Omron registers by the end of Januar y 2001 to achieve the desired accounting result.  
+The written agreement also required that IBM make the payment to  Dollar General no later than 
+January 31, 2001.  On January 1 7, 2001, the IBM BUE sent an internal email to several IBM 
+employees seeking to have the check for the Omron registers issued.  In the email, he stated:  “It is 
+critical that this check gets cut ASAP to Dollar General for $11,216,995.  Th eir fiscal year ends 
+01/31/01 and this must be in house at DG.”   
+ 
+Notably, the $11.2 million amount referenced in the IBM BUE’s email includes both the 
+purchase price of $11,098,672 and an additional $118,323 that IBM was paying to cover the cost 
+of disposal of the very equipment that it was purchasing.  Although various IBM personnel saw the 
+check request and one individual noted that the whole transaction seemed “a little peculiar and may 
+be worth asking . . . questions [about],” the check request was approved and the check was issued 
+to Dollar General shortly before January 31, 2001, two days before the end of Dollar General’s 
+fiscal year 2000. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+7
+Despite the purchase agreement, almost two years later in la te 2002, none of the Omron 
+registers purportedly purchased by IBM had le ft Dollar General’s custody, nor were they 
+destroyed.  They were stored in Dollar General distribution centers awaiting disposal. 
+ 
+5. IBM and Dollar General’s Respectiv e Accounting for the Transaction 
+ 
+ Dollar General received significant accounting benefits from the Omron transaction.  
+Dollar General utilized the Omron purchase pa yment from IBM to improperly reduce certain 
+expenses for its fiscal year 2000,  thereby inflating its reported  pre-tax income.  Specifically, 
+Dollar General improperly reduced the loss on Om ron registers accounted for as having been 
+removed from service in 2000.  
+ 
+ The Omron transaction also served to en able Dollar General to avoid addressing an 
+unrelated accounting issue pertaining to the Omr on equipment – specifically, the fact that Dollar 
+General had not sufficiently depreciated the Om ron equipment during fiscal year 2000.  At the 
+time Dollar General entered into the multi-year agreement with IBM to replace the Omron 
+equipment, Dollar General should have reasse ssed the remaining useful lives of the Omron 
+equipment and accelerated the de preciation on that equipment c onsistent with the equipment 
+removal and replacement schedule.  In the fo urth quarter 2000, at the time Dollar General 
+entered into the Omron transaction with IBM,  Dollar General had not depreciated the Omron 
+equipment sufficiently (by approximately $7.9 million) during fiscal year 2000.  The Omron 
+transaction, which removed the a ssets from the books, alleviated the need for Dollar General to 
+face this problem.  Utilizing the cash received  from IBM for the Omron equipment, Dollar 
+General instead minimized the loss on disposal of Omron registers and did not incur a substantial 
+depreciation charge.   
+ 
+By improperly reducing expenses that Dollar  General should have recognized, the net 
+effect of Dollar General’s accoun ting for the sham payment from IBM was to increase Dollar 
+General’s pretax income for fiscal 2000 by $7.1  million, or 6.5% of Dollar General’s restated 
+pretax fiscal year 2000 income.   
+ 
+IBM, in contrast, ultimately accounted for the transaction by netting out the impact of the 
+“purchase” of Omron equipment.  IBM treated the purchase price for the Omron registers as a 
+trade-in credit against the full purchase price of the new IBM equipment.  IBM, however, did have 
+to undertake unusual journal entries in order to accomplish this task because the transactions were 
+separately documented.  Consequently, as the IBM BUE wrote in a December 21, 2000 email, the 
+“[l]edger amount to IBM Retail Store Solutions” wa s the net of the full purchase price, less the 
+Omron price, for a total of appr oximately $10.1 million.  As st ructured, however, certain IBM 
+employees received credit for the full $21 m illion purchase price for purposes of bonus 
+ 
+ 
+ 
+ 
+ 
+ 
+8
+calculations.  Consequently, certain IBM employ ees, including the IBM BUE, received bonuses 
+that were higher than they would have been but for the fraudulent Omron transaction.    
+ 
+D. IBM’S INACCURATE BOOKS AND RECORDS 
+ 
+ As a result of numerous discrete incidents ta king place in various IBM units, divisions, and 
+wholly-owned subsidiaries in the United States, and in at least 23 other countries, IBM made at 
+least $200 million in revenue recognition errors in its fiscal year 2000, and at least $377 million in 
+revenue recognition errors in its fiscal year 2001.  
+ 
+ At least $281 million of this revenue involved the use of side letters, a substantial portion of 
+which were side letters in whic h IBM granted rights of return.  For example, in December 2000, 
+several executives, managers, and employees of  IBM Retail Store Solutions (the same unit 
+involved in the Omron transaction) and Business Partner units caused IBM to improperly 
+recognize $9.3 million in revenue in  connection with the sale of 22,680 printers to a business 
+partner.  Revenue recognition was improper at the time because, among other reasons, IBM Retail 
+Store Solutions employees had granted a full right of return for the equipment in a side letter to the 
+business partner.
+3  This $9.3 million in improperly recogni zed revenue allowed the Retail Store 
+Solutions unit to exceed its full-year sales target by $2 million. 
+  
+ At least $171 million of this revenue recogni zed in error for IBM’s fiscal years 2000 and 
+2001 related to premature revenue recognition of product stored in warehouses not controlled by 
+IBM’s customers.  At least $100 million of this amount related to IBM’s Retail Store Solutions 
+unit and its use of IBM-controlled warehouses to store merchandise that had not been shipped to 
+the end-customer but for which IBM nonetheless recognized revenue.
+4
+ 
+                                                 
+3  The mere fact that a side letter was used to grant a right of return to a customer and that the right is termed 
+a “full right” indicates a more-than-normal likelihood that the sale might be reversed and the product returned.  In 
+such a situation, the probability that  the product will be returned and the amount of returns cannot be reasonably 
+estimated, and thus the sale can not be recognized.  Financial Accounting Standard (“FAS”) No. 48, Revenue 
+Recognition When Right of Return Exists , includes, as a criterion for recogniz ing revenue when the right of return 
+exists, that “the amount of future returns can be reasonably estimated.” 
+4   SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements , states, “The staff 
+believes that revenue generally is realized or realizab le and earned when . . . [among other criteria] delivery has 
+occurred or services have been rendered.”  See also Statement of Financial Accounting Concepts No. 5, Recognition 
+and Measurement in Financial Statements of Business Enterprises  (stating that “if a sale or cash receipt (or both) 
+precedes…delivery…, revenues may be recognized as earned by production and delivery”).  Under the 
+circumstances in this case, it was improper for IBM to recognize revenue at a time when it had not actually delivered 
+the product. 
+ 
+ 
+ 
+ 
+ 
+ 
+9
+ The revenue recognition errors we re, in many cases, errors w ith respect to the timing of 
+recognition as between quarters.  In most cases, the revenue recognition errors were discovered and 
+corrected by IBM in advance of the Commission’s investigation. 
+ 
+E. LEGAL DISCUSSION
+ 
+ 1. IBM Caused Dollar General’s Fraud 
+ 
+ Section 21C of the Exchange Act provides that the Commission may order any person who 
+is or was a cause of a violation of any provision of the Exchange Act, due to an act or omission the 
+person knew or should have known would contribute to the violati on, to cease and desist from 
+causing such violations.   Section 10(b) of the Exchange Act and Rule 10b-5 thereunder proscribe a 
+variety of fraudulent practices in connection with the purchase or sale of securities.  Violations of 
+Section 10(b) and Rule 10b-5 occur when an issuer makes material misstatements or omissions in 
+periodic reports filed with the Commission, including financial statements, and trading thereafter 
+occurs in the issuer's securities. SEC v. Texas Gulf Sulphur, 401 F.2d 833, 860-862 (2d Cir. 1968), 
+cert. denied, 394 U.S. 976 (1969); SEC v. Great American Indus. , 407 F.2d 453 (2d Cir.), cert. 
+denied, 395 U.S. 920 (1968). 
+ 
+ The Supreme Court, in interpreting the securitie s laws, has held that a fact is material if 
+there is a "substantial likelihood that the . . . fact would have been vi ewed by the reasonable 
+investor as having significantly altered the `total mix' of information made available."  TSC Indus. 
+v. Northway, Inc., 426 U.S. 438, 449 (1976); see also Basic, Inc. v. Levinson, 485 U.S. 224 (1988).  
+Information regarding the financial condition of a company is presumptively material.  SEC v. 
+Blavin, 760 F.2d 706, 711 (6 th Cir. 1985).  Even financial mi sstatements that are not large in 
+magnitude may be material if they are made inte ntionally to manage a company's income, hide a 
+failure to meet analysts' expectations or sustain an earnings trend.  See Ganino v. Citizens Utility 
+Co., 228 F.3d 154, 166 (2d Cir. 2000). 
+  
+ Dollar General violated Section 10(b) a nd Rule 10b-5 thereunder by fraudulently 
+overstating its fiscal year 2000 income with the benefit of the Omron transaction.  IBM was a 
+cause of Dollar General’s violations because IBM knew or should have known that its creation of 
+and participation in the Omron transaction to solve Dollar General’s “book loss” problem would 
+contribute to Dollar General’s securities fraud.  IBM knew the Omron purchase transaction was not 
+a bona fide sale because the Omron equipment was worthless, would be destroyed, and that the 
+purchase “price” was really a loan from IBM to Do llar General that would be repaid through the 
+inflated price for IBM’s new eq uipment.  In addition, IBM knew explicitly that it was an 
+accounting impact on Dollar General’s earnings that was the obstacle in completing the transaction 
+– and IBM agreed to participate in a transaction that would solve that accounting problem.  By 
+engaging in the transaction with Dollar General, IBM was a cause of Dollar General’s fraud. 
+ 
+ 
+ 
+ 
+ 
+ 
+10
+        
+ 2. IBM Caused Dollar Genera l’s Books and Records and   
+ Reporting Violations 
+ 
+ Section 13(a) of the Exchange Act requires issuers with securities registered under Section 
+12 of the Exchange Act to file with the Commis sion such information and documents as required 
+to keep reasonably current the information and documents required to be included in or filed with 
+an application or registration statement.  The re quirement that issuers file such information and 
+documents necessarily embodies the requirement that such reports be true and correct.  See Great 
+Sweet Grass Oils, Ltd., 37 S.E.C. 683, 684 n.1 (1957), aff’d, 256 F.2d 893 (D.C. Cir. 1958); see 
+also SEC v. IMC Int’l, 384 F. Supp. 889, 893 (N.D. Tex. 1974) (“The reporting provisions of the 
+Exchange Act are clear and unequ ivocal, and they are satisfied only by the filing of complete, 
+accurate, and timely reports.”), aff’d, 505 F.2d 733 (5
+th Cir. 1974).  Rule 13a-11 requires issuers to 
+file current reports on Form 8-K.  Rule 12b-20 further requires that such reports contain any further 
+material information necessary to make the required statements, in the light of the circumstances 
+under which they are made, not misleading.  Financia l statements in Commi ssion filings that do 
+not comply with GAAP are presumed to be misleading. Regulation S-X, 17 C.F.R. § 210.4-
+01(a)(1).  No showing of scienter is required to violate Section 13(a).  See SEC v. McNulty, 137 
+F.3d 732, 740-741 (2d Ci r. 1998).  A person may be a cause of a non-scienter based violation 
+through negligent conduct that contributes to the violation.  See KPMG, LLP  v. SEC , 289 F.3d 
+109, 120 (D.C. Cir. 2002).  
+ 
+ Dollar General violated Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 
+thereunder by filing inaccurate Forms 8-K on January 23, 2001 and February 28, 2001 relating to 
+Dollar General’s fiscal 2000 earnings.  These reports were inaccurate because they included 
+overstated earnings as a result of the Omron transaction.  IBM was a cause of Dollar General’s 
+violations because it knew or should have known that it was contributing to Dollar General’s 
+reporting of inaccurate financial statements by participating in the sham Omron transaction. 
+  
+ Section 13(b)(2)(A) of the Exch ange Act requires Section 12 registrants to "make and keep 
+books, records, and accounts, which, in reasonabl e detail, accurately and fairly reflect the 
+transactions and dispositions of the assets of the issuer."  Dollar General violated Section 
+13(b)(2)(A) by failing to make and keep books, records, and accounts, which accurately and fairly 
+reflected the Omron transaction in reasonable de tail.  IBM was a cause of Dollar General’s 
+violations of Section 13(b)(2)(A) because it knew or should have known that it was contributing to 
+Dollar General’s participation in and inaccurate recording of the Omron transaction.   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+11
+ 3. IBM Violated the Books and Records Provisions of the Securities Laws 
+ 
+ IBM violated Section 13(b)(2)(A) by failing to make and keep books, records, and 
+accounts, which accurately and fairly reflected tran sactions in reasonable detail, in IBM’s own 
+books, records, and accounts for its fiscal year 2000 and fiscal year 2001, as described in section D 
+above. 
+ 
+F. UNDERTAKING
+ 
+IBM undertakes, within ten (10) business days of the date of the issuance of this Order, to 
+pay $7,000,000 to the Clerk of the United States District Court for the Middle District of 
+Tennessee together with a cover letter specifying that this payment shall be deposited and joined 
+to the funds currently held in SEC v. Dollar General Corporation, et al. , C.A. No. 3:05-0283.  
+IBM has agreed to refer to this administrative proceeding in the cover letter and to transmit 
+photocopies of such payment and letter to Ke vin M. Loftus, Branch  Chief, Division of 
+Enforcement, Securities and Exchange Co mmission, 100 F Street, N. E., Washington, D.C. 
+20549.  IBM has agreed not to seek the return of any portion of its payment.  
+ 
+IV. 
+  
+ In determining to accept the Offer, the Commission considered the Undertaking in Section 
+III. F. and remedial acts that were undertaken by Respondent. 
+ 
+V. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent IBM’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that Respondent IBM cease and desist from 
+committing or causing any violations and any futu re violations of Sec tions 10(b), 13(a), and 
+13(b)(2)(A) of the Exchange Act, and Rules 10b-5, 12b-20 and 13a-11 thereunder. 
+ 
+ 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/2007/AAER-2626.txt b/raw/aaer/2007/AAER-2626.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c604c742e25d35a9b0d49caf0d56267611da4718
--- /dev/null
+++ b/raw/aaer/2007/AAER-2626.txt
@@ -0,0 +1,473 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 8815 / June 29, 2007   
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 55982 / June 29, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2626 / June 29, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12673 
+ 
+ 
+ 
+In the Matter of 
+ 
+CVS CAREMARK 
+CORPORATION, PHILIP C. 
+GALBO, AND LARRY 
+SOLBERG  
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS PURSUANT 
+TO SECTION 8A OF THE SECURITIES 
+ACT OF 1933, SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against CVS 
+Caremark Corporation (“CVS”), Philip C. Galbo (“Galbo”), and Larry Solberg, CPA (“Solberg”) 
+(collectively, “Respondents”) pursuant to Section 8A of the Securities Act of 1933 (“Securities 
+Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and, as to 
+Respondent Solberg, Rule 102(e)(ii) of the Commission’s Rules of Practice.1
+                                                 
+1 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 2
+                                                                                                                                                            
+II. 
+ 
+ In anticipation of the institution of thes e proceedings, each of the Respondents has 
+submitted an Offer of Settlement (collectively, the “Offers”) which the Commission has 
+determined to accept.2  Solely for the purpose of these proceedings and any other proceedings 
+brought by or on behalf of the Commission, or to which the Commission is a party, and without 
+admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and 
+the subject matter of these proceedings, which are admitted, Respondents consent to the entry of 
+this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 
+8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934 and Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
+ 
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds that:  
+ 
+ 
+A. SUMMARY  
+  
+This case concerns incorrect accounting by CVS, a national chain of pharmacy and retail 
+merchandise stores and a pharmaceutical benefits management company, for a transaction (the 
+“Transaction”) that senior executive Phil Galbo negotiated and the accounting for which Larry 
+Solberg approved.  As accounted for, the book value of the excess plush toy inventory, such as 
+seasonal stuffed animals, was not reduced in connection with the Transaction.  As a result of 
+recording the Transaction in this manner, CVS materially overstated its pretax earnings for the third 
+quarter of 2000 by approximately $18.1 million (approximately $10.8 million after tax), or 
+approximately 7% of net income for the third quarter of 2000. 
+ 
+During the late spring and summer of 2000, Galbo and Solberg became aware that CVS was 
+carrying the plush toy inventory on its books at $32 million, a value higher than $13.9 million, the 
+inventory’s approximate market value at the time.  Instead of writing down the value of the 
+inventory to market value, CVS entered into the Transaction with a barter company pursuant to 
+which CVS contracted to exchange the plush toy inventory for credits with a face value of $42.5 
+million.  CVS then replaced the $32 million toy inventory on its books with the credits at a value of 
+$42.5 million.   
+ 
+ 
+The Commission may … deny, temporarily or permanently, the privilege of appearing or 
+practicing before it … to any person who is found … to have engaged in … improper 
+professional conduct. 
+2 As part of a final resolution of the Commission’s claims against them, Galbo and Solberg have 
+also agreed to consent to the entry of a district court judgment ordering Galbo to pay a civil 
+monetary penalty of $30,000 and Solberg to pay a civil monetary penalty of $30,000. 
+ 3
+Rather than exchange a set of goods or services with CVS, the barter company received no 
+goods or services from CVS.  It received $12.5 million in cash.  Under the terms of the deal, the 
+barter company transferred the $42.5 million in credits and CVS liquidated the inventory in its 
+capacity as agent for the barter company while guaranteeing the barter company $12.5 million. CVS 
+valued the credits on its books at their full face value of $42.5 million. 
+ 
+Evidence existed that the credits should not have been recorded at their face value.  The 
+credits consisted of $18.8 million in telecommunications credits and $23.7 million of credits with 
+the barter company.  Although CVS could have theoretically applied the telecommunications credits 
+to pay its own telecommunications bills, CVS used a different telecommunications provider, 
+thereby making the credits harder for CVS to utilize, and arguably of lesser value.  The terms of the 
+Transaction also were such that CVS could not use the $23.7 million in barter company credits 
+alone to purchase more goods from the barter company.  Rather, the terms of the barter credit 
+agreement were such that the ratio of barter credits in each transaction would vary from transaction 
+to transaction, subject to mutual agreement between CVS and the barter company, but would 
+generally be a 60-75% cash and 25-40% barter credit configuration. 
+ 
+Finally, even if CVS had properly transferred the toy inventory to the barter company, 
+Generally Accepted Accounting Principles (“GAAP”) required (a) that the toys be written down to 
+their fair market value prior to entering the Transaction and (b) that CVS disclose the existence and 
+certain details of the Transaction.  CVS neither recorded the required write-down in the value of the 
+toys nor properly disclosed the Transaction in its financial statements.  Failing to reduce the book 
+value of the toys to their market value had a material effect on CVS’s financial results for the third 
+quarter of 2000 (although not on CVS’s financial results for the 2000 fiscal year). 
+ 
+B. RESPONDENTS 
+ 
+1. CVS Caremark Corporation is a Delaware corporation headquartered in 
+Woonsocket, Rhode Island.  Its primary business is the operation of over 6,200 retail stores that sell 
+pharmacy and consumer products and the operation of a pharmaceutical benefits management 
+company headquartered in Nashville, Tennessee.  Its shares are registered under Section 12(b) of 
+the Exchange Act and traded on the New York Stock Exchange.  CVS files periodic reports with the 
+Commission pursuant to the Exchange Act.  For the year 2000, its fiscal year ended December 30 
+and its fiscal third quarter ended September 30. 
+ 
+2. Philip C. Galbo, age 56, is a resident of Gladwyn, Pennsylvania.  Galbo, who is not 
+an accountant, was treasurer of CVS during the relevant period.   
+ 
+3. Larry Solberg, age 58, is a resident of Holmes Beach, Florida, and former 
+controller of CVS.  He is a certified public accountant whose license in the state of Minnesota is 
+inactive.  He was the principal accounting officer at CVS during the relevant period. 
+ 
+ 4
+C. FACTS  
+ 
+CVS Discovers Sales of Excess Plush Toy Inventory Are Down,  
+Which Poses a Threat to the Company’s Achieving Its Financial Goals 
+ 
+1. At year-end 1999, CVS determined that its plush toys should be held over for the 
+following year at full book value.  Subsequently, in April and May 2000, CVS analyzed the status 
+of its plush toy programs, which it had determined to terminate.  The analysis revealed, among other 
+things, that projected sales were less than the cost at which CVS was carrying the toys on its books 
+and that the rate at which certain lines of plush toys were selling was low in comparison to historical 
+rates and sales rates on other products. One then CVS vice president (the “CVS vice president”) 
+informed Solberg, the then controller, that poor sales were a potential threat to CVS achieving its 
+gross margin goals for 2000.   
+ 
+2. During the summer of 2000, the value of the plush toys continued to decline 
+according to some internal reports.  Both Solberg and Galbo were sent a written analysis on August 
+25, 2000 that projected sales of $13.9 million for the $32 million (at cost) of plush toy inventory.  In 
+addition, in September, CVS agreed to liquidate 18% of the inventory at fourteen cents per dollar of 
+cost. Ultimately, CVS realized approximately $12 million on the liquidation of the plush toy 
+inventory. 
+ 
+3. Throughout the summer of 2000, Solberg received documents indicating several 
+threats, including the plush toys, to CVS achieving its financial goals.  Galbo stated to his contact at 
+the barter company that CVS’s independent outside auditors had indicated that if the plush toy 
+inventory were not sold, CVS may be facing some possible write-downs. 
+ 
+CVS Does Not Take a Charge to Reflect the Toys’ Impaired  
+Value, But Instead Enters Into the Transaction 
+ 
+4. To address the potential plush toy issue, Galbo, who was not involved in accounting 
+for the Transaction, began negotiating the Transaction on CVS’s behalf in or around May 2000.  
+Galbo received an email from another then CVS executive which stated that avoiding markdowns 
+on the plush toys through the proposed Transaction was “a major element of fixing [CVS’s] 
+significant profit gap.” The value of the toys as reflected on CVS’s books was $32 million, but 
+reports circulated to Galbo and Solberg indicated that their actual fair market value was much less. 
+Solberg also reviewed and presented periodic reports to senior management that suggested the 
+failure to close the Transaction was a potential threat to CVS’s financial goals.  Indeed, some of 
+these reports, generated in September 2000, stated that there was “no margin for error” in achieving 
+the consensus target for the third quarter 2000 and that management was to continue to “manage 
+and monitor” a number of risk areas, including the proposed Transaction.  Galbo received at least 
+one such copy of the September 2000 report. 
+ 
+ 5
+                                                
+CVS Exchanges Credits With a $42.5 Million Face Value for $12.5  
+Million Cash, And Accounts for the Transaction As If CVS  
+Had Transferred the Risks and Rewards of the Toy Inventory 
+ 
+5. On the last business day of CVS’s third quarter 2000, after evaluating and presenting 
+various transaction alternatives involving multiple entities, Galbo executed a letter of intent 
+concerning the plush toy inventory with a barter company with which CVS had previously done 
+business.  Pursuant to this Transaction, CVS paid the barter company $12.5 million (referred to as a 
+guaranteed liquidation fee) in return for (a) a coupon entitling CVS to $18.8 million of phone 
+services with a vendor that CVS did not use and (b) barter credits entitling CVS to $23.7 million of 
+discounts off purchases of future unspecified goods and services from the barter company.  In the 
+Transaction, CVS also undertook to transfer title of the toys to the barter company, but the 
+agreement left CVS with the risks and rewards of, and responsibility for, selling the plush toys, and 
+CVS at all times retained physical possession of them.3 
+ 
+6. Nonetheless, CVS accounted for the Transaction as if it had transferred the toys to 
+the barter company.  Through a series of journal entries, CVS effectively replaced the $32 million 
+plush toy inventory with coupon/barter credit inventory at its face value of $42.5 million.  The effect 
+of replacing toy inventory with coupon/credit inventory was that - at least on its books - CVS no 
+longer owned a plush toy inventory that had a market value that was less than its book value.  
+Accordingly, it did not take the appropriate impairment charge.  In addition, on September 30, 2000, 
+CVS reversed $3.5 million of markdown expenses it had taken on a portion of the plush toy 
+inventory during the summer months.  By doing so, CVS not only retained the benefit of the cash 
+generated by the summer sales of some of this inventory at marked down prices, but also, for 
+purposes of markdown expense, treated the previously sold toys as if they had been exchanged to 
+the barter company in return for credits.  Solberg was aware of the reversal of markdown expense, 
+but he did not know that a portion of the markdown reversal had been applied to previously sold 
+toys.  In connection with the year-end audit for 2000, Solberg discussed the Transaction with CVS’s 
+independent outside auditors.  Based on the internal reports he received earlier in the year, Solberg 
+should have known of the decline in the toys' value relative to their cost and discussed that with the 
+independent outside auditors, but he did not. 
+ 
+Galbo and Solberg Should Have Known That the Toys Should  
+Have Been Written Down at the End of the Third Quarter 
+ 
+7. Both Galbo and Solberg should have known that not taking an impairment charge to 
+the plush toy inventory was incorrect.  Each was exposed to red flags that signaled the error of not 
+taking that charge.  For example, each reviewed the contracts that showed that CVS retained 
+responsibility for liquidating the plush toys, retained the risk of their loss, and retained to some 
+extent the rewards of their sale. Moreover, based on the internal reports that were circulated to them, 
+each should have known that CVS’s internal estimates of plush toy sales were far less than the pre-
+ 
+3 Although CVS referred to the Transaction as a “barter transaction,” in economic substance it 
+involved a payment of cash for credits and was not an exchange of non-monetary goods or 
+services.   
+ 6
+September 2000 book value and far less than the combined face value of the credits and phone 
+services coupon received from the barter company.  Just days prior to the Transaction, Galbo wrote 
+a memo which Solberg received, in which he acknowledged, “We need to cover $41.5 MM of 
+margin with only $12MM of inventory market value.”  Indeed, the CVS vice president, who was 
+not an accountant, expressed to Solberg and Galbo that she thought the Transaction was “a little 
+screwy” because it seemed to allow CVS not to take markdowns to inventory.  The CVS vice 
+president also expressed to Solberg her lack of understanding of how anyone would pay CVS so 
+much for something the CVS vice president could not see value in.  
+ 
+8. With respect to Solberg, there were other red flags.  The CVS vice president asked 
+Solberg whether it would not be more appropriate to reduce the book value of the plush toy 
+inventory first and then engage in the Transaction.  Solberg should have known that CVS had not 
+yet identified any uses for the barter credits or phone services coupon, should have known CVS had 
+no experience retrading credits or coupons to third parties, and received other information casting 
+doubts on the idea that the coupon and credits were worth their face value. 
+ 
+9. Galbo, too, was exposed to a number of red flags from which he should have known 
+that the credits were not worth their face value.  For example, the phone service coupon was issued 
+by a telecommunications provider CVS could not use due to its contractual commitments to its own 
+provider and therefore would need to be retraded to achieve value for CVS.  Although Galbo was 
+reassured by his barter company contact that the telephone credits could be placed, Galbo knew that 
+(a) CVS had no history retrading coupons, (b) no CVS vendor had committed to accepting the 
+coupon, and (c) only four of CVS’s top fifty vendors were current users of the telecom provider 
+(and those four in very small amounts). CVS nevertheless recorded the coupon at face value.  
+Furthermore, in July 2000, Galbo acknowledged that absent assurance of current or future vendors’ 
+acceptance of them, trade credits offered by a different barter company would most likely have to be 
+“significantly discounted” if CVS elected to pursue a transaction with that company. Though no 
+such guarantee existed with respect to the barter credits that CVS ultimately acquired from another 
+company, and although his contact at that barter company informed Galbo that it did not normally 
+issue barter credits and noted some potential risks of barter credits versus a direct asset exchange, 
+CVS also recorded the barter credits at face value.  CVS ultimately utilized a majority of the credits 
+and wrote down the balance in 2003.   
+ 
+Galbo and Solberg Cause CVS to File False Financial Results for the Third  
+Quarter 2000 That Are Repeated in Year-End Results And  
+Incorporated by Reference in Filings Related to a June 2001 Offering 
+ 
+10. As a result of the foregoing, CVS did not provide in its financial results for the third 
+quarter of 2000 for the reduction in value of the toys from their book value of $32 million to their 
+projected market value of $13.9 million.  Accordingly, its pretax earnings for the third quarter were 
+overstated by approximately $18.1 million (the amount of the impairment), and after tax earnings 
+were overstated by approximately $10.8 million, or approximately 7% of net income.  These 
+overstated results were also made part of CVS’s filing for the year-end 2000 which were in turn 
+incorporated by reference in filings in connection with a June 2001 secondary offering of securities 
+by CVS.  As principal accounting officer, Solberg signed the year-end 2000 filings. 
+ 7
+ 
+11. Both Galbo and Solberg received bonuses for year-end 2000 that were tied to CVS’s 
+financial results.  The failure to reflect the reduction of the value of the toys therefore caused each to 
+receive a higher bonus than he otherwise would have.  In addition, Galbo received additional 
+discretionary bonuses explicitly tied in part to work on the Transaction and its benefit to CVS’s 
+bottom line. 
+ 
+ 
+D. VIOLATIONS 
+ 
+1. Section 17(a)(2) of the Securities Act prohibits a person, in the offer or sale of a 
+security, “directly or indirectly ... to obtain money or property by means of any untrue statement of 
+a material fact or any omission to state a material fact necessary in order to make the statements 
+made, in light of the circumstances in which they were made, not misleading.” Section 17(a)(2) has 
+no scienter requirement.  Aaron v. SEC, 446 U.S. 680, 686 n.5 (1980).  Negligent conduct can 
+violate Section 17(a)(2). See,e.g, SEC v. Hughes Capital Corp., 124 F.2d 449, 453 (3d Cir. 
+1997); In the Matter of Raymond James Financial Services, Inc., Exchange Act Release No. 
+49234 (Feb. 12, 2004). 
+ 
+2. As described above, Solberg violated Section 17(a)(2) by causing untrue statements 
+of fact concerning third quarter 2000 results to be incorporated by reference in filings related to 
+CVS’s June offering.  Although Solberg should have been aware that CVS’s financial accounting 
+for the Transaction was incorrect and that CVS should have written the plush toys down to their 
+market value in the third quarter of 2000, Solberg reviewed the erroneous accounting for the 
+Transaction, which was incorporated by reference in filings related to the June 2001 offering of 
+securities. 
+ 
+3. As described above, Galbo violated Section 17(a)(2) by causing untrue statements of 
+fact concerning third quarter 2000 results to be incorporated by reference in filings related to CVS’s 
+June offering.  Although Galbo should have been aware that CVS’s financial accounting for the 
+Transaction was incorrect and that CVS should have written the plush toys down to their market 
+value in the third quarter of 2000, Galbo nevertheless negotiated the Transaction, the erroneous 
+accounting for which was incorporated by reference in filings related to the June 2001 offering of 
+securities.   
+ 
+4. Section 13(a) of the Exchange Act and Rules 13a-l and 13a-13 thereunder require 
+issuers with securities registered under Section 12 of the Exchange Act to file quarterly and annual 
+reports with the Commission and to keep this information current.  The obligation to file such 
+reports embodies the requirement that they be true and correct.  See, e.g., SEC v. Savoy Indus., Inc., 
+587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). 
+ 
+5. As discussed above, Solberg caused CVS to file a false and misleading quarterly 
+report with the Commission that misrepresented the financial results of CVS, overstating operating 
+income and earnings.  By his conduct described above, Solberg caused CVS’s violations of Section 
+ 8
+13(a) of the Exchange Act and Rules 13a-l and 13a-13 thereunder, and CVS violated Section 13(a) 
+of the Exchange Act and Rules 13a-l and 13a-13 thereunder. 
+ 
+6. As discussed above, Galbo caused CVS to file a false and misleading quarterly 
+report with the Commission that misrepresented the financial results of CVS, overstating operating 
+income and earnings.  By his conduct described above, Galbo caused CVS’s violations of Section 
+13(a) of the Exchange Act and Rules 13a-l and 13a-13 thereunder, and CVS violated Section 13(a) 
+of the Exchange Act and Rules 13a-l and 13a-13 thereunder. 
+ 
+7. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and 
+keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions 
+of their assets. 
+ 
+8. As a result of the actions taken by Solberg as described above, CVS’s books and 
+records reflecting the transactions and dispositions of its plush toy assets were not accurate.  Based 
+on the conduct described above, Solberg caused CVS’s violation of Section 13(b)(2)(A) of the 
+Exchange Act, and CVS violated Section 13(b)(2)(A) of the Exchange Act. 
+ 
+9. As a result of the actions taken by Galbo as described above, CVS’s books and 
+records reflecting the transactions and dispositions of its plush toy assets were not accurate.  Based 
+on the conduct described above, Galbo caused CVS’s violation of Section 13(b)(2)(A) of the 
+Exchange Act. 
+ 
+10. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in relevant part, 
+that the Commission may deny the privilege of appearing or practicing before the Commission to 
+any person who is found by the Commission to have engaged in improper professional conduct, 
+which includes negligent conduct consisting of “[r]epeated instances of unreasonable conduct, each 
+resulting in a violation of applicable professional standards, that indicate a lack of competence to 
+practice before the Commission.” Rule 102(e)(1)(iv)(A)(2).  As described above, Solberg engaged 
+in repeated instances of unreasonable conduct, each resulting in a violation of applicable 
+professional standards, that indicate a lack of competence to practice before the Commission. 
+ 
+E. FINDINGS 
+ 
+1. Based on the foregoing, the Commission finds that Solberg (a) violated Section 
+17(a)(2) of the Securities Act; and (b) caused CVS’s violations of Sections 13(a) and 13(b)(2)(A) of 
+the Exchange Act, and Rules 13a-l and 13a-13 promulgated thereunder. 
+ 
+2. Based on the foregoing, the Commission finds that Galbo (a) committed a violation 
+of Section 17(a)(2) of the Securities Act; and (b) caused CVS’s violations of Sections 13(a) and 
+13(b)(2)(A) of the Exchange Act, and Rules 13a-l and 13a-13 promulgated thereunder. 
+ 
+ 3. Based on the foregoing,  the Commission finds that CVS committed violations of 
+Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 13a-l and 13a-13 promulgated 
+thereunder. 
+ 9
+ 
+ 4. Based on the foregoing, the Commission finds that Solberg engaged in improper 
+professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice. 
+ 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in each of the Respondents’ Offers of Settlement. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondents Solberg and Galbo shall ceas e and desist from committing or causing 
+any violations and any future violations of Section 17(a)(2) of the Securities Act, and from causing 
+any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and 
+Rules 13a-1 and 13a-13 promulgated thereunder. 
+ 
+ B. Respondent Solberg is denied the privile ge of appearing or practicing before the 
+Commission as an accountant.   
+ 
+ C. After one year from th e date of this order, Respondent Solberg 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 Solberg’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 Solberg, 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 Solberg, or the re gistered 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 Respondent Solberg will not receive appropriate supervision; 
+ 10
+   (c) Respondent Solberg has resolv ed 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 Solberg acknowle dges his responsibility, as long as 
+Respondent Solberg 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 app lication by Respondent Solberg 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 Solberg’s character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission. 
+ 
+ E. Respondent CVS shall cea se and desist from committing or causing any violations 
+and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 13a-1 
+and 13a-13 promulgated thereunder. 
+ 
+ F. IT IS FURTHERED ORDERED that Respon dent Galbo shall, within ten days of 
+the entry of this Order, pay disgorgement of $22,000 and prejudgment interest of $8,727.62 to the 
+United States Treasury.  Such payment shall be: (A) made by United States postal money order, 
+certified check, bank cashier's check or bank money order; (B) made payable to the United States 
+Treasury; (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 Galbo as a Respondent in these 
+proceedings, the file number of these proceedings, a copy of which cover letter and money order or 
+check shall be sent to John T. Dugan, Associate District Administrator, Division of Enforcement, 
+Securities and Exchange Commission, Boston District Office, 33 Arch Street, 23rd Floor, Boston 
+MA 02110. 
+ 
+ G. IT IS FURTHERED ORDERED that Respon dent Solberg shall, within ten days of 
+the entry of this Order, pay disgorgement of $16,000 and prejudgment interest of $6,476.21 to the 
+United States Treasury.  Such payment shall be: (A) made by United States postal money order, 
+certified check, bank cashier's check or bank money order; (B) made payable to the United States 
+Treasury; (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 Solberg as a Respondent in these  
+ 11
+proceedings, the file number of these proceedings, a copy of which cover letter and money order or 
+check shall be sent to John T. Dugan, Associate District Administrator, Division of Enforcement, 
+Securities and Exchange Commission, Boston District Office, 33 Arch Street, 23rd Floor, Boston, 
+MA 02110. 
+ 
+ 
+ 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
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+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 
+SECURITIES EXCHANGE ACT OF 1934 
+Rel. No. 55987 / June 29, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 2627 / June 29, 2007 
+Admin. Proc. File No. 3-12208 
+In the Matter of CORRECTED ORDER DENYING 
+RESPONDENTS’ MOTIONS FOR 
+KEVIN HALL, CPA and SUMMARY DISPOSITION 
+ROSEMARY MEYER, CPA AND ORAL ARGUMENT 
+Kevin Hall and Rosemary Meyer move for summary disposition.  Respondents assert that 
+the Commission should dismiss this proceeding without prejudice because they did not have 
+effective representation of counsel during the investigation and Wells process and that, in part as 
+a result, the Division overlooked exculpatory evidence in recommending that we institute this 
+proceeding.  Respondents also complain that the Division was tardy in producing to them certain 
+portions of its investigatory file.  They further ask for an extension of time to review these late-
+produced documents. 
+Summary disposition does not lie.  Rule of Practice 250(b) provides that a “hearing 
+officer may grant the motion for summary disposition if there is no genuine issue with regard to 
+any material fact and the party making the motion is entitled to a summary disposition as a 
+matter of law.” 1/ Rule of Practice 250(a) further provides that “[i]f the interested division has 
+not completed presentation of its case in chief, a motion for summary disposition shall be made 
+only with leave of the hearing officer.” 2/ Respondents have failed to demonstrate that there is 
+no genuine dispute with respect to any material fact alleged in the Order Instituting Proceedings 
+or that they are entitled to an order as a matter of law. 
+Moreover, a motion for summary disposition generally should be made to the hearing 
+officer, and, in any event, cannot be made before the Division finishes its case in chief, absent 
+leave of the hearing officer.  Respondents have not sought such leave.  Respondents suggest that 
+1/ 17 C.F.R. § 201.250(b). 
+2/ 17 C.F.R. § 201.250(a). 
+2
+the law judge stated in a pre-hearing conference that they would have to file this motion with the 
+Commission.  However, our review of the transcript indicates the law judge observed that she 
+did not have the power to dismiss the proceeding prior to a hearing.  
+Most critically, Rule of Practice 400(a) states that the “exclusive remedy for review of a 
+hearing officer’s ruling prior to Commission consideration of the entire proceeding” is a petition 
+for interlocutory review. 3/ Rule 400(a) further states that “[p]etitions by parties for 
+interlocutory review are disfavored, and the Commission ordinarily will grant a petition to 
+review a hearing officer ruling prior to its consideration of an initial decision only in 
+extraordinary circumstances.” 4/ Rule of Practice 400(c) requires that a “ruling submitted to the 
+Commission for interlocutory review must be certified in writing by the hearing officer.” 5/ 
+Respondents did not seek or obtain certification of any of the law judge’s rulings.  Nor 
+have they demonstrated extraordinary circumstances warranting acceptance of their petition. 
+Moreover, we see no basis for the Commission to take the matter up on its own motion. 
+Respondents’ motions with respect to efficacy of counsel during the investigation and their 
+complaints about production of documents do not warrant our interference with the orderly 
+hearing process.  We believe that it would be inappropriate to separate these issues from any 
+future consideration of the entire proceeding. 6/ 
+In particular, once we have exercised our prosecutorial discretion to institute a 
+proceeding, the appropriate remedy for any challenge to that exercise of discretion is to litigate 
+the proceeding to a final decision.  None of the authorities cited by Respondents contradicts that 
+view; they affirm the unremarkable principle that agency decisions to institute enforcement 
+proceedings may be subject to review without conceding that any such review may be sought 
+prior to the issuance of a final order by the agency in that proceeding.  
+Beverly Health & Rehab. Servs., Inc. v. Feinstein, 7/ cited by Respondents, supports our 
+determination here.  In that case, plaintiff brought an action in district court challenging the 
+decision of the General Counsel of the National Labor Relations Board (“NLRB”) to institute an 
+administrative proceeding against the plaintiff while that proceeding was still pending before the 
+3/ 17 C.F.R. § 201.400(a). 
+4/ Ibid. 
+5/ 17 C.F.R. § 201.400(c). 
+6/ See Trautman Wasserman & Co., Inc., Order Denying Petition for Interlocutory Review, 
+Exchange Act Rel. No. 55989 (June 29, 2007), __ SEC Docket __ (with respect to 
+representation by counsel during investigations). 
+7/ 103 F.3d 151 (D.C. Cir. 1996). 
+3
+NLRB.  In affirming the district court’s dismissal of the action, the court stated that the issuance 
+of the complaint at issue 
+is a quintessential example of a prosecutorial decision.  It involves a balancing of 
+culpability, evidence, prosecutorial resources, and the public interest.  The 
+weighing of all those considerations factors into the issuance of a complaint.  The 
+formulation of the proper contours of a complaint is a critical first step in the 
+prosecutorial journey and Beverly’s attempt to segregate the framing of the 
+complaint from the enforcement process does not wash. 8/ 
+The court ultimately concluded that plaintiff would be entitled to challenge the decision to bring 
+the complaint in the course of defending against it, and in any ensuing appeal to a Court of 
+Appeals, observing that the plaintiff would, if necessary, “have its day in court on the charging 
+issue, but not today.” 9/ 
+We further do not believe that review of the law judge’s decision not to postpone the 
+proceeding is appropriate.  Rule of Practice 111(d) grants the hearing officer broad authority to 
+“regulate the proceeding.” 10/ The law judge has concluded that no postponement of the hearing 
+date is warranted, a determination that a hearing officer must make as part of the regulation of 
+the course of the proceeding.  We do not believe that Respondents have shown extraordinary 
+circumstances justifying review of this decision. 11/ 
+We believe that Commission review benefits from having the entire record developed 
+before the law judge.  We stress that, absent extraordinary circumstances, we will not entertain 
+motions, no matter how styled, for interlocutory review. 
+Respondents have requested oral argument.  Our Rule of Practice 154(a) states that “[n]o 
+oral argument shall be heard on any motion unless the Commission or the hearing officer 
+8/ Id. at 153. 
+9/ Id. at 156. 
+10/ 17 C.F.R. § 201.111(d). 
+11/ Respondents have further asked that, pursuant to Rule of Practice 322,                           
+17 C.F.R. § 201.322, their motion and the accompanying submissions be kept under seal. 
+We will consider this request by separate order.  Pending a determination of this motion, 
+the documents will be kept under seal pursuant to Rule of Practice 322(d).  
+4
+otherwise directs.” 12/ We have determined that the presentation in the briefs and the decisional 
+process would not be significantly aided by oral argument. 13/ 
+Accordingly, it is ORDERED that Respondents’ Motion for Summary Disposition be, 
+and it hereby is, denied; and it is further 
+ORDERED that Respondents’ Motion for Oral Argument be, and it hereby is, denied. 
+By the Commission. 
+Nancy M. Morris
+     Secretary 
+12/	 17 C.F.R. § 201.154(a). 
+13/	 See 17 C.F.R. § 201.451(a) (stating that “[t]he Commission will consider appeals, 
+motions and other matters properly before it on the basis of the papers filed by the parties 
+without oral argument unless the Commission determines that the presentation of facts 
+and legal arguments in the briefs and record and the decisional process would be 
+significantly aided by oral argument”). 
\ No newline at end of file
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+ 
+ 
+UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56079 / July 16, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2637 / July 16, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12691
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+    Kurt D. Whitesel, CPA,   : 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 Kurt D. 
+Whitesel (“Respondent” or “Whitesel”) 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.C. 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:  
+ 
+A. Whitesel, age 45 is and has been a cer tified public accountant holding an inactive 
+license to practice in the State of Ohio.  Whitesel served as vice-president, controller and treasurer 
+of NorthWestern Corporation (“NorthWestern”) from approximately August 2001 until August 
+2003.     
+ 
+B. NorthWestern was, at all relevant times, a Delaware corporation with its principal 
+place of business in Sioux Falls, South Dakota.  NorthWestern operates a regulated utility business 
+in South Dakota, Nebraska and Montana.  During the period of conduct described herein, 
+NorthWestern consolidated the financial results of two significant non-utility entities, Expanets, 
+Inc. (“Expanets”) and Blue Dot Services, Inc. (“Blue Dot”).  At all relevant times, NorthWestern’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. 
+ 
+C. On July 9, 2007 a final judgment was entered against Respondent, permanently 
+enjoining him from future violations of Section 17(a) of the Securities Act of 1933, and Sections 
+10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and 
+aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act 
+and Rules 12b-20, 13a-11 and 13a-13 thereunder, in the civil action entitled Securities and 
+Exchange Commission v. Kurt D. Whitesel, Civil Action Number 07-4059 in the United States 
+District Court for the District of South Dakota.   
+ 
+D. The Commission’s Complaint alleged, among other things, that during 2002, 
+Respondent misled investors about the operating results and financial condition of NorthWestern 
+and its operating segments.  First, the Complaint alleged that Respondent failed to disclose serious 
+problems with the functionality of Expanets’ new computer system, which materially impacted 
+Expanets’ billing and collection functions.  The Commission’s Complaint further alleged that 
+Respondent knew or was reckless in not knowing that Expanets’ improperly accounted for 
+accounts receivable and adjustments to customers’ bills, causing overstatements of 
+NorthWestern’s reported income from continuing operations of 90% and 109% in the second and 
+ 3
+third quarters of 2002, respectively.  Second, the Commission’s Complaint alleged that 
+Respondent misled investors as to the nature of NorthWestern’s and Expanets’ reported income 
+by failing to disclose the magnitude of Expanets’ reserve reductions or its receipt of unusual non-
+compete payments.  Third, the Commission’s Complaint alleged that Respondent failed to 
+disclose facts relating to other issues critical to NorthWestern’s liquidity, including 
+NorthWestern’s transfer of large amounts of cash in continued support of Expanets and Blue Dot, 
+and NorthWestern’s inability to collect $97 million it had publicly anticipated from the sale of 
+certain utility assets.  The Complaint further alleged that Respondent withheld material facts from 
+NorthWestern’s outside auditor regarding Expanets’ improper accounting.  Finally, the 
+Commission’s Complaint alleged that Respondent’s false and misleading statements facilitated 
+more than $800 million in securities offerings by NorthWestern in September and October 2002, 
+including an $87.5 million equity offering that raised badly needed operating capital for the 
+company. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondent is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five years from the date of th is order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+ 4
+of or potential defects in the Respondent’s or the firm’s quality control system that would 
+indicate that the Respondent will not receive appropriate supervision. 
+ 
+ (c) Respondent has resolved all 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 
+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
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+ 
+UNITED STATES OF AMERICA 
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  56084 / July 17, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2639 / July 17, 2007 
+ADMINISTRATIVE PROCEEDING  
+File No.  3-12697 
+ 
+In the Matter of 
+ 
+Paul Anthony Davis, 
+ 
+Respondent. 
+:
+:
+:
+:
+:
+:
+:
+:
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF 
+THE SECURITIES EXCHANGE ACT 
+OF 1934 
+I.  
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted against Paul Anthony Davis 
+(“Davis”) pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”). 
+II.  
+In anticipation of the institution of these proceedings, Davis 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, Davis consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 
+Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 
+ 
+ 
+ 
+ 
+ 
+III. 
+FACTS 
+On the basis of this Order and Davis’ Offer, the Commission finds1 that: 
+A. Respondent 
+ 
+Davis, age 41, resides in Lafayette, Colorado.  Davis is a founding partner of a venture 
+capital firm located in Boulder, Colorado.  In June 2003, Davis facilitated the creation of a 
+company, Sourceworks USA LLC (“Sourceworks”), to enter into a software license transaction 
+with Quovadx, Inc.   
+ 
+B. Related Party 
+ 
+Quovadx, Inc. (“Quovadx”), a Delaware corporation based in Englewood, Colorado, is a 
+software company that sells software licenses and related services to the health care industry.  
+Quovadx’s stock was registered with the Commission under Section 12(g) of the Exchange Act 
+during the relevant time and traded on the NASDAQ National Market.  During 2002 and 2003, 
+Quovadx derived about one-third of its reported revenue from sales of software licenses, with the 
+rest coming from maintenance and service contracts.  Quovadx separately reported its software 
+licensing revenue, which included sales of both software and licenses.2
+ 
+C. Summary  
+ 
+In the second quarter of 2003, Quovadx improperly recognized approximately $570,000 
+in software licensing revenue from the purported sale of software licenses to Sourceworks.  
+Sourcework’s payment for that software was contingent upon Quovadx securing a contract for 
+Sourceworks with the anticipated end-user of the software.  As a result of this transaction, 
+Quovadx materially overstated its software licensing revenue by over 9% for the second quarter 
+of 2003 and violated the reporting provisions of the Exchange Act.  On August 16, 2004, 
+Quovadx restated its financial results to correct for the Sourceworks transaction, among others.  
+Davis negotiated with Quovadx on behalf of Sourceworks and knew or should have known that 
+Quovadx could not have recognized revenue from this transaction.  Accordingly, Davis was a 
+cause of Quovadx’s reporting violations.   
+D. Applicable Accounting Principles for Software Sales  
+As a public company, Quovadx was required to file quarterly and annual reports with the 
+Commission that presented its financial results in conformity with Generally Accepted 
+Accounting Principles (“GAAP”).  AICPA Statement of Position 97-2, Software Revenue 
+Recognition (“SOP 97-2”) governs the recognition of revenue for sales of software and software 
+licenses. 
+                                                 
+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 Throughout this Order, “softwa re sales” and “software license sales” are used interchangeably. 
+ -2-
+ 
+Under SOP 97-2, a company may not recognize revenue from a software license sale 
+unless and until there is:  persuasive evidence of an arrangement; delivery of the software; a 
+fixed or determinable seller’s fee; and a reasonable probability of collecting the accounts 
+receivable.  Further, if payment is substantially contingent on the buyer’s success in distributing 
+the product to the end user, either due to the terms of the deal or because the buyer is so 
+undercapitalized that it cannot pay until it sells the product, the seller may not recognize the 
+software license revenue at the time of sale. 
+In the second quarter of 2003, Quovadx recognized revenue from a transaction with 
+Sourceworks that did not conform to SOP 97-2 and that materially overstated the company’s 
+financial results. 
+E. The Sourceworks Transaction  
+In early 2003, a senior salesperson at Quovadx solicited the Veterans’ Administration 
+(“VA”) to buy licenses for Quovadx’s Insurenet software, a product for processing patient 
+medical insurance information.  The VA refused to buy the licenses, but expressed an interest in 
+using the software and periodically paying Quovadx a fee based on the number of insurance 
+transactions that it processed.  Quovadx was not interested in this proposal.  The Quovadx 
+salesperson therefore suggested a plan, approved by members of Quovadx’s then senior 
+management, whereby Quovadx would sell the licenses to a third-party, which would then enter 
+into a contract with the VA to offer the software on a per-use basis.   
+The Quovadx salesperson then contacted Davis, a partner of a Colorado-based venture 
+capital firm, and proposed that Davis’ firm buy the Insurenet licenses from Quovadx.  The 
+Quovadx salesperson told Davis that, in return, Quovadx would negotiate a contract for the firm 
+to license the software on a per-use basis to the VA.  As the end of the second quarter of 2003 
+approached, Davis agreed in principle to this proposal.  However, because the venture capital 
+firm was not a software reseller, Davis said that the firm would not pay for the Insurenet licenses 
+unless and until Quovadx obtained the promised user contract.  The Quovadx salesperson 
+expressed confidence that Quovadx would obtain the contract with the VA early in the third 
+quarter.  With that understanding, Davis facilitated the creation of a company, Sourceworks USA 
+LLC, in late June 2003 to buy the Insurenet licenses from Quovadx and enter into the user 
+contract with the VA.  On June 30, 2003, Quovadx and Sourceworks executed a contract 
+requiring Sourceworks to pay Quovadx $600,000 for the Insurenet licenses.  The contract, which 
+gave Sourceworks six months to pay Quovadx, did not indicate that Sourceworks’ payment to 
+Quovadx was contingent upon Quovadx successfully negotiating a VA deal for Sourceworks. 
+Despite the material contingency to the Sourceworks transaction, Quovadx recognized 
+the entire $600,000 in the second quarter, based upon the June 30, 2003 contract.  It issued a 
+press release on July 23, 2003, touting the company’s second quarter financial results, which 
+included the Sourceworks revenue.  For the next eight months, Quovadx attempted to secure a 
+contract for Sourceworks.  However, these negotiations ultimately failed.  As a result, other than 
+one $30,000 payment in August 2003, Sourceworks did not pay Quovadx for the Insurenet 
+ -3-
+ 
+licenses.3  Because Sourceworks did not pay the remaining $570,000, Quovadx’s new senior 
+management and auditor reviewed the Sourceworks transaction in the Spring of 2004 and 
+reversed the revenue as part of a restatement on August 14, 2004. 
+As a result of its improper recognition of the Sourceworks revenue, Quovadx overstated 
+its software licensing revenues by $570,000, or approximately 9%, in the second quarter of 
+2003.4
+IV . 
+ 
+LEGAL CONCLUSIONS 
+Reporting Violations 
+Section 13(a) of the Exchange Act and Rules 13a-11, and 13a-13 thereunder require that 
+issuers with securities registered under Section 12 of the Exchange Act, such as Quovadx, file 
+quarterly reports with the Commission and keep this information current.  These reports must be 
+complete and accurate in all material respects.  United States v. Bilzerian, 926 F.2d 1285, 1298 
+(2d Cir. 1991); SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 
+440 U.S. 913 (1979).  Rule 12b-20 of the Exchange Act requires that an issuer’s periodic reports 
+include any additional information “necessary to make the required statements, in the light of the 
+circumstances under which they are made, not misleading.”  The issuer’s legal obligation 
+“extends not only to accurate quantitative reporting of the required items in its financial 
+statements, but also to other information, qualitative as well as quantitative, needed to enable 
+investors to make informed decisions.”  In re Sony Corp. and Sumio Sano, 67 SEC Docket 1609, 
+1998 WL 439898 at *4 (Aug. 5, 1998). 
+Quovadx improperly recognized revenue from the transaction with Sourceworks.  As a 
+result, Quovadx’s quarterly report for the second quarter of 2003 and its earnings release for the 
+second quarter of 2003 (attached to the Form 8-K that Quovadx filed with the Commission on 
+July 24, 2003) contained materially false and misleading statements concerning Quovadx’s 
+software licensing revenue.  Accordingly, Quovadx violated Section 13(a) of the Exchange Act 
+and Rules 12b-20, 13a-11, and 13a-13 thereunder. 
+Because he was involved in negotiating the Sourceworks transaction with Quovadx, 
+Davis knew or should have known that the Sourceworks contract did not reflect the material 
+contingency that existed in the deal – namely, that Sourceworks could not and would not pay for 
+the Insurenet software license unless and until Quovadx negotiated the VA contract.  
+Accordingly, Davis was a cause of Quovadx’s violations of Sections 13(a) of the Exchange Act 
+and Rules 12b-20, 13a-11, and 13a-13 thereunder.   
+                                                 
+3 Sourceworks has since demanded that Quovadx re turn the $30,000; Quovadx has not done so.  
+Sourceworks, in turn, has rejected Quovadx’s demand for payment of the $570,000 balance due 
+on the purchase of the licenses. 
+4 Owing to the Sourceworks transaction, Quovadx over stated its software licensing revenue in its 
+July 23, 2003, Form 8-K, which incorporated its preliminary earnings results and its quarterly 
+report for the second quarter of 2003 filed with the Commission on August 5, 2003. 
+ -4-
+ 
+V. 
+ 
+FINDINGS 
+Based on the foregoing, the Commission finds that Davis was a cause of Quovadx’s 
+violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 
+thereunder. 
+VI. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Davis’ Offer. 
+Accordingly, IT IS HEREBY ORDERED that: 
+Pursuant to Section 21C of the Exchange Act, Davis cease and desist from causing any 
+violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-
+11, and 13a-13 thereunder. 
+By the Commission. 
+ 
+Nancy M. Morris  
+Secretary 
+ 
+ 
+ -5-
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2641.txt b/raw/aaer/2007/AAER-2641.txt
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index 0000000000000000000000000000000000000000..e6c7b8921c1aa75e120f1389e38f0d82ba98fc0d
--- /dev/null
+++ b/raw/aaer/2007/AAER-2641.txt
@@ -0,0 +1,1445 @@
+
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+     SEC.gov | Lorine Sweeney and Gary Scherping; Ilona Kay Collin; David Eric Nesvisky; Robert Allen Diehl; Madhavan Sivathanu Pillai 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20197 /  July 18, 2007 
+
+ Accounting and Auditing Enforcement 
+Release No. 2641 / July 18, 2007 
+
+  SEC v. Lorine Sweeney and Gary Scherping , Civ. No. 07-CV-01511 (WYD-MEH) (D. Colo.)  SEC v.  Ilona Kay Collins , Civ. No. 07-CV-01506 (WDM-MEH) (D. Colo.)  SEC v. David Eric Nesvisky , Civ. No. 07-CV-01509 (REB-CBS) (D. Colo.)  SEC v. Robert Allen Diehl , Civ. No. 07-CV-01507 (RPM-CBS) (D. Colo.)  SEC v. Madhavan Sivathanu Pillai , Civ. No. 1:07-CV-01273 (RMC) (D.D.C.) 
+
+ SEC Sues Former CEO and Former CFO of Quovadx, Inc. for Fraudulent Revenue Recognition; Settles with the Company and Six Individuals 
+
+ On July 17, 2007, the Commission filed a civil action in federal court in Colorado charging Lorine Sweeney, the former President and Chief Executive Officer of Quovadx, Inc., and Gary Scherping, Quovadx's former Chief Financial Officer, with participating in a fraudulent scheme to overstate Quovadx's software licensing revenue in 2003.  The Commission also instituted settled enforcement proceedings against Quovadx, a Colorado software company, two of its former officers and a high-ranking salesperson, and the principals of three of its customers. 
+
+ The Commission's complaint alleges that: 
+  During the third and fourth quarters of 2003, Sweeney and Scherping participated in the fraudulent recognition of over $11.1 million in software licensing revenue from three transactions with Infotech Network Group, an India-based IT outsourcing company.  Sweeney and Scherping knew or recklessly disregarded that the transactions had undisclosed material contingencies and it was not likely Quovadx would be paid.  The Infotech revenue overstated Quovadx's software licensing revenue by approximately 164% for the third quarter and 118% for the fourth quarter of 2003.   
+ In the second quarter of 2003, Sweeney and Scherping participated in the fraudulent recognition of approximately $570,000 in software revenue from a transaction with Sourceworks LLC, when they knew or recklessly disregarded that Sourceworks' payment was contingent upon Quovadx securing a customer for Sourceworks.  This transaction overstated Quovadx's second quarter 2003 software revenue by about 9%.   
+ In the third quarter of 2003, Sweeney and Scherping participated in the fraudulent recognition of approximately $380,000 in software revenue from three parking transactions with MicroStar, Inc.  Sweeney and Scherping knew or recklessly disregarded that MicroStar was merely holding the software in its inventory until Quovadx could complete negotiations with its true customers.  Moreover, when these transactions did not materialize, Quovadx roundtripped an unrelated payment through MicroStar with Scherping's knowledge and approval.  As instructed by Quovadx, MicroStar kept $10,000 as a kickback and sent the rest of the money back to Quovadx, creating the false appearance that MicroStar had paid for some of the parked software.  The MicroStar revenue overstated Quovadx's third-quarter software revenue by approximately 14%.   
+ In the third quarter of 2002, Sweeney and Scherping also improperly accelerated approximately $250,000 in software revenue from a transaction with another Quovadx customer, which overstated Quovadx's software revenue for the quarter by approximately 10%. 
+  The Commission's complaint charges Sweeney and Scherping with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.  The complaint also charges them with:  knowingly circumventing internal controls and falsifying books and records, in violation of Exchange Act Section 13(b)(5) and Rule 13b2-1; making misleading statements to the auditor and falsely certifying Quovadx's filings, in violation of Exchange Act Rules 13b2-2 and 13a-14; and aiding and abetting Quovadx's violations of the reporting, books and records, and internal control provisions, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13.  The Commission is seeking permanent injunctions, disgorgement, civil penalties, and officer and director bars against Sweeney and Scherping. 
+
+ The Commission also filed separate settled civil actions against Lona Collins, Quovadx's former Controller, David Nesvisky, Quovadx's former Executive Vice-President of Sales, and Robert Diehl, the president of MicroStar, based on their involvement in the MicroStar transactions.  The separate complaints allege that:  Collins approved the fraudulent revenue, even though she knew or recklessly disregarded that MicroStar was merely holding the software for other customers, and participated in the roundtripping; Nesvisky proposed the parking arrangements and participated in the roundtripping; and Diehl aided and abetting Quovadx's fraud by agreeing to the parking arrangements, knowing that he was just "passing paper" and that Quovadx was using the parking arrangements to accelerate revenue recognition.   
+
+ The three defendants, without admitting or denying the Commission's allegations, have agreed to the following settlements, which are subject to court approval: 
+
+  Collins has consented to the entry of a Final Judgment enjoining her from violating the antifraud provisions and from circumventing internal controls, falsifying books and records, or  making false statements to an auditor (Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2), as well as aiding and abetting violations of the reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-11, and 13a-13).  She also has consented to a five-year officer and director bar.  The Final Judgment would not impose a civil penalty, based upon her sworn financial statements and other documents submitted to the Commission.   
+ Nesvisky has consented to the entry of a Final Judgment enjoining him from violating Section 17(a)(3) of the Securities Act and Rule 13b2-2 of the Exchange Act and from aiding and abetting violations of the reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-11, and 13a-13).  The Final Judgment would impose a civil penalty of $20,000.     
+ Diehl has consented to the entry of a Final Judgment enjoining him from violating or aiding and abetting violations of the antifraud provisions (Section 10(b) and Rule 10b-5) and from aiding and abetting reporting violations (Section 13(a) and Rules 12b-20, 13a-11, and 13a-13) of the Exchange Act.  The Final Judgment would require Diehl to pay disgorgement and interest of $10,962.79, but would not impose a civil penalty, based on Diehl's sworn financial statements and other documents submitted to the Commission.   
+  The Commission further filed a settled civil action against Madhavan Pillai, the principal officer of Infotech, based on his involvement in the Infotech transactions.  The Commission's complaint alleges that Pillai aided and abetted Quovadx's fraud by agreeing to enter into transactions with undisclosed material contingencies to accommodate Quovadx's revenue recognition objectives, and that Infotech was not likely to pay for the software licenses involved.  Without admitting or denying the Commission's allegations, Pillai has consented to entry of a Final Judgment enjoining him from violating or aiding and abetting violations of the antifraud provisions (Section 10(b) and Rule 10b-5) and from aiding and abetting reporting violations (Section 13(a) and Rules 12b-20, 13a-11, and 13a-13) of the Exchange Act.  The Final Judgment would not impose a civil penalty, based upon his sworn financial statements and other documents submitted to the Commission. 
+
+ In related proceedings, the Commission instituted separate settled administrative proceedings against Quovadx, one of Quovadx's former high-level sales persons, and the principal of Sourceworks.  The Quovadx Order finds that Quovadx, under its then-senior management, improperly recognized over $12 million in revenue from software licensing deals with four of its customers between 2002 and 2003.  As a result, Quovadx materially overstated its software licensing revenues in its quarterly reports by amounts ranging from 10% in the third quarter of 2002 to nearly 180% by the third and fourth quarters of 2003.  Quovadx has been ordered to cease and desist from committing or causing any violations and any future violations of the antifraud, reporting, books and records, and internal control provisions of the securities laws (Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13).  Quovadx consented to the issuance of the order without admitting or denying the findings.   
+
+ The Commission also instituted settled proceedings against Ronald Renjilian, the former Head of Emerging Market Sales at Quovadx, for his involvement in the Sourceworks and Infotech transactions, and Paul Davis, a partner of a Colorado-based venture capital firm, for his involvement in the Sourceworks transaction.  Without admitting or denying the Commission's findings, Renjilian and Davis agreed to cease and desist from causing violations of the reporting provisions of the Exchange Act (Section 13(a) and Rules 12b-20, 13a-1 (Renjilian only), 13a-11, and 13a-13).   
+
+ For additional information, see below: 
+
+ 
+  SEC Complaint  (Sweeney and Scherping)   SEC Complaint  (Collins)   SEC Complaint  (Nesvisky)   SEC Complaint  (Diehl)   SEC Complaint  (Pillai) 
+
+  Administrative Proceeding No. 33-8825  (Quovadx)  Administrative Proceeding No. 34-56083  (Renjilian)  Administrative Proceeding No. 34-56084  (Davis) 
+
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diff --git a/raw/aaer/2007/AAER-2645.txt b/raw/aaer/2007/AAER-2645.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7f1a733cb9d67c977e76715b459b4ebde4e5a6ed
--- /dev/null
+++ b/raw/aaer/2007/AAER-2645.txt
@@ -0,0 +1,328 @@
+ 
+UNITED STATES OF AMERICA 
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934       CORRECTED 
+Release No.  56083 / July 17, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2645 / July 17, 2007 
+ADMINISTRATIVE PROCEEDING  
+File No.  3-12696 
+ 
+In the Matter of 
+ 
+Ronald Renjilian, 
+ 
+Respondent. 
+:
+:
+:
+:
+:
+:
+:
+:
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF 
+THE SECURITIES EXCHANGE ACT 
+OF 1934 
+I.  
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted against Ronald Renjilian 
+(“Renjilian”) pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”). 
+II.  
+In anticipation of the institution of these proceedings, Renjilian 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, Renjilian consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 
+Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 
+ 
+III. 
+FACTS 
+ On the basis of this Order and Re njilian’s Offer, the Commission finds1 that: 
+A. Respondent 
+ 
+Renjilian, age 47, resides in Lafayette, Colorado.  He was Head of Emerging Market 
+Sales at Quovadx from November 2002 until April 2004.  Renjilian is currently self-employed. 
+ 
+B. Related Party 
+ 
+Quovadx, Inc. (“Quovadx”), a Delaware corporation based in Englewood, Colorado, is a 
+software company that sells software licenses and related services to the health care industry.  
+Quovadx’s stock was registered with the Commission under Section 12(g) of the Exchange Act 
+during the relevant period and traded on the NASDAQ National Market.  During 2002 and 2003, 
+Quovadx derived about one-third of its reported revenue from sales of software licenses, with the 
+rest coming from maintenance and service contracts.  Quovadx separately reported its software 
+licensing revenue, which included sales of both software and licenses.
+2
+ 
+C. Summary 
+ 
+Between 2002 and 2003, Quovadx improperly recognized over $12 million in revenue 
+from software licensing deals with four of its customers and materially overstated its software 
+licensing revenues in its filings with the Commission.  As a result of these transactions, Quovadx 
+violated the reporting provisions of the Exchange Act.  Renjilian was involved in the 
+negotiations for Quovadx  in connection with the transactions involving two of the four 
+customers, Sourceworks and Infotech, and knew or should have known that Quovadx could not 
+have recognized revenue from these transactions.  Accordingly, Renjilian was a cause of 
+Quovadx’s reporting violations.   
+On March 15, 2004, when it could not collect payment from Infotech for transactions it 
+had previously booked as revenue, Quovadx announced that it would restate its prior results to 
+decrease revenue by approximately $11 million.  Quovadx’s stock price fell 29%, and dropped 
+further after Quovadx announced on May 13, 2004, that it was reviewing two additional 
+contracts.  By August 16, 2004, when Quovadx restated its results for the second time to correct 
+for additional transactions, including Sourceworks, Quovadx’s stock was trading at $1.65 per 
+share. 
+                                                 
+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 Throughout this Order, “softwa re sales” and “software license sales” are used interchangeably. 
+ -2-
+ 
+ 
+D. Applicable Accounting Principles for Software Sales 
+As a public company, Quovadx was required to file quarterly and annual reports with the 
+Commission that presented its financial results in conformity with Generally Accepted 
+Accounting Principles (“GAAP”).  AICPA Statement of Position 97-2, Software Revenue 
+Recognition (“SOP 97-2”) governs the recognition of revenue for sales of software and software 
+licenses. 
+Under SOP 97-2, a company may not recognize revenue from a software license sale 
+unless and until there is:  persuasive evidence of an arrangement; delivery of the software; a 
+fixed or determinable seller’s fee; and a reasonable probability of collecting the accounts 
+receivable.  Further, if payment is substantially contingent on the buyer’s success in distributing 
+the product to the end user, either due to the terms of the deal or because the buyer is so 
+undercapitalized that it cannot pay until it sells the product, the seller may not recognize the 
+software license revenue at the time of sale. 
+Between 2002 and 2003, in a series of transactions with four different customers, 
+Quovadx recognized revenue that was not in conformity with SOP 97-2 and that materially 
+overstated the company’s financial results. 
+E. The Sourceworks Transaction 
+In early 2003, Renjilian solicited the Veterans’ Administration (“VA”) to buy licenses for 
+Quovadx’s Insurenet software, a product for processing patient medical insurance information.  
+The VA refused to buy the licenses, but expressed an interest in using the software and 
+periodically paying Quovadx a fee based on the number of insurance transactions that it 
+processed.  Quovadx was not interested in this proposal.  Renjilian therefore suggested a plan, 
+approved by members of Quovadx’s then senior management, whereby Quovadx would sell the 
+licenses to a third-party, which would then enter into a contract with the VA to offer the software 
+on a per-use basis.   
+Renjilian then contacted a Colorado-based venture capital firm and proposed that the firm 
+buy the Insurenet licenses from Quovadx.  Renjilian told the venture capital firm that, in return, 
+Quovadx would negotiate a contract for the venture capital firm to license the software on a per-
+use basis to the VA.  As the end of the second quarter of 2003 approached, the venture capital 
+firm agreed in principle to this proposal.  However, because it was not a software reseller, the 
+firm repeatedly said that it would not pay for the Insurenet licenses unless and until Quovadx 
+obtained the promised user contract.  Renjilian expressed confidence that Quovadx would obtain 
+the contract with the VA early in the third quarter.  With that understanding, the venture capital 
+firm created a company, Sourceworks USA LLC, in late June 2003 to buy the Insurenet licenses 
+from Quovadx and enter into the user contract with the VA.  On June 30, 2003, Quovadx and 
+Sourceworks executed a contract requiring Sourceworks to pay Quovadx $600,000 for the 
+Insurenet licenses.  The contract, which gave Sourceworks six months to pay Quovadx, did not 
+indicate that Sourceworks’ payment to Quovadx was contingent upon Quovadx successfully 
+negotiating a VA deal for Sourceworks. 
+ -3-
+ 
+ 
+Despite the fact that Sourceworks presented financial statements to Quovadx that showed 
+it could not pay for the Insurenet licenses unless the venture capital firm provided the funds, 
+which in turn depended upon securing the VA contract, Quovadx recognized the entire $600,000 
+in the second quarter, based upon the June 30, 2003 contract.  It issued a press release on July 23, 
+2003, touting the company’s second quarter financial results, which included the Sourceworks 
+revenue.  For the next eight months, Quovadx attempted to secure a contract for Sourceworks.  
+However, these negotiations ultimately failed.  As a result, other than one $30,000 payment in 
+August 2003, Sourceworks did not pay Quovadx for the Insurenet licenses.
+3  Because 
+Sourceworks did not pay the remaining $570,000, Quovadx’s new senior management and 
+auditor reviewed the Sourceworks transaction in the Spring of 2004 and reversed the revenue as 
+part of the company’s second restatement. 
+As a result of its improper recognition of the Sourceworks revenue, Quovadx overstated 
+its software licensing revenues by $570,000, or approximately 9%, in the second quarter of 
+2003.4
+F. The Infotech Transactions 
+In the third and fourth quarters of 2003, Quovadx improperly recognized a total of $11.1 
+million in software licensing revenue from a series of transactions with Infotech Network Group 
+(“Infotech”), a company based in India.5  Because each of these transactions had material 
+contingencies and the collection of payment was not probable, Quovadx was precluded from 
+recognizing this revenue.  Moreover, even after Infotech did not pay for its third quarter 2003 
+purchases, Quovadx shipped additional software to Infotech and recognized revenue on those 
+sales in the fourth quarter of 2003.  Renjilian was involved in negotiating these deals with 
+Infotech and knew or should have known about the material contingencies and the improbability 
+of collecting payment from Infotech. 
+1. The Third Quarter Transactions 
+In early September 2003, Quovadx and Infotech executed two related agreements.  Under 
+the first (“the distributor agreement”), Infotech agreed to buy $5 million of software licenses 
+from Quovadx and to be the exclusive distributor of Quovadx products in India.  Under the 
+second agreement (“the outsourcing agreement”), Quovadx agreed to pay Infotech to 
+perform certain services and conduct various research and development projects, pursuant to 
+Statements of Work that would be subsequently negotiated.  The agreements required both 
+parties to fund letters-of-credit to guarantee the payment of their respective obligations.  The 
+                                                 
+3 Sourceworks has since demanded that Quovadx re turn the $30,000; Quovadx has not done so.  
+Sourceworks, in turn, has rejected Quovadx’s demand for payment of the $570,000 balance due 
+on the purchase of the licenses. 
+4 Quovadx overstated its software licensing reve nue in its July 23, 2003, Form 8-K, which 
+incorporated its preliminary earnings results, its quarterly report for the second quarter of 2003, 
+and its annual report for 2003. 
+5 Infotech Network Group represented itself to Quovadx as a consortium of major Indian 
+companies that sought outsourced research and development projects from U.S. software 
+companies. 
+ -4-
+ 
+ 
+distributor agreement required that Infotech fund a $5.46 million letter-of-credit before Quovadx 
+shipped any software to it. 
+As required by the outsourcing agreement, Quovadx immediately funded a letter-of-
+credit for $2.46 million to pay Infotech as it rendered outsourcing services.  By mid-September, 
+Infotech had not funded its letter-of-credit.  Quovadx nevertheless shipped the $5 million of 
+software licenses to Infotech.  In an attempt to meet Quovadx’s quarterly revenue goals, 
+Renjilian was directed to solicit Infotech to buy more software licenses before the end of the 
+third quarter.  Infotech agreed to do so, on the condition that Quovadx guarantee pre-payment of 
+outsourcing funds.  On September 30, 2003, the parties signed supplemental contracts under 
+which Infotech was to buy $2.1 million of software licenses and Quovadx was to pre-pay 
+Infotech over $1 million for unspecified outsourcing work.  Quovadx shipped the additional $2.1 
+million in software to Infotech on the last day of the quarter.  Quovadx, with the concurrence of 
+its outside auditor, offset the revenue from these two purported sales by its estimated outsourcing 
+obligation to Infotech and recognized approximately $4.6 million in revenue for the quarter.  
+Quovadx planned to recognize the remaining revenue as Infotech performed outsourcing 
+services.   
+In early October 2003, before Quovadx filed its quarterly report for the third quarter, 
+Infotech told Renjilian and others at Quovadx that it did not have enough money to fund its 
+required letters-of-credit.  Quovadx agreed to wire $410,000 to assist Infotech in making a 
+margin payment to an Indian bank, purportedly to establish and fund the required letters-of- 
+credit.6  In return, Infotech gave Quovadx a letter from the Indian bank expressing confidence 
+that Infotech’s letter of credit would be opened (not funded) by October 21, 2003.  Quovadx 
+relied on this letter as support for Infotech’s supposed ability to pay and recognized revenue on 
+the third quarter Infotech transactions.     
+On October 22, 2003, Quovadx issued both a press release announcing the distribution 
+and software development agreement with Infotech and a preliminary earnings release touting a 
+183% increase in software licensing revenue over the third quarter of 2002.  The Infotech 
+transaction accounted for approximately 60% of Quovadx’s reported third quarter software 
+licensing revenue.  Quovadx’s share price increased over 25% on the news of the third quarter 
+results. 
+2. The Fourth Quarter Transactions 
+By mid-December 2003, although it appeared to Quovadx that Infotech had established 
+one letter-of-credit, Infotech still had not funded the required letters-of-credit and had not paid 
+for either of its third quarter purchases.  Infotech told Renjilian that the software had still not 
+been released from customs in India, which Infotech claimed was necessary before it could fund 
+its letter-of-credit.  Despite these significant issues, Quovadx, hoping to meet Wall Street 
+expectations, asked Infotech to make another software purchase.  Infotech told Renjilian that it 
+was unwilling to agree to another software purchase unless Quovadx immediately wired 
+                                                 
+6 In fact, unbeknownst to Quovadx, Infotech never used the money to establish and fund a letter-of-
+credit. 
+ -5-
+ 
+ 
+$500,000 to it as part of the outsourcing prepayment to which Quovadx had committed at the end 
+of the third quarter.  Quovadx made this payment, even though Infotech had not met the 
+conditions for prepayment under the outsourcing agreement for $440,000 of this amount.  To 
+preserve its legal remedies, Quovadx also sent Infotech a default letter for failing to pay for its 
+third quarter purchases.  Thus, by mid-December Quovadx had sent $910,000 to Infotech, yet 
+Infotech had not paid for any of the software licenses that it had bought from Quovadx.7
+On December 31, 2003, Infotech signed a contract, to buy $6.5 million of software 
+licenses from Quovadx.  Quovadx simultaneously signed a supplemental agreement to pay 
+Infotech up to $1.94 million for any outsourcing work that Infotech actually performed through 
+August 2004.  Renjilian negotiated both contracts on behalf of Quovadx.  Quovadx also provided 
+Infotech assurances that it would increase Quovadx’s outsourcing to Infotech significantly over 
+the coming year.     
+On February 11, 2004, Quovadx issued its preliminary fourth quarter earnings release 
+(attached to a Form 8-K filed the same day), which included the $6.5 million in Infotech 
+revenue.  Quovadx issued this release even though Infotech had not paid for the third quarter 
+purchases and Infotech’s ability to pay for the fourth quarter purchases depended on its ability to 
+resell the software licenses.  The earnings release claimed that Quovadx’s total annual revenue 
+for 2003 had increased about 30% and that its year-over-year software licensing revenue had 
+grown about 173%.  The Infotech transactions accounted for virtually the entire increase in 
+Quovadx’s software licensing revenue.  After this announcement, Quovadx’s stock price 
+increased by about 10%, closing at $6.66 per share on February 12. 
+At the time of Quovadx’s year-end audit in mid-February 2004, Infotech still had not 
+funded a letter-of-credit or made any payments for either the third or fourth quarter software 
+purchases.  In early March 2004, Quovadx’s auditor advised it that the company would have to 
+reverse the Infotech revenue from both the third and fourth quarters unless Infotech made a 
+substantial payment before Quovadx’s annual report was due to be filed.  On March 8, 2004, 
+therefore, Quovadx, following negotiations in which Renjilian participated, authorized Infotech 
+to draw down the $1.94 million balance on Quovadx’s outsourcing letter-of-credit, with the 
+understanding that Infotech would use these funds to arrange bank financing to pay Quovadx for 
+the software purchases.  Immediately after receiving the $1.94 million, Infotech told Quovadx 
+that it believed it was entitled to this money under the outsourcing agreement and would not use 
+it to pay Quovadx for the software.  When Quovadx requested that Infotech return the money, 
+Infotech refused.  Infotech never returned the money or paid for the software. 
+On March 15, 2004, Quovadx announced that it would reverse all revenue on sales to 
+Infotech in the third and fourth quarters of 2003.  On March 18, Quovadx filed its annual report 
+for 2003 which restated its financial results for the third and fourth quarters of 2003 and removed 
+$11.1 million in revenue from transactions with Infotech.  In response to these events, the 
+Quovadx board of directors commenced an investigation into the Infotech relationship which 
+                                                 
+7 During the fourth quarter, Quovadx provided Infotech with about $10,000 in outsourcing work, 
+and trained some Infotech subcontractors on the use of Quovadx software.  Infotech eventually 
+performed outsourcing work for Quovadx worth about $500,000 based on the December 2003 
+prepayments. 
+ -6-
+ 
+ 
+subsequently encompassed two other transactions, including Sourceworks.  Shortly thereafter, 
+Quovadx’s chief executive officer and chief financial officer resigned.   On May 14, 2004, 
+Quovadx filed a Form 8-K in which it indicated that, as a result of its internal investigation, 
+Quovadx had discontinued any further severance payments to its former chief executive officer 
+and chief financial officer and demanded the return of severance payments already paid and prior 
+compensation, including bonuses.  Quovadx also indicated that it had terminated its executive 
+vice president of sales.   
+IV . 
+ 
+LEGAL CONCLUSIONS 
+Reporting Violations 
+Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11, and 13a-13 thereunder 
+require that issuers with securities registered under Section 12 of the Exchange Act, such as 
+Quovadx, file annual and quarterly reports with the Commission and keep this information 
+current.  These reports must be complete and accurate in all material respects.  United States v. 
+Bilzerian, 926 F.2d 1285, 1298 (2d Cir. 1991); SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 
+(D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979).  Rule 12b-20 of the Exchange Act requires 
+that an issuer’s periodic reports include any additional information “necessary to make the 
+required statements, in the light of the circumstances under which they are made, not 
+misleading.”  The issuer’s legal obligation “extends not only to accurate quantitative reporting of 
+the required items in its financial statements, but also to other information, qualitative as well as 
+quantitative, needed to enable investors to make informed decisions.”  In re Sony Corp. and 
+Sumio Sano, 67 SEC Docket 1609, 1998 WL 439898 at *4 (Aug. 5, 1998). 
+Quovadx improperly recognized revenue from the transactions with Sourceworks and 
+Infotech.  As a result, Quovadx’s annual report for 2003, quarterly reports for the second and 
+third quarters of 2003, and earning releases for the second, third, and fourth quarters of 2003 
+contained materially false and misleading statements concerning Quovadx’s software licensing 
+revenue.  Accordingly, Quovadx violated Section 13(a) of the Exchange Act and Rules 12b-20, 
+13a-1, 13a-11, and 13a-13 thereunder. 
+Because he was involved in negotiating the transaction with Sourceworks, Renjilian 
+knew or should have known that Sourceworks could not and would not pay for the Insurenet 
+software license unless and until Quovadx negotiated a contract between Sourceworks and the 
+VA for the use of the software.  Similarly, Renjilian was involved in negotiating the deals 
+between Quovadx and Infotech in third and fourth quarters of 2003.  Renjilian was also aware 
+that Infotech had not funded the required letters-of-credit for these purchases and, accordingly, 
+knew or should have known that Quovadx was not reasonably likely to collect payment from 
+Infotech.  Accordingly, Renjilian was a cause of Quovadx’s violations of Sections 13(a) of the 
+Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.   
+ 
+ -7-
+ 
+ 
+V. 
+ 
+FINDINGS 
+Based on the foregoing, the Commission finds that Renjilian was a cause of Quovadx’s 
+violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 
+thereunder. 
+VI. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Renjilian’s Offer. 
+Accordingly, IT IS HEREBY ORDERED that: 
+Pursuant to Section 21C of the Exchange Act, Renjilian cease and desist from causing 
+any violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20, 
+13a-1, 13a-11, and 13a-13 thereunder. 
+By the Commission. 
+ 
+Nancy M. Morris  
+Secretary 
+ 
+ -8-
\ No newline at end of file
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+      
+      
+      
+      
+      
+      
+      
+      
+________________________________________________ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+RELEASE NO. 56104 / July 19, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+RELEASE NO. 2647 / July 19, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12703 
+: 
+In the Matter of : ORDER INSTITUTING 
+: PUBLIC ADMINISTRATIVE 
+ERNST & YOUNG CHARTERED ACCOUNTANTS, : PROCEEDINGS PURSUANT 
+and DENIS O=HOGAN, FCA. : TO RULE 102(e) OF THE 
+: COMMISSION RULES OF 
+Respondents. : PRACTICE, MAKING 
+: FINDINGS, AND IMPOSING 
+: REMEDIAL SANCTIONS 
+________________________________________________ : 
+I. 
+The Securities and Exchange Commission (ACommission@) deems it appropriate that 
+public administrative proceedings be, and hereby are, instituted against Ernst & Young 
+Chartered Accountants ("EYCA") and Denis O=Hogan (AO=Hogan@) (collectively the 
+ARespondents@), pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice [17 C.F.R. 
+'  201.102(e)].1 
+II. 
+In anticipation of the institution of these proceedings, each Respondent has submitted an 
+Offer of Settlement (AOffers@) that the Commission has determined to accept.  Solely for the 
+Rule 102(e)(1)(ii) provides, in relevant part, that: 
+The Commission may censure a person or deny, temporarily or permanently, the privilege of 
+appearing or practicing before it ... to any person who is found ... to have engaged in ... improper 
+professional conduct. 
+1 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission=s jurisdiction over them and over the subject matter 
+of these proceedings, which are admitted, Respondents consent to the entry of this Order 
+Instituting Proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice, Making 
+Findings, and Imposing Remedial Sanctions (AOrder@), as set forth below. 
+III. 
+On the basis of this Order and the Respondents= Offers, the Commission finds2 that: 
+A. SUMMARY 
+This matter concerns improper professional conduct within the meaning of Rule 
+102(e)(1)(ii) of the Commission's Rules of Practice by the Respondents in connection with the 
+reviews and audits of SmartForce PLC (ASmartForce@ or the ACompany@) financial statements for 
+the years ended December 31, 1999, 2000, and 2001 and quarterly reviews for the quarters ended 
+in March 31 and June 30, 2002 (the ARestatement Period@). EYCA received approximately 
+$725,000 in fees for performing audit and review services.  
+SmartForce=s securities traded publicly on NASDAQ beginning in April 1995. 
+SmartForce=s financial statements, which the Company included in its annual and quarterly 
+reports during the Restatement Period, were materially false and misleading in that they 
+overstated net income and revenue in some periods and understated net income and revenue in 
+other periods by failing to comply with United States generally accepted accounting principles 
+(AGAAP@). SmartForce prepared these financial statements by, among other things, recognizing 
+revenue improperly from multi-element arrangements, reciprocal transactions, and reseller 
+agreements.  Several registration statements incorporated by reference SmartForce=s financial 
+statements for the restated periods.  
+The Respondents reasonably should have known that SmartForce=s financial statements 
+had not been prepared in conformity with GAAP.  EYCA nonetheless issued unqualified audit 
+reports on SmartForce=s annual financial statements that opined that the Company=s financial 
+statements presented fairly the consolidated financial position and results of operations of 
+SmartForce in conformity with GAAP and stated that the auditor had conducted the audits in 
+accordance with United States generally accepted auditing standards (AGAAS@). The audit 
+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 
+2 
+reports were included in SmartForce=s 1999, 2000, and 2001 Forms 10-K, which were 
+incorporated by reference in various Forms S-3, S-4, and S-8 registration statements.  EYCA 
+issued consent letters agreeing to the incorporation by reference of its audit reports in these 
+registration statements.   
+O=Hogan did not comply with GAAS in the conduct of the audits and the reviews, and 
+thus engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the 
+Commission's Rules of Practice through repeated instances of unreasonable conduct.   
+B. RESPONDENTS 
+1. EYCA is located in Ireland and is a member firm of Ernst & Young 
+Global (AE&Y Global@). EYCA employs over 800 people and holds itself out as one of the 
+leading firms of auditors and business advisors in Ireland.  EYCA served as SmartForce=s 
+independent accountant from 1994 until its merger with SkillSoft Corporation (“SkillSoft 
+Corp.”) in September 2002.  EYCA issued unqualified audit reports on SmartForce=s December 
+31, 1999, 2000 and 2001 consolidated financial statements.  In those unqualified audit reports, 
+EYCA represented, among other things, (i) that it had conducted its audits of SmartForce=s 
+financial statements in accordance with GAAS; and (ii) that in its opinion, based on its audits, 
+the SmartForce financial statements presented fairly, in all material respects, the consolidated 
+financial position and results of operations of SmartForce in conformity with GAAP.  
+2. Denis O=Hogan, age 57, is an Irish citizen. O=Hogan became a member of the 
+Institute of Chartered Accountants in Ireland (AICAI@) in 1975, which is similar to being a 
+certified public accountant in the United States.3  Chartered Accountants are accounting 
+professionals, some of whom are authorized to provide audit and assurance services within 
+Ireland. O=Hogan has been employed by or a partner of EYCA or its predecessor since 1978.  
+O=Hogan became a member of the SmartForce engagement team around 1994 in connection with 
+the Company=s preparation of the registration statement for its initial public offering (“IPO”).  
+After the IPO, O=Hogan served as the concurring partner on the account until 1999, when he 
+became the engagement partner.  O=Hogan remained as the engagement partner until the 
+Company engaged in a merger in September 2002, after which Ernst & Young LLP (AE&Y 
+LLP@) served as the Company=s auditor. As of June 3, 2005, O=Hogan ceased working on 
+engagements involving SEC registrants pending the outcome of these proceedings.  
+C. THE COMPANY 
+On September 6, 2002, SmartForce, a public limited company organized under the laws 
+of the Republic of Ireland, merged with SkillSoft Corporation (which was a corporation 
+organized under the laws of Delaware) and changed its name to SkillSoft PLC (ASkillSoft@). 
+Members of the ICAI use the designatory letters ACA for Associate Chartered Accountant of the Institute 
+and FCA for Fellow Chartered Accountant of the Institute. 
+3 
+3 
+Although SmartForce emerged as the surviving entity, SkillSoft Corp. was deemed the acquirer 
+for accounting purposes and the former SkillSoft Corp. management took over management of 
+the acquiring company.  SkillSoft maintains its principal executive offices in New Hampshire.  
+SkillSoft provides an Internet-based management and technology platform for training 
+courseware, seminars, and reference materials geared toward business and IT professionals.  
+SkillSoft=s securities are registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act and trade on NASDAQ. 
+D. 	 FACTS 
+1. 	 The Merger Announcement Between SmartForce and SkillSoft  
+Corporation and Subsequent S-4 Registration Statements 
+On June 10, 2002, SkillSoft Corp. and SmartForce issued a press release announcing that 
+the two companies had signed a definitive agreement to merge in a stock-for-stock transaction.  
+Shortly thereafter, SmartForce filed a registration statement on Form S-4 regarding the merger in 
+which SmartForce=s financial statements for the year ended December 31, 2001 were 
+incorporated by reference and included an unqualified audit report by EYCA dated January 16, 
+2002. The registration statement became effective on July 31, 2002. 
+2. 	 SkillSoft Detects the Improper Accounting Practices by SmartForce 
+Before the markets opened on November 19, 2002, SkillSoft announced that in the 
+process of preparing SmartForce=s closing balance sheet, SkillSoft identified several accounting 
+irregularities that would require SkillSoft to restate SmartForce=s historical financial statements 
+for the three-year period ended December 31, 2001, and for the six months ended June 30, 2002. 
+  Although the precise amount of the restatement was unknown at the time, SkillSoft estimated 
+that SmartForce had prematurely recognized approximately $35 million to $40 million in 
+revenue. The Company also announced that it was exiting certain business lines and that 
+renewals from its corporate customers had slowed.  After the announcement, SmartForce=s stock 
+price fell from $4.63 per share to $3.07 per share, a drop of 33.7 percent.  
+On September 22, 2003, SkillSoft filed with the Commission a Form 8-K/A, restating 
+SmartForce=s historical financial statements for the three-year period ended December 31, 2001, 
+and for the six months ended June 30, 2002.  Due to the nature and severity of the accounting 
+errors and irregularities, E&Y LLP, SkillSoft=s auditors, re-audited the annual financial 
+statements pertaining to the Restatement Period.  In the restatement, SkillSoft corrected multiple 
+accounting irregularities consisting primarily of misapplication of certain revenue recognition 
+principles by SmartForce, which had resulted in an overstatement of revenue by $113.6 million 
+and net income by approximately $127 million during the Restatement Period.  
+4 
+
+3. Accounting for Software Sales 
+GAAP requires that revenue from the sale or license of software be recognized consistent 
+with AICPA Statement of Position 97-2, Software Revenue Recognition (ASOP 97-2"). SOP 97-
+2 specifies the circumstances in which a company may recognize software license revenue upon 
+delivery, and when a company must defer immediate revenue recognition.  Software license 
+revenue is generally recognizable upon delivery under SOP 97-2 if no significant production, 
+customization or modification of software is required, if the remaining undelivered elements of 
+the parties' arrangement are not essential to the functionality of the software, and if the following 
+four basic criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has 
+occurred; (iii) the vendor=s fee is fixed or determinable; and (iv) collectibility is probable.   
+Paragraph 28 of SOP 97-2 provides, among other things, that Aif payment of a significant portion 
+of the software licensing fee is not due until after the expiration of the license or more than 
+twelve months after delivery, the licensing fee should be presumed not to be fixed or 
+determinable.@  Moreover, when an arrangement involves multiple elements (e.g., software, 
+upgrades, and consulting services), Paragraph 10 of SOP 97-2 requires that the fee be Aallocated 
+to the various elements based on vendor-specific objective evidence of fair value, regardless of 
+any separate prices stated within the contract for each element.  Vendor-specific objective 
+evidence of fair value is limited to the following: 
+! The price charged when the same element is sold separately; 
+! For an element not yet being sold separately, the price established by management 
+having the relevant authority; it must be probable that the price, once established, 
+will not change before the separate introduction of the element into the 
+marketplace.@ 
+Appendix B to SOP 97-2 states that the AICPA Accounting Standards Executive Committee 
+(AcSEC) believes that the price for an element as included in a price list does not necessarily 
+represent vendor-specific objective evidence of fair value (AVSOE@) for that element.  
+4. Accounting for Non-Monetary Transactions 
+Under GAAP, accounting for non-monetary transactions should be based on the fair 
+value of the assets or services involved, if it can be determined within reasonable limits.  See 
+Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions (AAPB 
+29"). Paragraph 25 of APB 29 states, among other things, that fair value of a non-monetary asset 
+Ashould be determined by referring to estimated realizable values in cash transactions of the 
+same or similar assets, quoted market prices, independent appraisals, estimated fair values of 
+assets or services received in exchange, and other available evidence.@  If neither the fair value of 
+a non-monetary asset transferred nor the fair value of a non-monetary asset received in exchange 
+is determinable within reasonable limits, the recorded amount of the non-monetary asset 
+transferred from the enterprise may be the only available measure of the transaction.  APB 29, 
+para. 26. 
+5 
+
+5. Improper Accounting Practices by SmartForce 
+During the Restatement Period, SmartForce engaged in various improper accounting 
+practices, including premature recognition of revenue from multi-element arrangements, 
+improper recognition of revenue from reciprocal transactions, and premature recognition of 
+revenue from reseller agreements.  As a result of these improper accounting practices, 
+SmartForce overstated its revenue by $113.6 million and net income by approximately $127 
+million.   
+The majority of the overstated revenue related to misapplication of the accounting 
+guidance regarding VSOE and extended payment terms.  More specifically, upon partial 
+delivery, SmartForce recognized revenue prematurely despite not having VSOE for any of the 
+elements sold.  Similarly, SmartForce recognized revenue upon delivery from sales agreements 
+that contained payment terms extending beyond 12 months even though the Company had an 
+insufficient history of collecting on similar agreements without making concessions.  The 
+principal consequence of these practices was that SmartForce recognized revenue sooner than it 
+otherwise should have. 
+In addition, during 2001, SmartForce also entered into several reciprocal non-monetary 
+transactions with its customers, whereby the Company both sold and purchased goods or 
+services without sufficient evidence to support the fair value of the goods or services exchanged. 
+ SmartForce recognized license revenue upon delivery of the software sold to its customer and 
+recorded the acquisition from the customer as if it had been a separate, unrelated transaction.  
+Instead, SmartForce should have recorded the sale and purchase as an exchange pursuant to APB 
+29, such that there would have been a gain only to the extent of any net cash received where the 
+fair value of the assets or services involved could not be determined.  Most of the reciprocal 
+deals also included multi-elements and had extended payment terms.  Revenue recognition from 
+these transactions was also improper because the Company failed to meet the requirements under 
+provisions of SOP 97-2 pertaining to VSOE and extended payment terms. 
+SmartForce also recognized revenue prematurely from reseller transactions, some of 
+which were non-binding agreements and some of which contained termination clauses that 
+allowed the customer to terminate the agreement prior to its expiration.  For example, during the 
+second and fourth quarters of 2001, SmartForce improperly recognized an aggregate of $5.5 
+million of revenue from two non-binding agreements with a reseller. 
+Consequently, SmartForce=s financial statements, which were included in the Company=s 
+annual and quarterly reports during the Restatement Period, were materially false and misleading 
+in that they overstated net income and revenue by failing to comply with GAAP.  Several 
+registration statements incorporated by reference various SmartForce financial statements for the 
+restated periods. 
+6. The Respondents= Improper Conduct 
+6 
+
+EYCA performed the reviews and audits of SmartForce=s financial statements during the 
+Restatement Period.  The auditors were responsible for reporting on whether SmartForces=s 
+annual financial statements complied with GAAP and for conducting the audits and reviews in 
+accordance with GAAS. The auditors, however, failed to adequately audit SmartForce=s 
+financial statements, which allowed the Company=s overstatement of its revenue and earnings 
+during the Restatement Period to go undetected.   
+The members of the SmartForce engagement team did not possess adequate technical 
+training and proficiency, as required under GAAS, to audit the Company=s financial statements.  
+Except for O=Hogan, the SmartForce engagement team had little or no training or experience 
+with software revenue recognition prior to being assigned to the SmartForce engagement.  After 
+joining the SmartForce engagement team, they received limited training on GAAP.  O=Hogan, 
+the audit engagement partner during the Restatement Period, was considered by EYCA 
+knowledgeable with regard to software revenue recognition. O=Hogan conducted a training 
+course for EYCA=s staff on the subject of SOP 97-2 and made presentations to software 
+companies that were clients of EYCA.  As discussed below, however, O=Hogan failed to take 
+exception to SmartForce=s misapplication of key provisions of SOP 97-2. 
+a. Failure to Adequately Audit Multi-Element Arrangements 
+On numerous multi-element arrangements, the auditors improperly accepted 
+management=s conclusion that SmartForce had VSOE for each element of the multi-element 
+arrangements and concurred with the Company=s up-front revenue recognition for the delivered 
+elements.  Had the auditors adequately tested SmartForce=s determination that it had VSOE for 
+each element of the multi-element arrangements, they would have discovered that such 
+conclusion did not conform with GAAP.  
+SmartForce did not have VSOE for each element of its multi-element arrangements 
+because (1) the elements were not sold separately, and (2) the list price was not representative of 
+fair value, as the Company offered its customers significant discounts from the list price.  The 
+discount percentage varied from customer to customer.  The auditors did not assess whether each 
+element had been sold separately and whether such sales were sufficient to support the fair value 
+of those elements.  In addition, the auditors failed to analyze properly how the size and 
+variability of the discounts offered by SmartForce affected the suitability of the price list as a 
+basis for VSOE. 
+b. 	 Failure to Adequately Audit Agreements 
+with Extended Payment Terms
+In connection with numerous agreements with extended payment terms, the auditors 
+improperly accepted management=s conclusions that the fees were fixed or determinable.  In 
+doing so, the auditors simply accepted management=s representation that the Company had a 
+history of entering into such agreements and had successfully collected on them without granting 
+7 
+
+concessions. Had the auditors adequately tested SmartForce=s collection history for agreements 
+with extended payment terms, they would have discovered that the Company did not have a 
+sufficient history of collecting on such agreements without making concessions. 
+c. Failure to Adequately Audit Reciprocal Non-Monetary Transactions 
+The auditors failed to adequately audit reciprocal non-monetary transactions between 
+SmartForce and its customers.  During 2001, SmartForce engaged in several reciprocal non-
+monetary transactions with certain customers.  In these transactions SmartForce simultaneously 
+sold and purchased products or services from the same customer, or the Company and the 
+customer agreed to sell each other=s products. SmartForce recognized the total amount from 
+such sales as revenue. 
+Had the auditors adequately audited the non-monetary transactions, they would have 
+discovered that SmartForce did not determine the fair value for such transactions, and 
+accordingly, that the Company had improperly recognized revenue on those transactions.  On 
+some occasions, the auditors also failed to identify that the transaction was part of a reciprocal 
+arrangement and thus failed to consider the applicability of APB 29. 
+d. Failure to Adequately Audit Non-Binding Agreements 
+During late June 2001, Smartforce entered into a letter agreement with a reseller, 
+whereby the reseller agreed to Aendeavor@ to sell $2 million of Smartforce courseware.  More 
+specifically, the letter agreement provided that the reseller would endeavor to bundle a minimum 
+of 400,000 units of Smartforce training courses with other software.  The reseller would pay 
+SmartForce $5.00 per each bundle shipped.  SmartForce factored the receivable for this 
+agreement, but was liable for any amounts unpaid by the reseller.  SmartForce recognized the $2 
+million as revenue for the quarter ended June 30, 2001. 
+In December 2001, Smartforce entered into another letter agreement with the same 
+reseller, whereby the reseller again agreed to endeavor to sell $3.5 million of Smartforce 
+courseware. SmartForce factored the December endeavor receivable and again remained liable 
+for any amounts unpaid by the reseller.  SmartForce included the $3.5 million as revenue in its 
+Form 10-K for fiscal 2001.  
+ SmartForce should not have recognized up-front the $5.5 million as revenue because the 
+reseller did not make a firm commitment.    
+While reviewing the work papers for the fourth quarter 2001 transactions, O=Hogan 
+became concerned that the December transaction was not a firm commitment, and therefore the 
+fee was not fixed or determinable.  Based on the audit manager=s explanation that the transaction 
+was like the June endeavor agreement, for which SmartForce had received payment, and based 
+on a purported representation from management that the endeavor agreement constituted a 
+binding commitment, O=Hogan failed to take exception to the Company=s improper revenue 
+8 
+
+recognition on this transaction. Reliance on any such purported representation, however, was 
+unwarranted in light of the fact that the endeavor agreement on its face provided that the reseller 
+would merely make an effort to bundle SmartForce=s products. 
+e. Failure to Adequately Audit a Multi-Element Arrangement 
+In mid-June 2001, SmartForce executed a three-year multi-element arrangement with a 
+customer.  The arrangement entitled the customer to use (i) SmartForce=s platform and generic 
+courseware, and (ii) third party content that SmartForce would customize.  The third party 
+content consisted of software developed by a private company.  The total price charged by 
+SmartForce for the arrangement was $5 million, of which $800,000 was applied toward the 
+license for the SmartForce platform and generic courseware, while the remaining $4.2 million 
+was earmarked for the third party content.  The agreement obligated the customer to make two 
+payments of $2.5 million to SmartForce, on July 6, 2001, and October 5, 2001.   
+During the quarter ended September 30, 2001, Smartforce recognized revenue on this 
+multi-element arrangement ratably.  Contrary to GAAP, in its fourth quarter 2001, however, 
+SmartForce reversed most of the deferred revenue balances and recognized a sum of 
+approximately $3.9 million in revenue.  Accordingly, for fiscal 2001, SmartForce recognized 
+$4.3 million on this arrangement and improperly included that revenue in the Company=s Form 
+10-K for the year ended December 31, 2001.   
+In January, 2002, the audit manager reviewed and initialed a deferred revenue listing that 
+clearly reflected that $3.9 million of the deferred revenue from the transaction with the customer 
+had been taken into revenue. Notwithstanding this red flag, the audit manager failed to follow 
+up on the matter and the auditors failed to discover that SmartForce had improperly recognized 
+revenue from the arrangement.   
+f. Other Aspects of Respondents= Inadequate Audit 
+The Respondents= audit work was inadequate in other ways as well. For example, the 
+auditors failed to take exception to revenue recognition from agreements that had effective dates 
+but which did not indicate the date of execution, as well as to recognition of $2.4 million in 
+revenue from an agreement that allowed either party to terminate the obligation without cause.  
+Such termination clause rendered the fee not fixed or determinable.  
+The auditors also failed to document alleged representations made by SmartForce=s 
+management and certain procedures purportedly performed during the audits.  For example, 
+notwithstanding O=Hogan=s purported reliance on management=s representation that the endeavor 
+phrase constituted a binding agreement in reaching his conclusion that the Company had 
+properly recognized revenue on the re-seller transaction, he did not document that representation 
+in the work papers. On several occasions, the auditors failed to document how they concluded 
+that delivery had occurred and that the fee was fixed or determinable in light of the extended 
+payment terms.   
+9 
+
+E. 	 LEGAL DISCUSSION 
+Rule 102(e)(1)(ii) of the Commission's Rules of Practice provides, in part, that the 
+Commission may censure or deny, temporarily or permanently, the privilege of appearing or 
+practicing before the Commission to any person who is found by the Commission to have 
+engaged in improper professional conduct.  Rule 102(e)(1)(iv) defines improper professional 
+conduct with respect to persons licensed to practice as accountants. 
+As applicable here, improper professional conduct means Arepeated instances of 
+unreasonable conduct, each resulting in a violation of applicable professional standards, that 
+indicate a lack of competence to practice before the Commission.@  Rule 102(e)(1)(iv)(B)(2). As 
+stated below, O=Hogan acted unreasonably in failing to detect SmartForce=s failure to comply 
+with GAAP and in failing to comply with GAAS during EYCA=s audits and reviews of the 
+Company's financial statements during the Restatement Period. 
+1. 	 Training and Proficiency of an Auditor 
+Regulation S-X, 17 CFR ' 210 et seq., prescribes the qualifications of accountants and 
+the contents of the accountants' reports that must be submitted with corporate financial 
+statements.  In particular, 17 CFR ' 210.1-02(d) requires that the financial statements of a public 
+corporation must be audited by an accountant in accordance with GAAS.  GAAS requires that 
+the audit be performed by Aa person or persons having adequate technical training and 
+proficiency as an auditor.@  AU ' 210.01. GAAS requires that auditors be assigned Ato tasks and 
+supervised commensurate with their level of knowledge, skill, and ability so that they can 
+evaluate the audit evidence they are examining.@  AU ' 230.06. 
+2. 	 Professional Care and Skepticism, Evidential Matter 
+and Management Representations 
+GAAS provides that A[d]ue professional care is to be exercised in the planning and 
+performance of the audit and the preparation of the report.@  AU ' 230.01. Among other things, 
+due professional care requires that an auditor exercise professional skepticism, defined as "an 
+attitude that includes a questioning mind and a critical assessment of audit evidence.@  AU ' 
+230.07. AGathering and objectively evaluating audit evidence requires the auditor to consider the 
+competency and sufficiency of the evidence.@  AU ' 230.08. AIn exercising professional 
+skepticism, the auditor should not be satisfied with less than persuasive evidence because of a 
+belief that management is honest.@  AU ' 230.09. 
+GAAS also requires that A[s]ufficient competent evidential matter is to be obtained 
+through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an 
+opinion regarding the financial statements under audit.@  AU ' 326.01. ATo be competent, 
+evidence, regardless of its form, must be both valid and relevant.@  AU ' 326.21. In addition, the 
+auditor should Arecognize the possibility that the financial statements may not be fairly presented 
+10 
+
+in conformity with generally accepted accounting principles . . .@ and should Aconsider relevant 
+evidential matter regardless of whether it appears to corroborate or contradict the assertions in 
+the financial statements.@  AU ' 326.25. Management representations "are part of the evidential 
+matter the independent auditor obtains, but they are not a substitute for the application of those 
+auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial 
+statements under audit.@  AU ' 333.02. 
+3. Audit Working Papers 
+GAAS also provided that Athe auditor should prepare and maintain working papers . . .@ 
+and that A[t]he information contained in working papers constitutes the principal record of the 
+work that the auditor has done and the conclusions that he has reached concerning significant 
+matters.@  AU ' 339.01. Working papers ordinarily should include documentation showing that, 
+among other things, A[t]he audit evidence obtained, the auditing procedures applied, and the 
+testing performed have provided sufficient competent evidential matter to afford a reasonable 
+basis for an opinion . . .@  AU ' 339.05.4 
+4. Deficiencies 
+a. EYCA 
+During the three-and-one-half years of the Restatement Period, EYCA failed to ensure 
+that the engagement was adequately staffed, and that the auditors had the training and 
+qualifications appropriate for the specific engagement and level of responsibilities assigned.  As 
+a result, EYCA failed to assign auditors with the requisite technical training and proficiency in 
+auditing software companies to the SmartForce engagement.  In addition, the audit staff assigned 
+was neither adequately trained in the applicable accounting requirements for software companies 
+nor properly supervised during the engagement.  Hence, the engagement team reached erroneous 
+conclusions during its reviews and audits of the SmartForce financial statements.   
+b. O=Hogan 
+O=Hogan placed undue reliance on management=s representations and failed to, among 
+other things, obtain sufficient competent evidential matter to ensure that the Company (i) had a 
+history of collecting on contracts with extended payment terms without making concessions; (ii) 
+The content of AU ' 339 was replaced in or about January 2002 (effective for audits begun on or after May 
+15, 2002). 
+11 
+4 
+had documented verifiable VSOE for each element of the multi-element arrangements; and (iii) 
+could establish fair value for the reciprocal transactions. Moreover, O=Hogan failed to document 
+an alleged management representation upon which he placed reliance to support an opinion that 
+revenue was properly recognized. 
+Accordingly, O=Hogan failed to comply with GAAS.  He failed to exercise due 
+professional care in violation of AU ' 230.01; failed to maintain an attitude of professional 
+skepticism in violation of AU '  230.07; failed to obtain sufficient competent evidential matter in 
+violation of AU ' 326.01; and failed to document evidence obtained in violation of  AU ' 
+339.05; the audit manager also lacked adequate technical training and proficiency and was not 
+supervised properly by O’Hogan in violation of AU ' 210.01 and ' 230.06. 
+F. 	 FINDINGS 
+Based on the foregoing, the Commission finds that EYCA and O=Hogan engaged in 
+improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's 
+Rules of Practice. Specifically, EYCA and O=Hogan engaged in repeated instances of 
+unreasonable conduct, each resulting in a violation of applicable professional standards, that 
+indicate a lack of competence to practice before the Commission. 
+G. 	 REMEDIAL STEPS TAKEN BY EYCA SINCE ITS AUDITS OF SMARTFORCE 
+Since its audits of SmartForce, EYCA has undertaken remedial steps regarding risk 
+management, audit procedures, staffing of engagements, and training of its staff.  
+H. 	 UNDERTAKINGS BY RESPONDENTS 
+1. Ongoing Cooperation: Respondents shall cooperate fully and reasonably 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, Respondents 
+have undertaken: 
+a. 	 To produce, on reasonable notice, without service of a notice or subpoena, any 
+and all relevant documents and other information reasonably requested by the 
+Commission's staff; 
+b. 	 EYCA shall 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. 	 EYCA shall use its best efforts to cause its employees to appear and testify 
+truthfully and completely, on reasonable notice, without service of a notice or 
+subpoena in such investigations, depositions, hearings or trials as may reasonably 
+be requested by the Commission's staff; and 
+12 
+
+d. 	 If requested by the Commission's staff, Respondent O=Hogan shall agree to be 
+interviewed by the Commission's staff at such times as the staff reasonably may 
+direct, and to appear and testify truthfully and completely, on reasonable notice, 
+without service of a notice or subpoena in such investigations, depositions, 
+hearings or trials. 
+I. 	 ADDITIONAL UNDERTAKINGS BY EYCA 
+1. Within 10 days of the issuance of this Order, EYCA undertakes to pay $725,000 
+to the United States Treasury, which represents the amount of EYCA's fees for reviewing and 
+auditing SmartForce=s financial statements between 1999 and June 2002.  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 EYCA as a Respondent in these proceedings, the file 
+number of these proceedings, a copy of which cover letter and money order or check shall be 
+sent to Carlos Costa-Rodrigues, Boston District Office, Securities and Exchange Commission, 
+33 Arch Street, Twenty Third Floor, Boston, MA 02110. 
+2. Training in Generally Accepted Accounting Principles and PCAOB Standards: 
+EYCA shall ensure that training is provided to its audit professionals prior to assignment to SEC 
+registrant engagements, in the requirements of GAAP and GAAS B including SOP 97-2 and 
+APB 29, and PCAOB Standards B that is consistent and appropriate in light of the roles and 
+expectations for that audit professional on each specific engagement.  
+3. Fraud Detection Training: EYCA shall ensure that its audit professionals 
+assigned to SEC registrant engagements undergo fraud detection training conducted by the 
+Association of Certified Fraud Examiners or another comparable organization.  Such training 
+must be completed within 12 months from the date of the Order. The training will include 
+techniques in detecting and responding to possible fraud by audit clients or by employees, 
+officers or directors of audit clients. 
+4. Personnel Assignments to SEC Registrant Engagements: EYCA shall improve 
+implementation of its written policies and procedures to provide reasonable assurance that  
+personnel assigned to audits and SAS 100 interim reviews of SEC registrant engagements will 
+have the skills, training and competencies necessary to fulfill the roles and responsibilities 
+expected of them on the particular engagement.  Assignment considerations will include such 
+factors as: engagement size and complexity; specialized experience and expertise required; 
+personnel availability and the involvement of supervisory personnel; timing of the work to be 
+performed; and continuity and rotation of personnel. 
+5. Professional Development Program: EYCA shall maintain a professional 
+development program designed to provide reasonable assurances that personnel assigned to 
+13 
+
+audits and reviews of SEC registrants participate in professional development activities in 
+accordance with firm guidelines and in subjects that are relevant to their responsibilities. 
+6. Qualifications of SEC Registrant Engagement Personnel: EYCA shall adopt and 
+implement written policies and procedures for documenting the qualifications, training and 
+current responsibilities of senior engagement personnel assigned to each SEC registrant audit 
+engagement. EYCA shall adopt written policies and procedures to ensure that the engagement 
+team on SEC registrant engagements includes members who have the requisite skills, training 
+and experience in light of the characteristics of the registrant and risk involved. 
+7. Documentation of Significant Consultation: EYCA shall adopt and implement 
+written policies and procedures designed to provide reasonable assurance that work papers 
+prepared in connection with the audits of the financial statements of SEC registrants include 
+documentation of significant consultations with the filing reviewers, firm specialists or others 
+within or without the firm, as required by PCAOB rules. The documentation of such 
+consultations should be in accordance with PCAOB rules. 
+8. Distribution of Order: EYCA shall distribute a copy of this Order to all of its 
+audit professionals within 10 business days after entry of the Order. 
+9. Certification of Compliance with the Undertakings: At the end of one year from 
+the entry of this Order, EYCA shall certify in writing to the Commission staff that it is in 
+compliance with the undertakings set forth herein.  
+In determining whether to accept the Respondents= Offers, the Commission has 
+considered these undertakings and the remedial acts already undertaken by EYCA. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Respondents' Offers.    
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+a. 	 EYCA is censured pursuant to Rule 102(e)(1)(ii). 
+b. 	 O=Hogan is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+c. 	 After two (2) years from the date of this Order, O=Hogan 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: 
+14 
+
+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 O=Hogan'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) O=Hogan, or the public accounting firm with which he is associated, is 
+registered with the PCAOB in accordance with the Sarbanes-Oxley Act of 2002, and such 
+registration continues to be effective; (b) O=Hogan, or the registered public accounting firm with 
+which he is associated, has been inspected by the PCAOB or equivalent Irish organization and 
+that inspection did not identify any criticisms of or potential defects in O=Hogan's or the firm's 
+quality control system that would indicate that O=Hogan will not receive appropriate supervision 
+or, if the PCAOB has not conducted an inspection, has received an unqualified report relating to 
+his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted 
+by the former SEC Practice Section of the American Institute of Certified Public Accountants 
+Division for CPA Firms or an organization providing equivalent oversight and quality control 
+functions; (c) O=Hogan has resolved any disciplinary issues with the PCAOB or equivalent Irish 
+organization, and has complied with all terms and conditions of any sanctions imposed (other 
+than reinstatement by the Commission); and (d) O=Hogan acknowledges his responsibility, as 
+long as O=Hogan 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 O=Hogan to resume appearing or 
+practicing before the Commission provided that his chartered accountant license 
+is current and he has resolved any disciplinary issues with the applicable Irish 
+Institute of Chartered Accountants. However, if licensure is dependent on 
+reinstatement by the Commission, the Commission will consider an application 
+on its other merits. The Commission's review may include consideration  
+15 
+
+of, in addition to the matters referenced above, any other matters relating to 
+O=Hogan's character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission. 
+By the Commission. 
+Nancy M. Morris 
+Secretary 
+16 
diff --git a/raw/aaer/2007/AAER-2648.txt b/raw/aaer/2007/AAER-2648.txt
new file mode 100644
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+++ b/raw/aaer/2007/AAER-2648.txt
@@ -0,0 +1,417 @@
+______________________________ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+RELEASE NO. 56105 / July 19, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+RELEASE NO. 2648 / July 19, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12704 
+: 
+In the Matter of : ORDER INSTITUTING CEASE-AND-
+: DESIST AND PUBLIC ADMINISTRATIVE 
+DAVID C. DRUMMOND, : PROCEEDINGS PURSUANT TO SECTION 21C 
+JOHN P. HAYES, FCA, and : OF THE SECURITIES EXCHANGE ACT 
+PATRICK E. MURPHY, FCA, : OF 1934 AND RULE 102(e) OF THE 
+: COMMISSION=S RULES OF PRACTICE 
+Respondents. : MAKING FINDINGS, IMPOSING A 
+: CEASE -AND-DESIST ORDER, REMEDIAL 
+______________________________: SANCTIONS, AND OTHER RELIEF 
+I. 
+The Securities and Exchange Commission (ACommission@) deems it appropriate that  
+cease-and-desist proceedings be, and hereby are, instituted against David C. Drummond 
+("Drummond"), pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange 
+Act"), and that cease-and-desist and public administrative proceedings be, and hereby are, 
+instituted against John P. Hayes (AHayes@) and Patrick E. Murphy (AMurphy@) pursuant to 
+Section 21C of the Exchange Act and Rule 102(e)(1)(iii) of the Commission's Rules of Practice 
+[17 C.F.R. ' 201.102(e)].1 
+II. 
+Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it ... to any person who is found ... to have willfully violated, or willfully aided 
+and abetted the violation of any provision of the Federal securities laws or the rules and 
+regulations thereunder. 
+1 
+In anticipation of the institution of these proceedings, each Respondent has submitted an 
+Offer of Settlement (AOffers@) that the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission=s jurisdiction over them and over the subject 
+matter of these proceedings, which are admitted, the Respondents each consent to the entry of 
+this Order Instituting Cease-And-Desist and Public Administrative 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, Imposing a Cease-And-Desist Order, Remedial Sanctions, and 
+Other Relief (AOrder@), as set forth below. 
+III. 
+On the basis of this Order and the Respondents= Offers, the Commission finds2 that: 
+A. RESPONDENTS 
+1. Drummond, age 43, is a resident of San Jose, California.  Drummond was the 
+Chief Financial Officer (ACFO@) of SmartForce PLC (ASmartForce@ or the ACompany@), now 
+known as SkillSoft PLC (ASkillSoft@), from July 1999 to February 2002, when he left the 
+Company to become General Counsel and Vice President (AVP@) for Corporate Development of 
+another now public company.  Prior to joining SmartForce as the CFO, Drummond was a 
+partner at a major law firm and his professional training is as a lawyer.  Drummond has no 
+formal training in accounting and has never been a certified public accountant.  
+2. Murphy, age 56, is an Irish citizen.  Murphy is a chartered accountant and has 
+been a member of the Institute of Chartered Accountants (AICA@) in Ireland since 1989, which 
+is similar to being a certified public accountant in the United States.3  Murphy joined 
+SmartForce in January 1996 as a group controller and reported to Hayes.  As a group controller, 
+Murphy worked primarily on consolidation of the North America and Australia accounts.  
+Murphy was promoted to VP of Finance-North America in January 1998 and then to VP of 
+Global Finance in September 2001.  In February 2002, Murphy became the acting CFO, a 
+2 The findings herein are made pursuant to Respondents= Offers of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
+3 Members of the ICA use the designatory letters ACA for associate chartered accountant and FCA for fellow 
+chartered accountant. 
+2 
+
+position he held until the merger.  Prior to joining SmartForce, Murphy worked for Ernst & 
+Young Chartered Accountants in Dublin (AEYCA@) where he performed work on the account of 
+CBT Systems Limited (predecessor to SmartForce) at the company=s California headquarters 
+during 1995. 
+3. Hayes, age 53, is an Irish citizen.  Hayes is a chartered accountant and has been a 
+member of the ICA in Ireland since 1983.  In 1986, Hayes joined SmartForce (then CBT 
+Systems Limited, which at the time was privately-held) as the controller.  Around the time that 
+CBT Systems went public in 1995, Hayes became the chief accounting officer and was 
+responsible for making all accounting decisions at the company.  After Murphy joined the 
+Company, he and Hayes divided the accounting responsibilities: Murphy became responsible 
+for the accounts in the Americas and Australia while Hayes remained responsible for the 
+European and South African accounts. Hayes retained the title of VP of Finance for the 
+European Division from January 1998 until September 2001, when he retired from the 
+Company.  
+B. RELATED PARTY 
+SkillSoft is a public limited company organized under the laws of the Republic of 
+Ireland. SkillSoft maintains its principal executive offices in New Hampshire.  SkillSoft is the 
+product of a September 6, 2002 merger between the SkillSoft Corporation (ASkillSoft Corp.@) 
+and SmartForce, a company organized under the laws of the Republic of Ireland that began 
+trading on NASDAQ in April 1995. Although SmartForce emerged as the surviving entity, 
+SkillSoft Corp. was deemed to be the acquirer for accounting purposes.  Following the merger, 
+SmartForce changed its name to SkillSoft PLC.  In this order ASmartForce@ refers to SmartForce 
+PLC prior to the merger with SkillSoft Corp.  SkillSoft provides an Internet-based management 
+and technology platform for training courseware, seminars, and reference materials geared 
+toward business and IT professionals.  SkillSoft=s securities are registered with the Commission 
+pursuant to Section 12(b) of the Exchange Act and trade on NASDAQ. 
+C. FACTS 
+1. The Merger Between SmartForce and SkillSoft 
+On June 10, 2002, SkillSoft Corp. and SmartForce issued a press release announcing 
+that the two companies had signed a definitive agreement to merge in a stock-for-stock 
+transaction. A couple of weeks later, SmartForce filed a registration statement on Form S-4, 
+regarding the merger, in which SmartForce=s financial statements, including  an unqualified 
+audit report by EYCA dated January 16, 2002, were incorporated by reference. 
+2. The Restatement 
+Before the markets opened on November 19, 2002, SkillSoft announced that in the 
+process of preparing SmartForce=s closing balance sheet, SkillSoft identified several accounting 
+3 
+
+ 
+issues concerning generally accepted accounting principles in the United States (AGAAP@) that 
+would require SkillSoft to restate SmartForce=s historical financial statements for the three-year 
+period ended December 31, 2001 and for the six months ended June 30, 2002 (the ARestatement 
+Period@). Although the precise amount of the restatement was unknown at the time, SkillSoft 
+estimated that SmartForce had prematurely recognized approximately $35 million to $40 
+million in revenue.  SkillSoft also announced, along with the accounting restatement, that 
+SkillSoft would be exiting three service lines of business with an approximately $30 million 
+annual reduction in revenue, and that SkillSoft had been experiencing materially lower renewal 
+rates. The day after the announcement, SkillSoft=s stock price fell from $4.63 per share to $3.07 
+per share, a drop of 33.7 percent. 
+On September 22, 2003, SkillSoft filed with the Commission a Form 8-K/A, restating 
+SmartForce=s historical financial statements for the three-year period ended December 31, 2001 
+and for the six months ended June 30, 2002.  Due to the nature and severity of the accounting 
+issues identified, Ernst & Young LLP in the United States, SkillSoft=s auditors, re-audited the 
+financial statements pertaining to the entire Restatement Period and made over 300 adjustments 
+to correct the previously issued financial statements.  In the restatement, SkillSoft corrected 
+multiple inaccurate accounting entries - primarily misapplication of certain revenue recognition 
+principles by SmartForce, which had resulted in an overstatement of revenue by $113.6 million 
+and net income by approximately $127 million during the Restatement Period.   
+3. Accounting for Software Sales 
+GAAP requires that revenue from the sale or license of software be recognized 
+consistent with AICPA Statement of Position 97-2, as amended, (ASOP 97-2"). SOP 97-2 
+specifies the circumstances in which a company may recognize software license revenue upon 
+delivery, and when a company must defer revenue recognition.  Software license revenue is 
+generally recognizable upon delivery under SOP 97-2 if no significant production, 
+customization or modification of software is required, if the remaining undelivered elements of 
+the parties' arrangement are not essential to the functionality of the software, and if the 
+following four basic criteria are met: (i) persuasive evidence of an arrangement exists; (ii) 
+delivery has occurred; (iii) the vendor=s fee is fixed or determinable; and (iv) collectibility is 
+probable. Paragraph 28 of SOP 97-2 provides, among other things, that Aif payment of a 
+significant portion of the software licensing fee is not due until after the expiration of the 
+license or more than twelve months after delivery, the licensing fee should be presumed not to 
+be fixed or determinable.@  Moreover, when an arrangement involves multiple elements (e.g., 
+software, 
+upgrades, or consulting services), Paragraph 10 of SOP 97-2 requires that the fee be: 
+allocated to the various elements based on vendor-specific objective evidence of fair 
+value, regardless of any separate prices stated within the contract for each element. 
+Vendor-specific objective evidence of fair value is limited to the following: 
+! The price charged when the same element is sold separately; 
+4 
+
+!	 For an element not yet being sold separately, the price established by 
+management having the relevant authority; it must be probable that 
+the price, once established, will not change bef ore the separate 
+introduction of the element into the marketplace. 
+SOP 97-2 makes clear that the price for an element as included in a price list does not 
+necessarily represent vendor-specific objective evidence of fair value (AVSOE@) for that 
+element.  
+4. 	 Accounting for Non-Monetary Transactions 
+Under GAAP, accounting for non-monetary transactions should be based on the fair 
+value of the assets or services involved, if it can be determined within reasonable limits.  See 
+Accounting Principles Board Opinion No. 29, AAccounting for Nonmonetary Transactions@ 
+(AAPB 29"). Paragraph 25 of APB 29 states, among other things, that fair value of an asset 
+Ashould be determined by referring to estimated realizable values in cash transactions of the 
+same or similar assets, quoted market prices, independent appraisals, estimated fair values of 
+assets or services received in exchange, and other available evidence.@  If neither the fair value 
+of a non-monetary asset transferred nor the fair value of a non-monetary asset received in 
+exchange is determinable within reasonable limits, the recorded amount of the non-monetary 
+asset transferred from the enterprise may be the only available measure of the transaction.  APB 
+29, para. 26. 
+5. 	 Accounting Practices by SmartForce 
+During the Restatement Period, SmartForce engaged in various improper accounting 
+practices, including premature recognition of revenue from multi-element arrangements, 
+improper recognition of revenue from reciprocal transactions, and premature recognition of 
+revenue from reseller agreements.  As a result of these accounting practices, SmartForce 
+overstated its revenue by $113.6 million and net income by approximately $127 million.   
+The vast majority of the overstated revenue related to misapplication of the accounting 
+guidance regarding VSOE and extended payment terms.  More specifically, SmartForce 
+recognized revenue upon delivery from multi-element arrangements despite not having VSOE 
+for each undelivered element as required under GAAP.  Similarly, SmartForce recognized 
+revenue upon delivery from sales agreements that contained payment terms extending beyond 
+12 months even though the Company had no history of collecting on similar agreements without 
+making concessions.  
+In addition, during 2001, SmartForce also entered into several reciprocal non-monetary 
+transactions with its customers, whereby the Company both sold and purchased goods or 
+services without sufficient evidence to support the fair value of the goods or services 
+exchanged. SmartForce recognized license revenue upon delivery of the software sold to its 
+5 
+
+customers and recorded the purchases from its customers as if they had been separate, unrelated 
+transactions. Instead, SmartForce should have recorded the sales and purchases as exchanges 
+pursuant to APB 29, such that there would have been a gain only to the extent of any net cash 
+received. Most of the reciprocal deals also included multiple elements and had extended 
+payment terms.  Revenue recognition from these transactions was also improper because the 
+Company failed to meet the requirements under provisions of SOP 97-2 pertaining to VSOE 
+and extended payment terms. 
+SmartForce also recognized revenue prematurely from reseller transactions, some of 
+which were non-binding agreements and some of which contained termination clauses that 
+allowed the customer to terminate the agreement prior to its expiration.  For example, during the 
+second and fourth quarters of 2001, SmartForce improperly recognized $5.5 million of revenue 
+from two non-binding agreements with a reseller.  
+Consequently, SmartForce=s financial statements, which were included in the Company=s 
+annual and quarterly reports during the Restatement Period, were materially false and 
+misleading in that they overstated net income and revenue by failing to comply with GAAP.  
+Several registration statements incorporated by reference various SmartForce financial 
+statements for the restated periods.  This Order relates only to the financial statements of 
+SmartForce for the restated periods prior to the merger between SmartForce and SkillSoft Corp.  
+6. The Conduct of Respondents Murphy and Hayes 
+Murphy and Hayes shared the primary responsibility for the accounting decisions at 
+SmartForce and for making sure that such accounting complied with GAAP.  Murphy was 
+responsible for the accounts from the Americas and Australia, which constituted 70 percent of 
+SmartForce=s business, while Hayes was responsible for the European and South African 
+accounts, which represented the other 30 percent of SmartForce=s business. 
+On several multi-element arrangements, Murphy and Hayes improperly concluded that 
+SmartForce had VSOE for each element of the arrangement and determined that the Company 
+could recognize revenue up-front for the delivered elements.  SmartForce, however, did not 
+have VSOE for each element of its multi-element arrangements because (i) the elements were 
+not sold separately, and (ii) the list price was not representative of fair value, as the Company 
+offered its customers significant discounts from the list price.  The discount percentage varied 
+from customer to customer.  However, SmartForce performed no analysis to determine which 
+elements were sold separately and whether there was an adequate amount of separate sales to 
+support the fair value of the elements, nor did it perform an analysis to assess how the discounts 
+affected its price list. Accordingly, the determination that SmartForce had VSOE for each 
+element of the multi-element arrangements did not conform with GAAP.  
+Moreover, despite the extended payment terms in the arrangements, Murphy and Hayes 
+incorrectly concluded that the fees being charged by SmartForce were fixed or determinable.  In 
+6 
+
+ 
+doing so, Murphy and Hayes concluded that the Company had a history of entering into such 
+agreements and had successfully collected on them without granting concessions.  SmartForce, 
+however, did not have an adequate history of successful payment collections without 
+concessions. 
+During 2001, SmartForce engaged in several reciprocal non-monetary arrangements 
+with certain customers.  In these arrangements SmartForce simultaneously sold and purchased 
+products or services from the same customer, or the Company and the customer agreed to sell 
+each other=s products. Murphy and Hayes allowed SmartForce to recognize the total amount 
+from such sales as revenue.  The Company, however, should have recorded a gain only to the 
+extent of any net cash received. 
+For example, in mid-June 2001, SmartForce and a customer executed a three-year multi-
+element arrangement.  The arrangement entitled the customer to use (i) SmartForce=s platform 
+and generic courseware, and (ii) third party content. The third party content consisted of 
+software developed by a private software company.   
+The total price SmartForce charged the customer for the arrangement was $5 million, of 
+which $800,000 was applied toward the license for the SmartForce platform and generic 
+courseware, while the remaining $4.2 million was earmarked for the software company=s 
+content. The agreement obligated the customer to make two payments of $2.5 million to 
+SmartForce, on July 6, 2001 and October 5, 2001.  Even though SmartForce did not determine 
+fair value for either the courses it was selling to the customer or the software it was purchasing 
+from the private software company, at Murphy=s direction, the Company recorded $4.3 million 
+as revenue from this arrangement.  Such accounting did not comport with GAAP. 
+During the relevant period, Murphy and Hayes sold shares of SmartForce at prices that 
+were inflated because of the accounting issues. 
+7. Respondent Drummond=s Conduct 
+Drummond was hired as CFO of SmartForce in July 1999.  Drummond is a lawyer who 
+had been a partner at a major law firm and who had no formal accounting training or 
+background. Accordingly, the accounting function was handled primarily by Hayes and 
+Murphy although Drummond, in his capacity as CFO, ultimately had responsibility for 
+SmartForce=s financial statements.    
+During late June 2001, SmartForce entered into a letter agreement with a reseller 
+whereby the reseller agreed to Aendeavor@ to sell $2 million of SmartForce courseware.  More 
+specifically, the letter agreement provided that the reseller would endeavor to bundle a 
+minimum of 400,000 units of SmartForce training courses with other software, and would pay 
+SmartForce $5.00 per each bundle shipped.  Drummond learned of this non-binding agreement 
+before the end of the second quarter 2001, and knew or should have known that it would have 
+been improper for SmartForce to recognize revenue from such agreement.  Nonetheless, 
+7 
+
+Drummond did not take any steps to determine whether SmartForce was recognizing revenue 
+from the agreement or whether the accounting for the agreement complied with GAAP.  
+SmartForce incorrectly recognized the $2 million as revenue and included the revenue in its 
+Form 10-Q for the second quarter of 2001. 
+Moreover, prior to the end of the second quarter 2001, Drummond became aware of the 
+arrangement among SmartForce, the private software company, and the customer described 
+above, as he was consulted by the SmartForce salespeople negotiating the arrangement with the 
+customer and actively participated in negotiating the transaction. Drummond knew that the 
+customer dictated the price that SmartForce paid for the third party content described above.  
+Because Drummond relied on Murphy to account for this three-way arrangement, Drummond 
+should have communicated such information to Murphy. Drummond, however, failed to do so.  
+Furthermore, Drummond did not take any steps to determine whether the accounting for the 
+arrangement complied with GAAP.  Consequently, for fiscal 2001, SmartForce recognized $4.3 
+million on this arrangement and included that revenue in the Company=s Form 10-K for the year 
+ended December 31, 2001.  
+During the relevant period, Drummond sold shares of SmartForce at prices that were 
+inflated because of the accounting issues. 
+8. Federal Securities Laws Violations and Findings 
+Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require 
+issuers with securities registered under Section 12 of the Exchange Act to file quarterly and 
+annual reports with the Commission and to keep this information current. The obligation to file 
+such reports embodies the requirement that they be true and correct. See, e.g., SEC v. Savoy 
+Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). 
+Exchange Act Rule 12b-20 further requires the inclusion of any additional material information 
+that is necessary to make required statements, in light of the circumstances under which they 
+were made, not misleading. Information regarding the financial condition of a company is 
+presumptively material. SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985). As a result of the 
+conduct described above, Drummond caused, and Murphy and Hayes willfully aided and 
+abetted and caused, SkillSoft's violations of Section 13(a) of the Exchange Act and Rules 12b-
+20, 13a-1, and 13a-13 thereunder. 
+Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and 
+keep books, records, and accounts that accurately and fairly reflect the transactions and 
+dispositions of their assets. As a result of the conduct described above, Drummond caused, and 
+Murphy and Hayes willfully aided and abetted and caused, SkillSoft's violations of Section 
+13(b)(2)(A) of the Exchange Act. 
+Section 13(b)(2)(B) of the Exchange Act requires Section 12 registrants to Adevise and 
+maintain a system of internal accounting controls sufficient to provide reasonable assurances 
+that (i) transactions are executed in accordance with management=s general or specific 
+8 
+
+authorization; (ii) transactions are recorded as necessary (i) to permit preparation of financial 
+statements in conformity with generally accepted accounting principles or any other criteria 
+applicable to such statements, and (ii) to maintain accountability for assets; (iii) access to assets 
+is permitted only in accordance with management=s general or specific authorization; and (iv) 
+the recorded accountability for assets is compared with the existing assets at reasonable 
+intervals and appropriate action is taken with respect to any differences.@  Section 13(b)(5) of 
+the Exchange Act provides that Ano person shall knowingly circumvent or knowingly fail to 
+implement a system of internal accounting controls or knowingly falsify any book, record, or 
+account@ described in Section 13(b)(2)(B). As a result of the conduct described above, 
+Drummond caused, and Murphy and Hayes willfully aided and abetted and caused, SkillSoft's 
+violations of Section 13(b)(2)(B) of the Exchange Act.  Moreover, as a result of the conduct 
+described above, Drummond violated, and Murphy and Hayes willfully violated, Section 
+13(b)(5) of the Exchange Act. 
+Based on the foregoing, the Commission finds that (a) Drummond caused, and Murphy 
+and Hayes willfully aided and abetted and caused, SkillSoft's violations of Sections 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 
+promulgated thereunder; and (b) Drummond violated, and Murphy and Hayes willfully violated, 
+Section 13(b)(5) of the Exchange Act. 
+Based on the foregoing, the Commission finds that Murphy and Hayes willfully violated 
+and willfully aided and abetted violations of the federal securities laws and rules thereunder 
+within the meaning of Rule 102(e)(1)(iii) of the Commission=s Rules of Practice and as 
+accountants are subject to sanctions under the Rule. 
+D. UNDERTAKINGS BY RESPONDENTS 
+1. Respondents each undertake and agree to cooperate fully with the Commission 
+in any and all Commission investigations, litigations or other proceedings relating to or arising 
+from the matters described in this Order.  In connection with such cooperation, Respondents 
+have undertaken: 
+a. To produce, without service of a notice or subpoena, any and all relevant and 
+non-privileged documents and other information requested by the Commission's 
+staff; 
+b. If requested by the Commission's staff, Respondents Drummond, Murphy, and 
+Hayes shall agree to be interviewed by the Commission's staff at such times as 
+the staff reasonably may direct, and appear and testify truthfully and completely 
+without service of a notice or subpoena in such investigations, depositions, 
+hearings or trials; 
+2. In determining to accept the Respondents= Offers of Settlement, the Commission 
+has considered the undertakings set forth in this Section. 
+9 
+
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in each Respondent=s Offer of Settlement.  
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Respondents Drummond, Murphy, and Hayes shall cease and desist from 
+committing or causing any violations and any future violations of Section 13(b)(5) of the 
+Exchange Act; and from causing any violations and any future violations of Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 
+thereunder. 
+B. Respondents Murphy and Hayes are denied the privilege of appearing or 
+practicing before the Commission as accountants. 
+C. After two (2) years from the date of this order Murphy may request that the 
+Commission consider his reinstatement. After two (2) years from the date of this order Hayes 
+may request that the Commission consider his reinstatement.  Each Respondent shall make any 
+such request by submitting an application (attention: Office of the Chief Accountant) to resume 
+appearing or practicing before the Commission as: 
+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 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 or equivalent Irish organization and that 
+inspection did not identify any criticisms of or potential defects in the Respondent's or the firm's 
+quality control system that would indicate that the Respondent will not receive appropriate 
+supervision; 
+(c) Respondent has resolved all disciplinary issues with the Board or 
+10 
+
+equivalent Irish organization, and has complied with all terms and conditions of any sanctions 
+imposed (other than reinstatement by the Commission); and  
+(d) Respondent acknowledges his responsibility, as long as the 
+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 either Respondent to resume 
+appearing or practicing before the Commission provided that his chartered accountant license is 
+current and he has resolved all other regulatory or disciplinary issues, if any, with the applicable 
+Irish institute of chartered accountants. However, if licensure is dependent on reinstatement by 
+the Commission, the Commission will consider an application on its other merits. The 
+Commission's review may include consideration of, in addition to the matters referenced above, 
+any other matters relating to the Respondent's character, integrity, professional conduct, or 
+qualifications to appear or practice before the Commission. 
+E. Respondent Drummond shall, within 10 days of the entry of this Order, pay 
+disgorgement of $454,105 and prejudgment interest of $119,874 to the United States Treasury. 
+F. Respondent Murphy shall, within 10 days of the entry of this Order, pay 
+disgorgement of $449,269 and prejudgment interest of $118,597 to the United States Treasury. 
+G. Respondent Hayes shall, within 10 days of the entry of this Order, pay 
+disgorgement of $673,882 and prejudgment interest of $188,513 to the United States Treasury. 
+H. Such payments shall be: (A) made by United States postal money order, certified 
+check, bank cashier's check or bank money order; (B) made payable to the Securities and 
+Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, 
+Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, 
+Alexandria, VA 22312; and (D) submitted under cover letter that identifies the particular 
+Respondent in these proceedings, the file number of these proceedings, a copy of  
+11 
+
+which cover letter and money order or check shall be sent to Carlos Costa-Rodrigues, Boston 
+District Office, Securities and Exchange Commission, 33 Arch Street, 23rd Floor, Boston, MA 
+02110. 
+By the Commission. 
+Nancy M. Morris 
+Secretary 
+12 
diff --git a/raw/aaer/2007/AAER-2650.txt b/raw/aaer/2007/AAER-2650.txt
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+              John C. Charters and Richard E. Fresia
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+        John C. Charters and Richard E. Fresia
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20204 / July 24, 2007 
+
+ Accounting and Auditing Enforcement  Release No. 2650 / July 24, 2007 
+
+  SEC v. John C. Charters, , (United States District Court for the District of Colorado, Civil Action No. 07-CV-01550)  SEC v. Richard E. Fresia , (United States District Court for the District of Colorado, Civil Action No. 07-CV-01549) 
+
+ SEC Charges Two Former Officers of Expanets, Inc., a Former Subsidiary of Northwestern Corporation, With Financial and Disclosure Fraud 
+
+ The Securities and Exchange Commission yesterday filed actions against two former officers of Expanets, Inc. ("Expanets"), a former Colorado-based telecommunications subsidiary of NorthWestern Corporation ("NorthWestern").  The Commission's complaints, each filed in the United States District Court for the District of Colorado, allege that John C. Charters, Expanets' former chief executive officer, and Richard E. Fresia, Expanets' former chief financial officer, overstated the performance of Expanets in 2002 during the same period that NorthWestern completed securities offerings totaling more than $800 million.  The Commission's complaints further allege that, after restating its financial results for the first three quarters of 2002, and disclosing Expanets' true financial position and results of operations, NorthWestern declared bankruptcy in 2003. 
+
+ The Commission alleges that, in NorthWestern's quarterly filings, debt and equity offering filings, and other public information, Charters and Fresia were responsible for overstating the performance of and concealing problems at Expanets.  The Commission alleges that each defendant knew or was reckless in not knowing that Expanets had failed to take appropriate charges for uncollectible accounts receivable and billing adjustments related to the implementation of Expanets' new computer system, resulting in the overstatement of NorthWestern's income from continuing operations by 90% in the second quarter of 2002 and 109% in the third quarter of 2002.  The Commission also alleges that each defendant was responsible for NorthWestern's failure to disclose that a material portion of Expanets' income was derived from the reduction of various accounting reserves and through Expanets' receipt of unusual non-compete payments.  
+
+ The Commission's complaints charge Charters and Fresia with violations of Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933.  The complaints also charge each defendant with violating Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and with aiding and abetting NorthWestern's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.  The Commission seeks permanent injunctions and civil penalties against each defendant, and also seeks disgorgement and an officer-and-director bar against Fresia. 
+
+ Charters, without admitting or denying the allegations in the Commission's complaint against him, consented to the entry of a final judgment permanently enjoining him from violating or aiding and abetting violations of the provisions he allegedly violated, and also consented to pay $50,000 in civil penalties.   
+ 
+ For additional information on related Commission actions, see  Sec. Exch. Act Rel. No. 34-55416  (March 7, 2007) and  Lit. Rel. No. 20091  (April 25, 2007). 
+
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+See also Complaint in this matter:  Fresia  
+
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diff --git a/raw/aaer/2007/AAER-2651.pdf b/raw/aaer/2007/AAER-2651.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..cae78d45e406987b2a1d8569f7ab037ab3dacb31
Binary files /dev/null and b/raw/aaer/2007/AAER-2651.pdf differ
diff --git a/raw/aaer/2007/AAER-2651.txt b/raw/aaer/2007/AAER-2651.txt
new file mode 100644
index 0000000000000000000000000000000000000000..64681609e04b6d42cee6b900a23ce8aacf8acfc6
--- /dev/null
+++ b/raw/aaer/2007/AAER-2651.txt
@@ -0,0 +1,45 @@
+ 
+______________________________ 
+UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56123 / July 24, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2651 / July 24, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12708 
+: 
+In the Matter of  :
+ : ORDER OF SUSPENSION PURSUANT 
+AYAL ROSENTHAL, 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 Ayal Rosenthal 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. Rosenthal is a certified public accountant licensed in New York and New Jersey. 
+2. On June 13, 2007, a judgment of conviction was entered against Rosenthal in 
+United States v. Ayal Rosenthal, No. 07-CR-98-01 (JG), in the United States District Court for 
+the Eastern District of New York, finding him guilty of one count of conspiracy to commit 
+securities fraud. 
+3. As a result of this conviction, Rosenthal was sentenced to two months’ 
+imprisonment in a federal penitentiary and ordered to pay a fine of $5,000. 
+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 
+III. 
+In view of the foregoing, the Commission finds that Rosenthal 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 Ayal Rosenthal 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/2007/AAER-2654.txt b/raw/aaer/2007/AAER-2654.txt
new file mode 100644
index 0000000000000000000000000000000000000000..965a21bcb896d5f4e7da99f908d4d6ce0d2248c6
--- /dev/null
+++ b/raw/aaer/2007/AAER-2654.txt
@@ -0,0 +1,1399 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Cardinal Health, Inc. 
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+              Cardinal Health, Inc.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20212 / July 26, 2007 
+
+ Accounting and Auditing Release No. 2654 / July 26, 2007 
+
+  Securities and Exchange Commission v. Cardinal Health, Inc. , United States District Court for the Southern District of New York, Civil Action No. 07 CV 6709 (S.D.N.Y. July 26, 2007) 
+
+ SEC Sues Cardinal Health, Inc. For Fraudulent Earnings and Revenue Management Scheme 
+
+ Pharmaceutical Distribution Company to Pay $35 Million Penalty 
+
+ The Securities and Exchange Commission today filed a civil action against Cardinal Health, Inc. (Cardinal), a pharmaceutical distribution company based in Dublin, Ohio, in which Cardinal agreed to pay $35 million to settle charges that it engaged in a nearly four-year long fraudulent revenue and earnings management scheme, as well as other improper accounting and disclosure practices.   
+
+ The Commission's complaint alleges that, from September 2000 through March 2004, Cardinal engaged in this conduct in order to present a false picture of its operating results to the financial community and the investing public - one that matched Cardinal's publicly disseminated earnings guidance and analysts' expectations, rather than its true economic performance.  Through these practices, Cardinal materially overstated its operating revenue, earnings and growth trends in certain earnings releases and filings with the Commission. 
+
+ According to the complaint, Cardinal managed its reported revenue and earnings through a variety of undisclosed and improper actions. Cardinal inflated reported operating revenue by misclassifying more than $5 billion of bulk sales as operating revenue.  As detailed in the complaint, Cardinal classified its revenue from drug distribution as either "bulk" revenue, which consisted of certain full case quantities of pharmaceutical products delivered to customer warehouses, or operating revenue, which consisted of all other sales.  The complaint alleges that Cardinal implemented an undisclosed internal practice under which it reclassified any revenue from the sale of bulk product held on its premises for 24 hours or longer as operating revenue.  Shortly thereafter, as the complaint describes, Cardinal began intentionally holding certain bulk shipments for longer than 24 hours, in order to shift revenue from the bulk revenue line to the operating revenue line and fraudulently inflate its operating revenue and operating revenue growth rates in certain quarters (the 24-Hour Lever).  Cardinal used the 24-Hour Lever along with other revenue and earnings management practices to fraudulently overstate its operating results.              
+
+ According to the complaint, Cardinal managed its reported earnings by:
+   selectively accelerating, without disclosure, the payment of vendor invoices in order to prematurely record a cumulative total of $133 million in cash discount income; 
+ improperly adjusting reserve accounts, which misstated earnings by more than $65 million; and 
+ improperly classifying $22 million of expected litigation settlement proceeds to increase operating earnings.   
+  In addition, the complaint alleges that Cardinal failed timely to disclose the impact of a change in the method of applying its last-in-first-out (LIFO) inventory valuation accounting principle and, on one occasion, intentionally transferred inventory within business units in order to avoid a negative LIFO impact on year-end reported earnings.  Furthermore, the complaint alleges that Cardinal prematurely recognized millions of dollars in revenue from Pyxis, a wholly-owned subsidiary it featured as an important growth driver. 
+
+ The terms of the settlement reflect, and the Commission acknowledges, the cooperation provided by Cardinal during the course of the SEC investigation.  Without admitting or denying the allegations of the Commission's complaint, Cardinal has consented to the entry of a final judgment permanently enjoining it from violating: the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5; the reporting provisions of the Exchange Act, Section 13(a) and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13; and the record-keeping and internal controls provisions of the Exchange Act, Sections 13(b)(2)(A) and 13(b)(2)(B).  Cardinal also agreed to pay $1 in disgorgement and a $35 million penalty, which the Commission will seek to place in a Fair Fund for distribution to affected shareholders.  Cardinal further consented to engage an independent consultant to conduct a review of its disclosure processes, practices and controls, as well as those policies and procedures that relate to allegations in the Commission's complaint.  The settlement is subject to court approval.   
+
+ The Commission also acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York.  The Commission's investigation is continuing. 
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diff --git a/raw/aaer/2007/AAER-2655.txt b/raw/aaer/2007/AAER-2655.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c6574a9fd5705c10b0acb544bc5d8bf4c71ed0c7
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56136 / July 26, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2655 / July 26, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12710 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+ ANNE M. PEMBER, : 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 Anne 
+M. Pember (“Respondent” or “Pember”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules 
+of Practice.1 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . [p]ermanently enjoined by any court of competent jurisdiction, by reason of 
+his or her misconduct in an action brought by the Commission, from violating or aiding and 
+abetting the violation of any provision of the Federal securities laws or of the rules and 
+regulations thereunder. 
+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, paragraph 4, below, which are admitted, 
+Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+1.   Respondent, age 47, was the Controller of CUC International Inc. 
+(“CUC”) from June 1997 through the December 1997 merger of CUC and HFS Incorporated 
+(“HFS”) that formed Cendant Corporation (“Cendant”).  From the time of the merger until March 
+1998, she was part of the management of the accounting unit at Cendant Membership Services, the 
+post-merger name for the former CUC business units.  Prior to becoming Controller of CUC, from 
+1989 to 1997, Pember was Controller of CUC’s largest division, the Comp-U-Card division.  
+Beginning in 1996, she also held the title of Senior Vice President.  She resides in Madison, 
+Connecticut and was licensed as a certified public accountant in Connecticut until November 2001.   
+2. CUC, a Delaware corporation that had its headquarters in Stamford, 
+Connecticut, was principally engaged in membership-based consumer services, such as auto, 
+dining, shopping, and travel “clubs.”  CUC’s Comp-U-Card division marketed individual 
+memberships in these clubs. CUC was a public company whose common stock was registered 
+with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 
+(“Exchange Act”) and which was required to file periodic reports with the Commission pursuant to 
+Section 13 of the Exchange Act.  Its common stock was listed on the New York Stock Exchange 
+(“NYSE”). 
+3. Cendant, a Delaware corporation with its headquarters in New York City, 
+was created through the December 17, 1997, merger of CUC and HFS.  Cendant provided 
+membership-based and Internet-related consumer services and owned the rights to franchise brand 
+names in the hotel-hospitality, residential real estate brokerage, car rental, and tax preparation 
+businesses.  Its common stock was registered with the Commission pursuant to Section 12(b) of 
+the Exchange Act and it was required to file periodic reports with the Commission pursuant to 
+Section 13 of the Exchange Act.  Its common stock was listed on the NYSE.  In July 2006, 
+Cendant spun-off its real estate and hospitality businesses, and in August 2006, the company spun-
+off its membership-based travel services business.  In August 2006, Cendant was renamed Avis 
+Budget Group, Inc. 
+2
+
+4. On June 14, 2000, the Commission filed a complaint against Respondent in 
+Securities and Exchange Commission v. Cosmo Corigliano, et al. (Civil Action Number 00-2873), 
+in the United States District Court for the District of New Jersey.  On July 25, 2000, the 
+Commission filed an amended complaint in that action.  Respondent neither admits nor denies the 
+allegations of the amended complaint.  On June 27, 2007, a final judgment was entered by consent 
+against Respondent, permanently enjoining her from committing violations of Section 17(a) of the 
+Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Exchange Act 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), 
+13(b)(2)(B), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, 13b2-
+2, and 14a-9. The final judgment ordered Respondent to pay $100,000 in disgorgement of unjust 
+enrichment and prohibits Respondent, pursuant to Section 21(d) of the Exchange Act, from acting 
+as an officer or a 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. 
+5. The Commission’s amended complaint alleges, among other things, that 
+during the period when Respondent was Controller of the Comp-U-Card division at CUC and 
+subsequently Controller of CUC, she oversaw several fraudulent accounting practices that 
+significantly overstated CUC’s and later Cendant’s publicly reported earnings and income from 
+operations.  As alleged in the amended complaint, Respondent oversaw the practice of fraudulently 
+altering the accounting for membership sales revenue so that certain anticipated future revenues 
+were recognized immediately.  The amended complaint further alleges that Respondent oversaw 
+the practice of delaying or avoiding the recognition of expenses incurred as a result of membership 
+cancellations and sales commissions owed to third-party vendors.  The amended complaint further 
+alleges that, for several years, Respondent directed reversals of the company’s merger and 
+purchase accounting reserves to enhance CUC’s and Cendant’s reported earnings.  The amended 
+complaint alleges that these practices overstated CUC’s and Cendant’s publicly reported earnings 
+and income from operations by hundreds of millions of dollars between 1996 and 1998.  In 
+addition, the amended complaint alleges that Respondent made materially false statements to 
+CUC’s and Cendant’s public accountants and directed less senior managers to restrict and withhold 
+material information sought by CUC’s public accountant.   
+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’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+Pember is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+4
diff --git a/raw/aaer/2007/AAER-2656.pdf b/raw/aaer/2007/AAER-2656.pdf
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diff --git a/raw/aaer/2007/AAER-2660.txt b/raw/aaer/2007/AAER-2660.txt
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8827 / July 31, 2007 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56170 / July 31, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2660 / July 31, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12718 
+In the Matter of 
+   ASPEN TECHNOLOGY, INC.,  
+Respondent. 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND SECTION 
+21C OF THE SECURITIES EXCHANGE ACT 
+OF 1934 
+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 Aspen Technology, Inc. (“Aspen” or “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 8A of the Securities Act and Section 21C of the Exchange Act (“Order”), as set forth 
+below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+A. SUMMARY 
+1. From at least 1999 through 2002, Aspen -- often acting through its Chief Executive 
+Officer (CEO), Chief Financial Officer (CFO) and Chief Operating Officer (COO) -- engaged in a 
+scheme to fraudulently inflate revenues by improperly recognizing revenue on at least nineteen 
+different software license transactions involving at least fifteen different customers world-wide.  
+Motivated by a desire to boost revenues and meet securities analyst earnings expectations, Aspen’s 
+CEO, CFO and COO were directly involved in negotiating and improperly recognizing revenue on 
+certain of these transactions.  The scheme involved premature recognition of revenue where 
+revenue was not recognizable under generally accepted accounting principles (“GAAP”) in the 
+quarters claimed by Aspen either because contracts were not signed within the appropriate quarter 
+or because the earnings process was incomplete due to side letters or other contingency 
+arrangements.  In several reporting periods, Aspen would not have met analysts’ earnings 
+expectations without the improperly recognized revenue.2 
+2. On March 15, 2005, Aspen restated its financial statements for fiscal years ended 
+June 30, 2000 through June 30, 2004.  Among other things, the restatement revealed that Aspen 
+had overstated previously reported license revenue for the fiscal year ended June 30, 2000 by 5.5% 
+and for the fiscal year ended June 30, 2001 by 9.3%, resulting in net income dropping from $5.4 
+million to a loss of $3.2 million for fiscal 2000 and increasing the previously reported loss for 
+fiscal 2001 by $16 million.  
+B. RESPONDENT
+ 3. Aspen, a Delaware corporation based in Cambridge, Massachusetts, sells computer 
+software used in chemical, petroleum and other industrial operations.  Aspen’s stock is registered 
+with the Commission under Section 12(g) of the Exchange Act and trades on the NASDAQ 
+National Market System.  Aspen reports its results of operations on a fiscal year basis ending on 
+June 30. 
+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 From June 1, 2000 through May 9, 2002, Aspen financed six acquisitions through private placements of 
+common stock exempt from registration under Section 4(2) of the Securities Act.  In addition, Aspen filed Forms S-
+8 with the Commission to register shares in each of the years 2000, 2001 and 2004; those registration statements 
+incorporated by reference the periodic reports discussed herein. 
+2
+
+C. BACKG ROUND 
+License Revenue Fraudulently Recognized in the Fiscal Year Ended June 30, 1999 
+4. On September 28, 1999, Aspen filed with the Commission its Form 10-K for the 
+year ended June 30, 1999.  The financial statements in the Form 10-K overstated Aspen’s software 
+license revenue for the quarter ended June 30, 1999 by 25% due to fraudulent accounting on two 
+software license transactions.  As described below, Aspen’s CFO was directly involved in at least 
+one of the transactions and was aware that recognition of revenue from that transaction was 
+improper.   
+5. In or about late June or early July 1999, Aspen’s outside auditor expressed concern 
+that the terms of a $9.9 million software license agreement with a Texas-based oil company (“the 
+Texas oil company”), would prevent Aspen from recognizing the revenue up front because the 
+agreement included a requirement that Aspen provide additional, as yet undetermined, software 
+products at no additional cost.  Under GAAP, revenue may not be recognized up-front where there 
+is a future obligation to provide as yet undetermined products.  Aspen’s CFO, motivated by a 
+desire to recognize the revenue up-front and thereby meet consensus analyst earnings expectations, 
+evaded the auditor’s concerns by causing the sales documents to be revised to remove that 
+provision and by putting the obligation to provide additional products into a separate side 
+agreement, which she signed on August 20, 1999.  Aspen then improperly accounted for the 
+license revenue up front: approximately $4.5 million was recorded in Aspen’s books and records 
+and improperly recognized as revenue in the quarter ended June 30, 1999 (18% of total license 
+revenue) and approximately $5.4 million was recorded in Aspen’s books and records and 
+recognized as revenue in the quarter ended September 30, 2000 (25 % of total license revenue).  
+For the quarter and year ended June 30, 1999 and for the quarter ended September 30, 1999, Aspen 
+exceeded the consensus analyst earnings estimates.  Had the revenue from the Texas oil company 
+not been recorded in those periods, Aspen would have significantly missed analyst earnings 
+expectations for each of those periods.   
+6. Similarly, for the quarter and fiscal year ended June 30, 1999, Aspen recorded in its 
+books and records and recognized $1.7 million in license revenue pursuant to a software license 
+agreement dated June 30, 1999 with a large petroleum refining company based in India (“the 
+Indian refining company”).  That revenue should also not have been recognized up front because 
+an Aspen salesman had entered into a side letter with the Indian refining company pursuant to 
+which Aspen agreed to provide additional, as yet undetermined, software products.  As noted 
+above, under GAAP, the commitment to provide additional future software required that Aspen 
+record and recognize the license revenue for the transaction with the Indian refining company over 
+a longer period of time. 
+License Revenue Fraudulently Recognized in the Fiscal Year Ended June 30, 2000 
+7. During the fiscal year ended June 30, 2000, again as a result of side letter 
+agreements, Aspen fraudulently recorded in its books and records and recognized revenue from 
+two software license transactions.  The first transaction involved a Korean engineering and 
+3
+
+construction firm (“the Korean company”).  For the quarter ended March 31, 2000, Aspen recorded 
+in its books and records and recognized $1.1 million in license revenue pursuant to a software 
+license agreement dated March 31, 2000 with the Korean company.  The revenue should not have 
+been recognized because an Aspen salesman entered into two contemporaneous side letter 
+agreements with the Korean company which obligated Aspen to provide $300,000 in cash and 
+$800,000 in services to the Korean company.  Under GAAP, because the total amount of software 
+license revenue was offset by Aspen’s obligations under the side letters, Aspen should not have 
+recorded or recognized revenue on the transaction.  On May 15, 2000, Aspen filed its Form 10-Q 
+for the quarter ended March 31, 2000; the financial statements in the Form 10-Q improperly 
+included approximately $1.1 million in software license revenue from the transaction.    
+8. The second transaction involved a software license agreement dated March 31, 
+2000 with a French company (“the French company”).  For the quarter ended June 30, 2000, 
+Aspen fraudulently recorded in its books and records and recognized license revenue of $1.5 
+million relating to that agreement.  The revenue should not have been recognized because an 
+Aspen salesman entered into a contemporaneous side letter agreement which created contingencies 
+to the French company’s obligations.  Under GAAP, the existence of those contingencies 
+prohibited up-front recognition of the license revenue.  On September 28, 2000, Aspen filed its 
+Form 10-K for the year ended June 30; the financial statements in the Form 10-K improperly 
+included approximately $1.5 million in software license revenue from the transaction.   
+License Revenue Fraudulently Recognized in the Fiscal Year Ended June 30, 2001 
+Second Quarter 2001 Revenue
+ 9. On February 14, 2001, Aspen filed its Form 10-Q for the quarter ended December 
+31, 2000. In the financial statements included in that filing, Aspen’s software license revenue for 
+the quarter was fraudulently inflated by 18.6% as a result of the improper recognition of revenue 
+from five software transactions.  As described below, Aspen’s CEO, CFO and COO were all aware 
+that the recognition was improper in at least two of those transactions.   
+10. Aspen’s CEO, motivated by a desire to increase revenue at the end of a quarter, was 
+the architect of a fraudulent revenue transaction with an information technology company based in 
+New York (“the New York company”).  For the quarter ended December 31, 2000, Aspen 
+improperly recorded in its books and records and recognized $2.8 million in license revenue 
+pursuant to a software license agreement with the New York company. Under GAAP, the revenue 
+from the transaction with the New York company should not have been recognized for two 
+independent reasons: (i) the transaction was still being negotiated after quarter end; and (ii) the 
+New York company’s payment to Aspen was contingent on Aspen finding end users to which the 
+New York company could resell the software. 
+11. Just before the close of the second quarter, around December 25, 2000, the CEO 
+asked the New York company to buy approximately $3 million worth of software.  In order to 
+induce the New York company to make the deal, the CEO promised that Aspen would arrange for 
+end-users to purchase the software from the New York company.  The CEO further promised that 
+4
+
+the New York company would not be required to pay for the licenses until Aspen arranged for 
+those end-users to purchase the software, and that if the New York company was unable to resell 
+all $3 million in licenses, Aspen would arrange financing for the transaction until the licenses were 
+sold through to end-users.  On or about January 6, 2001, an employee of the New York company 
+observed to a coworker in an email that: AAspenTech needs to realize the $3M sale in Dec. 2000 
+business, and they are willing to make some extraordinary concessions for this.”  Aspen’s CEO, 
+CFO, and COO all knew that Aspen and the New York company were still negotiating the terms of 
+the license sale through mid-January 2001, and also knew that, in order to legitimately recognize 
+the revenue in the quarter ended December 31, the deal had to have been signed before December 
+31, 2000. In an attempt to make it appear that the deal was signed before the close of the quarter, 
+an Aspen salesman asked the New York company representative in January 2001 to sign the 
+software license agreement and to back date it December 29, 2000.  The CEO, CFO and COO 
+were motivated to prematurely recognize the revenue by a desire to increase revenues in the 
+quarter and to meet analyst earnings expectations.  Including the revenue from the New York 
+company allowed Aspen to exceed analyst earnings expectations for the quarter; without that 
+revenue, Aspen would have missed analyst earnings expectations.     
+12. Similarly, in a transaction with a British software company (“the British 
+company”), Aspen’s CEO, CFO and COO all participated in a deal which resulted in Aspen 
+fraudulently recording in its books and records and recognizing $1.75 million in license revenue 
+for the quarter ended December 31, 2000.  Under GAAP, the revenue should not have been 
+recorded or recognized for two independent reasons: (1) the transaction was still being negotiated 
+after quarter end; and (2) the British company’s payment for the licenses was contingent on Aspen 
+finding customers who would purchase a minimum amount of software implementation services 
+from the British company.  Aspen’s CEO was aware that the transaction was being negotiated after 
+quarter end, and both Aspen’s CFO and COO knew that the British company’s payment was 
+contingent on Aspen finding customers to purchase services from the British company.  Despite 
+this, all three caused Aspen to improperly recognize revenue on the transaction in the quarter ended 
+December 31, 2000. Including the revenue from the British company allowed Aspen to exceed 
+analyst earnings expectations for the quarter.     
+13. In addition, for the quarter ended December 31, 2000, Aspen also fraudulently 
+recorded in its books and records and recognized license revenue of $1.2 million pursuant to a 
+software license agreement dated December 29, 2000 with a South African construction company 
+that was a reseller of Aspen products in Africa, $824,000 pursuant to an agreement dated 
+December 29, 2000 with an Indian reseller of Aspen’s software, and $978,000 pursuant to a 
+software license agreement dated December 30, 2000 with a Thailand chemical company.  Aspen 
+should not have recognized the revenue up-front on each of these transactions due to the existence 
+of contingencies that, among other reasons, under GAAP made collectibility not probable. 
+Fourth Quarter 2001 Revenue 
+14. On September 26, 2001, Aspen filed with the Commission its Form 10-K for the 
+year ended June 30, 2001.  Aspen’s quarterly and yearly financial results for fiscal 2001 were also 
+reported in a Form 8-K filed with the Commission on August 8, 2001.  As a result of fraudulent 
+5
+
+revenue recognition from three software license transactions, Aspen’s software license revenue for 
+the fourth quarter of 2001 was inflated by 15.8%.  Aspen’s CEO, CFO and COO knew that the 
+recognition of revenue from at least one of those transactions was improper.   
+15. Among the fourth quarter 2001 transactions, Aspen fraudulently recorded in its 
+books and records and recognized $4.3 million in license revenue pursuant to a software license 
+agreement with a large petroleum company in Russia (“the Russian company”).  Aspen’s CEO, 
+CFO and COO all participated in the scheme to improperly recognize revenue from the deal.  
+Under GAAP, the revenue from the transaction with the Russian company should not have been 
+recorded or recognized for two independent reasons: (1) the transaction was still being negotiated 
+after quarter end; and (2) a separate side agreement signed by Aspen’s COO created significant 
+contingencies to the Russian company’s obligations under the license agreement. 
+16. Aspen’s CEO, COO, and CFO all knew that the deal with the Russian company 
+was not completed within the quarter ended June 30, 2001.  The COO, with the knowledge of 
+Aspen’s CEO and CFO, had the Russian company sign the software license agreement in July 
+2001 but back date it June 2001 so that Aspen could fraudulently recognize the revenue in the 2001 
+fiscal year. On or about July 5, 2001, the COO sent an e-mail, marked “destroy after reading,” to 
+the CEO and CFO attaching a draft letter to the Russian company’s president.  The attached letter 
+to the Russian company’s president proposed, in part, that the Russian company sign the 
+contemplated software agreement by July 10, 2001 and stated that “[a]s a quarterly driven software 
+company, our business model requires that we book significant software license revenue.  ... By 
+[the Russian company] committing to the software license agreement [by July 10, 2001] ... we can 
+recognize the revenue for our fiscal year ending June 30, 2001 . . . .”  In addition, in mid-July 2001, 
+Aspen’s COO entered into a side agreement with the Russian company which created significant 
+contingencies.  The side agreement gave the Russian company the  “unconditional right[]” to 
+withdraw from the software agreement if the parties failed to reach any one of three additional 
+agreements by August 1, 2001.  Because the parties failed to enter into any of the additional 
+agreements referenced in the side agreement, the Russian company had no obligation to purchase 
+any software pursuant to the software agreement.  Aspen’s CEO, CFO and COO were all 
+motivated to prematurely recognize the revenue from the Russian company transaction by a desire 
+to meet consensus analysts’ earnings expectations.  Without the revenue from the Russian 
+company transaction, Aspen would not have met quarterly analysts’ earning expectations. 
+17. In addition, on or about August 7, 2001, Aspen’s CEO, CFO and COO signed a 
+letter to Aspen’s outside auditors which falsely represented that “there are no contingencies, 
+amendments or modifications to the original agreement, side agreements (verbal or written) or 
+expected future concessions under [the software agreement] between Aspen and [the Russian 
+company].” 
+18. Aspen also fraudulently recorded in its books and records and recognized $1.8 
+million in license revenue pursuant to software license agreements dated June 8, 2001 with a large 
+petroleum refining company in Asia and $225,000 pursuant to a software license agreement dated 
+June 30, 2001 with a Canadian systems integrator.  Aspen should not have recognized revenue in 
+6
+
+the quarter ended June 30, 2001 on either of these transactions due to contingencies that, among 
+other reasons, under GAAP, caused the fees not to be fixed or determinable. 
+License Revenue Fraudulently Recognized in the Fiscal Year Ended June 30, 2002 
+19. On September 30, 2002, Aspen filed with the Commission its Form 10-K for the 
+year ended June 30, 2002. The financial statements in the filing overstated revenue as a result of 
+fraudulent revenue recognition from at least three software license transactions.  As described 
+below, Aspen’s CFO and COO, again motivated by a desire to increase revenues for the quarter, 
+were directly involved in the improper revenue recognition on at least one of the transactions.      
+20. In a second instance of improper revenue recognition involving the New York 
+company referenced above, Aspen’s CFO and COO caused revenue to be recognized despite 
+knowing that the New York company’s obligations were contingent and that revenue could not be 
+recognized.  As a result, for the quarter ended March 30, 2002, Aspen fraudulently recorded in its 
+books and records and recognized $1.7 million in license revenue pursuant to a software license 
+agreement with the New York company dated March 28, 2002. This transaction totaled 
+approximately 4.5% of Aspen’s license revenue for the quarter and was reported on Aspen’s Form 
+10-Q/A for the quarter ended March 31, 2002, filed with the Commission on September 6, 2002.     
+21. The revenue from the second New York company deal should not have been 
+recognized up-front because, similar to the prior deal, the New York company’s obligation to pay 
+Aspen was contingent upon resale to an end-user, and thus, the license fee did not meet the 
+requirements for up-front revenue recognition. Aspen’s CFO and COO were aware of this 
+contingency at the time the revenue was fraudulently recognized.  For example, in early March 
+2002, an Aspen salesman copied Aspen’s CFO on an email, stating in part that “We are in the 
+closing stages of completing a deal with [an Italian company]. . . . The deal is most likely to be 
+sold through [the New York company] as they have an existing agreement with [the Italian 
+company] . . . . The timing of [the Italian company] deal will mean we run close to the end of Q3.  
+My question is, if [the New York company] sign [sic] up the deal with us in March but the [Italian 
+company] deal with [the New York company] completes in early April, would we be able to 
+recognize the deal in Q3?  [The New York company] would purchase the software on behalf of 
+[the Italian company] as part of the larger project.  Let me know asap, as this has a bearing on how 
+much pressure we put on [the Italian company].”  Aspen’s CFO responded to this email by stating 
+“We have tried this several times with [the New York company] and it hasn’t worked as they 
+always want the end customer to be committed before they are committed - SO I am willing to 
+give it a try but don’t count on it!!”  The CFO then forwarded the email string to, among others, the 
+COO, with a note stating:  “THis [sic] is risky!!”   Despite the CFO and COO’s knowledge that the 
+New York company’s commitment was contingent upon resale to a third party, Aspen fraudulently 
+recognized the revenue from the transaction.  Recognizing the revenue from the New York deal 
+allowed Aspen to exceed analyst earnings expectations; without the revenue, Aspen would have 
+missed expectations.    
+7
+
+22. In a second transaction with the South African company referenced above, for the 
+fiscal quarter ended June 30, 2002, Aspen recorded in its books and records and fraudulently 
+recognized $440,000 in license revenue pursuant to a software license agreement dated June 30, 
+2002. In mid-2002, an Aspen salesman offered the South African company a $45,000 payment to 
+simply sign a software license agreement to buy $450,000 in software licenses and then transfer the 
+software on to an end-user that Aspen had previously lined-up.  The Aspen salesman entered into a 
+letter agreement with the South African company on July 1, 2002 confirming that Aspen, in 
+recognition of the South African company’s signing of the license agreement, would sell the 
+software to an end user and pay the South African company a commission of $45,000.  Under 
+GAAP, this transaction was not a bona fide sale and thus the revenue should not have been 
+recognized. 
+23. Lastly, Aspen’s COO, motivated by a desire to partially offset a large revenue 
+shortfall in the final days of the quarter, entered into contemporaneous side agreements with a 
+Kuwait company (“the Kuwait company”) which affected delivery and caused the fee under the 
+license agreement not to be fixed or determinable.  As a result, for the quarter ended June 30, 2002, 
+Aspen fraudulently recorded in its books and records and recognized $1.9 million in license 
+revenue pursuant to a software license agreement with the Kuwait company.  Had the revenue 
+from the Kuwait company transaction not been recorded in this period, Aspen would have missed 
+consensus analyst expectations by a greater margin. 
+The Restatement 
+24. On October 27, 2004, Aspen announced that its board of directors’ audit committee 
+began an investigation of accounting for software license and service agreements entered into 
+during fiscal years 2000 through 2002.  On November 24, 2004, Aspen announced that it would 
+file a restatement of its financial statements due to certain accounting improprieties.  On March 15, 
+2005, Aspen restated its financial statements for fiscal years 2000 through 2004.  The restatement 
+revealed that Aspen had overstated previously reported license revenue for fiscal 2000 by 5.5% 
+and for fiscal 2001 by 9.3%, resulting in net income dropping from $5.4 million to a loss of $3.2 
+million in 2000 and increasing the previously reported loss for fiscal 2001 by $16 million.  License 
+revenue for the years ended June 30, 2002, 2003, and 2004 was understated by 1.8%, 13.9%, and 
+4.0% respectively.  As a result of prematurely recognized revenue from several transactions in 
+fiscal 2001 and prior, the revenue was moved to these later periods. 
+D. VIO LATIONS 
+25. As a result of the conduct described above, Aspen violated Section 17(a) of the 
+Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit 
+fraudulent conduct in the offer or sale or in connection with the purchase or sale of securities. 
+26. Also as a result of the conduct described above, Aspen violated Section 13(a) of the 
+Exchange Act and Rules 13a-1, 13a-11, and 13a-13 and 12b-20 thereunder. 
+8
+
+27. Because Aspen improperly recorded revenue, its books, records and accounts did 
+not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets. 
+28. In addition, Aspen failed to implement internal accounting controls relating to its 
+revenue accounts sufficient to provide reasonable assurances that these accounts were accurately 
+stated in accordance with GAAP.       
+29. As a result of the conduct described above, Aspen 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.  
+30. Lastly, as a result of the conduct described above, Aspen 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 
+generally accepted accounting principles.  
+E. ONGOING COOPERATION 
+31. In determining to accept the Offer, the Commission has considered the following 
+undertaking by the Respondent – Aspen 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.  Aspen shall: (i) produce, without service of a notice or subpoena, any and all 
+documents and other information requested by the Commission staff; (ii) use its best efforts to 
+cause its employees to be interviewed by the Commission staff at such times as the staff reasonably 
+may direct; and (iii) 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 reasonably requested by the Commission staff. 
+F. UNDERTAKINGS 
+Respondent undertakes to: 
+a. Retain, through its Board of Directors, within thirty days after the entry of this 
+Order, an Independent Consultant (“Independent Consultant”), not unacceptable to the staff of the 
+Commission, to review Aspen’s financial and accounting policies and procedures relating to: (i) 
+revenue recognition on software licensing agreements, including the consideration of SOP 97-2 
+and documentation of that consideration; (ii) the signing and dating of material sales contracts and 
+purchase orders and the retention by Aspen’s corporate finance organization of all such contracts 
+and purchase orders; (iii) written documentation that all sales contingencies have been met in 
+material revenue transactions; (iv) the generation and issuance to customers of sales invoices; and 
+(v) the preparation and review of accounts receivable confirmations.  Aspen shall require the 
+Independent Consultant to also consider, based on his/her review, the nature and extent of Aspen’s 
+Board of Directors training required to minimize the possibility of future violations of the federal 
+9
+
+securities laws by Aspen, acting through its finance and accounting employees.  At the conclusion 
+of the review, which in no event shall be more than 90 days after the Independent Consultant’s 
+retention, Aspen shall require the Independent Consultant to submit a Report to Aspen and to the 
+Boston Regional Office of the Commission.  The Report shall address the issues described above 
+and shall include a description of the review performed, the conclusions reached and the 
+Independent Consultant's recommendations for changes in or improvements to policies and 
+procedures, including recommendations as to the nature and extent of Board of Directors’ training. 
+b. Respondent shall adopt all of the Independent Consultant’s recommendations for 
+changes in or improvements to policies and procedures as set forth below; provided however, that 
+within 45 days from the date of submission of the Independent Consultant’s report, Respondent 
+shall in writing advise the Independent Consultant and the staff of the Commission’s Boston 
+Regional Office of any recommendation that Respondent considers to be unnecessary, 
+inappropriate, unreasonable, impractical or infeasible.  Respondent need not adopt any such 
+recommendation at that time but shall propose in writing an alternative policy or procedure 
+designed to achieve the same objective. 
+c. As to any recommendation with respect to Respondent’s policies and procedures on 
+which Respondent and the Independent Consultant do not agree, they shall make a good faith 
+attempt to reach agreement within 60 days from the date of submission of the Independent 
+Consultant’s report.  In the event the Respondent and the Independent Consultant are unable to 
+agree on an alternative proposal, Respondent will follow the recommendation of the Independent 
+Consultant. To the extent the Independent Consultant proposes, in his/her report, alternative 
+recommendations, any one of which is intended to address a given matter, Respondent may adopt 
+one of the proposed alternatives and need not notify the Independent Consultant or the staff of the 
+Commission’s Boston Regional Office of alternative recommendations not adopted. 
+d. Aspen (i) shall not have the authority to terminate the Independent 
+Consultant, without the prior written approval of the Commission’s Boston Regional Office; (ii) 
+shall compensate the Consultant, and persons engaged to assist the Consultant, for services 
+rendered pursuant to this Order at their reasonable and customary rates; and, (iii) shall not be in 
+and shall not have an attorney-client relationship with the Consultant and shall not seek to invoke 
+the attorney-client or any other doctrine or privilege to prevent the Consultant from transmitting 
+any information, reports, or documents to the staff of the Commission; and 
+e. Aspen shall require the Independent Consultant to enter into an agreement that 
+provides that for the period of engagement and for a period of two years from completion of the 
+engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-
+client, auditing or other professional relationship with Aspen, or any of its present or former 
+affiliates, directors, officers, employees, or agents, respectively, acting in their capacity as such.  
+The agreement will also provide that the Independent Consultant will require that any firm with 
+which he/she is affiliated or of which he/she is a member, and any person engaged to assist the 
+Independent Consultant in performance of his/her duties under this Order shall not, without prior 
+written consent of the Commission’s Boston Regional Office, enter into any employment, 
+consultant, attorney-client, auditing or other professional relationship with Aspen, or any of its 
+10
+
+present or former affiliates, directors, officers, employees, or agents acting in their capacity as such 
+for the period of the engagement and for a period of two years after the engagement. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Aspen’s Offer. 
+Accordingly, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange 
+Act, it is hereby ORDERED that:
+ A. Respondent Aspen 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 thereunder.  
+B. Respondent shall comply with the undertakings enumerated in Section III.F, 
+above. 
+C. Deadlines: For good cause shown, the Commission staff may extend any of 
+the procedural deadlines set forth herein. 
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+11
diff --git a/raw/aaer/2007/AAER-2662.txt b/raw/aaer/2007/AAER-2662.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d62ed42d7e2963c61c1a8e9b0ce3fbb8dc3f5c74
--- /dev/null
+++ b/raw/aaer/2007/AAER-2662.txt
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+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20221 / August 1, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2662 / August 1, 2007 
+
+  Securities and Exchange Commission v. Carole D. Argo , Civil Action No. 07-1397 (JR) (D.D.C. Aug. 1, 2007) 
+
+ The Securities and Exchange Commission today filed a civil injunctive action in the United States District Court for the District of Columbia against Carole D. Argo formerly the president, chief operating officer, and chief financial officer of SafeNet, Inc., alleging that Argo engaged in a fraudulent scheme to grant undisclosed in-the-money options to herself and others by backdating stock option grants to take advantage of historically low closing prices of SafeNet stock.  Specifically, the Commission's complaint alleges that, by selecting these highly favorable dates and causing options to be granted on dates when she knew the options were already in-the-money, Argo created an opportunity for herself and other executives and employees at SafeNet to reap substantial profits.  Argo then backdated documents to conceal from SafeNet's investors that SafeNet was issuing in-the-money option grants. 
+
+ According to the complaint, Argo was aware that SafeNet routinely granted in-the-money options, and she knowingly or recklessly failed to cause SafeNet to record compensation expense as required by Generally Accepted Accounting Principles ("GAAP").  Consequently, SafeNet reported materially misstated financial results for periods beginning in late-2000 through early-2006.  The complaint further alleges that Argo regularly prepared, reviewed and/or signed proxy statements, periodic reports and registration statements that she knew, or was reckless in not knowing, contained materially false and misleading statements and omissions concerning SafeNet's financial condition and options granting practices. 
+
+ Argo is charged with, among other things, violating the antifraud provisions of the federal securities laws, falsifying SafeNet's books and records, circumventing SafeNet's internal controls, misleading SafeNet's auditors, and causing SafeNet to issue false and misleading financial reports.  By engaging in this conduct, Argo specifically violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3, and aided and abetted SafeNet's violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.  The Commission is seeking injunctive relief, disgorgement, pre-judgment interest, and money penalties against Argo, in addition to a permanent bar to prohibit Argo from serving as an officer or director of a public company. 
+
+ The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York and the United States Postal Inspection Service, which conducted a separate, parallel criminal investigation.
+The Commission's investigation in this matter is continuing. 
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diff --git a/raw/aaer/2007/AAER-2664.txt b/raw/aaer/2007/AAER-2664.txt
new file mode 100644
index 0000000000000000000000000000000000000000..05b11732982574c47443a053f5415df65aeae257
--- /dev/null
+++ b/raw/aaer/2007/AAER-2664.txt
@@ -0,0 +1,1392 @@
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+                   SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20227 / August 7, 2007  
+
+ Accounting and Auditing Enforcement Release No. 2664 / August 7, 2007 
+
+  Securities and Exchange Commission v. First BanCorp , 07-CV-7039 (Crotty, J.) (S.D.N.Y. filed August 7, 2007) 
+
+ First BanCorp Settles Financial Fraud Charges With SEC and Agrees to Pay $8.5 Million Penalty 
+
+ The Securities and Exchange Commission today filed financial fraud charges against First BanCorp, alleging that former senior management of the NYSE-listed, Puerto Rico-based bank holding company concealed the true nature of more than $4 billion worth of transactions involving "non-conforming" mortgages from 2000 until 2005.  Non-conforming mortgages have income verification and credit history standards that are generally more flexible than those required for sale or exchange under Fannie Mae and Freddie Mac programs and can constitute "subprime" mortgages.   
+
+ The Commission's complaint charges First BanCorp with aiding and abetting violations of the federal securities laws by Doral Financial Corporation, another NYSE-listed, Puerto Rico-based bank holding company.  Doral Financial previously consented to the entry of a court order enjoining it from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws and ordering that it pay a $25 million civil penalty [LR-19837 (Sept. 19, 2006)].   
+
+ According to today's complaint, First BanCorp, which purportedly purchased the non-conforming mortgages from Doral Financial, profited from the transactions by earning more than $100 million in net interest income at little or no risk.  Doral Financial, which purportedly sold the mortgages to First BanCorp, improperly recognized income on the transactions.  According to the Commission, the mortgage-related transactions were not true sales under generally accepted accounting principles because senior management of Doral Financial agreed orally and in emails to extend the recourse provision beyond the 24-month period included in the written agreements to recourse for the duration of the mortgages.  
+  
+ The Commission's complaint, which was filed in the United States District Court for the Southern District of New York, charges First BanCorp with aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 13a-1 and 13a-13.  Without admitting or denying the Commission's charges, First BanCorp consented to being permanently enjoined from violating those antifraud, reporting, books and records and internal control provisions of the federal securities laws and to paying an $8.5 million civil penalty.  
+ 
+ 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.    
+
+ The Commission's investigation is continuing. 
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2007/AAER-2668.pdf b/raw/aaer/2007/AAER-2668.pdf
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diff --git a/raw/aaer/2007/AAER-2669.txt b/raw/aaer/2007/AAER-2669.txt
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@@ -0,0 +1,152 @@
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+          
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 56301 / August 22, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2669 / August 22, 2007 
+ 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12733 
+ 
+_______________________________                                                             
+In the Matter of    :  
+      : ORDER INSTITUTING ADMINISTRATIVE 
+Kenneth W. DiFonzo, CPA,   : PROCEEDINGS P URSUANT TO RULE 
+      :  1 0 2 ( e )  O F  T H E  C O M M I S S I O N ’ S  R U L E S  O F  
+      : 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 
+Kenneth W. DiFonzo (“DiFonzo” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the 
+Commission's Rules of Practice.1  
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, DiFonzo 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, DiFonzo consents to the entry of this 
+                                                 
+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 or der, . . . 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.” 
+      :  
+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. DiFonzo, age 55, resides in Newport B each, California.  DiFonzo was ConAgra 
+Foods Inc.’s Corporate Controller from May 1994 through February 1999.  From February 1999 
+until May 2004, DiFonzo held other senior positions with ConAgra.  From May 2004 to 
+September 2005, DiFonzo served in an advisory capacity at ConAgra regarding  various 
+operational/management issues.  Since September 1, 2005, DiFonzo has served as a consultant to 
+ConAgra.  DiFonzo is a Certified Public Accountant licensed in Illinois; however, his license has 
+become inactive.  For approximately eight years (1973 to 1981), DiFonzo worked as an auditor 
+in public accounting, rising to the position of Senior Manager. 
+ 
+2. ConAgra, a Delaware corporation with headquarters in Omaha, Nebraska, is a 
+diversified international food company.  ConAgra’s common stock is registered with the 
+Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 (“Exchange 
+Act”), and during the relevant time period, traded on the New York Stock Exchange.  ConAgra’s 
+fiscal year ends on the last Sunday in May of each year. 
+ 
+3. On June 29, 2007, the Commission file d a complaint against DiFonzo in SEC v. 
+Kenneth W. DiFonzo (Civil Action No. 07-cv-1374).  On August 15, 2007, the Court entered a 
+final judgment against DiFonzo which permanently enjoined DiFonzo, by consent, from future 
+violations of Exchange Act Rule 13b2-1, 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.  DiFonzo was also ordered to disgorge  (a) $139,988, plus prejudgment interest of 
+$65,590, and (b) $136,296, representing the market value, determined as of the date the 
+Commission accepts DiFonzo’s settlement offer, of 5,048 shares of ConAgra common stock; and 
+to divest 20,192 of unexercised ConAgra stock options.  It is understood that 8,712 ConAgra 
+stock options had previously been divested on September 20, 2006 pursuant to this settlement 
+agreement and that the balance to be divested pursuant to this Offer is 11,480 options.  
+ 
+4. The Commission's complaint alleged, am ong other things, that during fiscal year 
+1999, DiFonzo directed certain improper accounting practices at ConAgra relating to the 
+establishment and use of excess reserves in FY 1999.  The complaint alleged that DiFonzo knew, 
+or should have known, that ConAgra improperly accounted for excess reserves in FY 1999.  
+According to the allegations in the complaint, as a result of the accounting practices, which were 
+not in accordance with Generally Accepted Accounting Principles (“GAAP”), certain of 
+ConAgra’s filings with the Commission in fiscal year 1999 were materially false and misleading 
+because they misstated ConAgra’s reported income before income taxes and overstated its reported 
+net income and earnings per share.  The complaint also alleged that had ConAgra’s accounting for 
+its reserves been in accordance with GAAP, it would have reduced its excess reserves in earlier 
+periods, which would have resulted in a corresponding increase in ConAgra’s income before 
+income taxes in those earlier periods.  Additionally, the complaint alleged that DiFonzo violated, 
+ 2
+and aided and abetted violations of, the provisions of the federal securities laws as described in 
+Section III.3 above.   
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in DiFonzo’s Offer. 
+ 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. DiFonzo is suspended from appearing or  practicing before the Commission as an 
+accountant. 
+ 
+B. After one (1) year from the date of th is 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 review er, 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 inde pendent 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 Accoun ting 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 disc iplinary 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, incl uding, 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  dependant on reinstat ement by the Commiss ion, the Commission 
+will consider an application on its other merits.  The Commission's review may include 
+consideration of, in addition to the matters re ferenced above, any other matters relating to 
+Respondent's character, integrity, professional conduct, or qualifications to appear or practice 
+before the Commission. 
+By the Commission. 
+ 
+Nancy M. Morris  
+Secretary 
+ 
+ 4
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2673.txt b/raw/aaer/2007/AAER-2673.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e35deeccf363085121d07857b74ff71b4119b36c
--- /dev/null
+++ b/raw/aaer/2007/AAER-2673.txt
@@ -0,0 +1,1392 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Integrated Electrical Services, Inc., Herbert R. Allen, Richard L. China, Thomas E. Stalvey, Ernest P. Breaux, James M. Calcote, and J. Carl Cannon 
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+              Integrated Electrical Services, Inc., Herbert R. Allen, Richard L. China, Thomas E. Stalvey, Ernest P. Breaux, James M. Calcote, and J. Carl Cannon
+           
+     
+ 
+
+   
+
+     
+
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+        Integrated Electrical Services, Inc., Herbert R. Allen, Richard L. China, Thomas E. Stalvey, Ernest P. Breaux, James M. Calcote, and J. Carl Cannon
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20261 / August 30, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2673 / August 30, 2007 
+
+  SEC v. Integrated Electrical Services, Inc., Herbert R. Allen, Richard L. China, Thomas E. Stalvey, Ernest P. Breaux, James M. Calcote, and J. Carl Cannon , Case No.  4:07-CV-2779 (MH)(S.D.Tex., Houston Division) 
+
+ In the Matter of David A. Miller, CPA, Administrative Proceeding File No. 3-12741 (August 29, 2007) 
+
+ SEC Settles Enforcement Proceedings against Integrated Electrical Services and Seven Former Officers and Employees 
+
+ 
+
+ On August 29, 2007, the Securities and Exchange Commission filed a Complaint against electrical contracting company Integrated Electrical Services, Inc. (IES), and its former Chief Executive Officer, Herbert R. Allen, former Chief Operating Officer, Richard L. China, former Regional Operating Officers, Ernest P. Breaux and Thomas E. Stalvey, former Regional Controller, James M. Calcote, and former subsidiary president, J. Carl Cannon, alleging that they engaged in numerous disclosure and accounting violations in 2003 and 2004. 
+
+ The Commission's complaint, filed in the Southern District of Texas, alleges that over the course of four consecutive quarters during 2003 and 2004, IES failed to disclose in its Commission filings that the collectibility of approximately $3 million in unsigned change orders from two construction contracts was in dispute at one of its subsidiaries, and that IES failed to appropriately reserve for these material loss contingencies in its financial statements. The complaint alleges that Cannon, the subsidiary president, represented to IES's external auditors that the change orders were fully collectible at a time when he knew they were in dispute. The impact of the disputed change orders was material to IES's pre-tax income during the relevant periods, and ultimately IES wrote off approximately 70% of the income previously recorded from the change orders. In addition, the complaint alleges that during three of those quarters, IES lowered its allowance for doubtful accounts by approximately $1.8 million without proper disclosure to investors. The complaint alleges that the individual defendants â€" members of IES's senior, regional, and subsidiary management â€" each knew that the collectibility of the unsigned change orders was in dispute, and based on their respective conduct, aided and abetted IES's disclosure and accounting violations. 
+
+ The Commission's complaint alleges that IES violated 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, and 13a-13 thereunder. The complaint further alleges that Allen, China, Breaux, Stalvey, Calcote, and Cannon aided and abetted IES'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. In addition, the complaint alleges that Allen violated Exchange Act Rule 13a-14, Cannon violated Exchange Act Rule 13b2-2, and China aided and abetted IES's violations of Section 13(b)(2)(B) of the Exchange Act. The Defendants, without admitting or denying the allegations set forth in the complaint, agreed to settle the Commission's action by consenting to permanent injunctions against their respective violations. 
+
+ In a related matter, on August 30, 2007, the Commission filed cease-and-desist proceedings against IES's former Chief Accounting Officer, David A. Miller, for his role in causing IES's disclosure lapses in 2003 and 2004. Miller, without admitting or denying the findings in the Commission's order, agreed to cease and desist from causing violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. See Admin. Proc. File No. 3-12741. 
+
+ 
+
+   Administrative Proceeding 34-56341  
+
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diff --git a/raw/aaer/2007/AAER-2674.txt b/raw/aaer/2007/AAER-2674.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a1992241cfa7d899cccb3d74032dbdb001800f19
--- /dev/null
+++ b/raw/aaer/2007/AAER-2674.txt
@@ -0,0 +1,1402 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20266 / September 5, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2674 / September 5, 2007 
+
+  SEC v. Saks Incorporated , 07 Civ. 7821 (S.D.N.Y.) (CM) 
+
+ Saks Inc. Settles Financial Reporting and Related Charges by SEC 
+
+ 
+
+ On September 5, 2007, the Securities and Exchange Commission filed a civil injunctive action charging Saks Incorporated, owner of luxury department store Saks Fifth Avenue among other retail chains, with violating the financial reporting, books-and-records, and internal control provisions of the Securities Exchange Act of 1934. Saks has agreed to settle the case, without admitting or denying the Commission's allegations, and has agreed to an injunction barring future violations of these provisions. 
+
+ The Commission's complaint, filed in federal court in Manhattan, alleges that from the mid-1990s until 2003, certain employees of the company's Saks Fifth Avenue Enterprises division ("SFAE") engaged in two deceptive practices in order to achieve their financial targets for the month, quarter or retail season and that these practices resulted in the company's overstatement of income by material amounts in its financial statements for its 2000, 2001, and 2002 fiscal years and for two quarters in fiscal 2001 and 1999. According to the complaint, the improper accounting by Saks resulted from aggressive financial targets the company set for SFAE, the belief by some SFAE buyers that they were expected to achieve their targets by deceptive means, if necessary, and Saks' lack of adequate internal controls.  
+
+ More specifically, the complaint alleges: 
+
+  One of the practices involved the intentional understatement, by the SFAE buyers to vendors, of the sales performance of the vendors' merchandise. Based on that misinformation, SFAE collected from the vendors millions of dollars in "vendor allowance" payments to which the Company was not entitled. Over a dozen SFAE employees participated in the vendor allowance over-collection practice, which continued for at least eight years, from 1996 until 2003.   
+
+   As a result of the vendor allowance over-collection, Saks overstated its net income for the fiscal year ended February 3, 2001 by 7.0%; overstated its net income for the fiscal year ended February 2, 2002 by 32.3%; overstated its net income for fiscal year ended February 1, 2003 by 42.6%. Saks also overstated its net income by 3.6% for the fiscal year ended January 31, 2004.   
+
+   The second deceptive practice involved the improper deferral (or "rolling") of permanent markdowns from one period to another at SFAE. Permanent markdowns were the means by which Saks recognized that inventory on the sales floor could not sell at the existing retail price, i.e., was impaired. The effect of a permanent markdown on Saks' financial statements was to reduce the value of all inventory subject to the markdown on Saks' balance sheet and also to increase its expense for cost of goods sold, thus reducing the net income reflected on the Company's income statement. Thus the improper rolling of markdowns resulted in Saks' overstatement of its inventory and net income in some reporting periods from which permanent markdowns were deferred.   
+
+   As a result of the markdown rolling, Saks overstated its net income in the second quarter of fiscal year 1999 by 86.5%; and understated its loss in the second quarter of fiscal year 2001 by 10.4%.   
+
+   The complaint also alleges that certain vendor allowance over-collection at SFAE came to the attention of senior Saks management in August and September 2002 but that the internal investigation the company conducted at that time failed to detect the full scope of the problem or adequately address it. 
+  The complaint alleges that by engaging in this conduct, Saks violated the financial reporting, books-and-records, and internal controls provisions of the Exchange Act. Specifically, the complaint alleges that Saks violated 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. Without admitting or denying the Commission's allegations, Saks has agreed to settle the charges by consenting to a permanent injunction against further violations of the above reporting, books-and-records, and internal controls provisions.  
+
+ Saks is a Tennessee corporation headquartered in Manhattan. 
+
+ 
+
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2007/AAER-2675.txt b/raw/aaer/2007/AAER-2675.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c22b363f6bed69d21022b016a2fd7cef5fca6775
--- /dev/null
+++ b/raw/aaer/2007/AAER-2675.txt
@@ -0,0 +1,81 @@
+ UNITED STATES OF AMERICA 
+ before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56366 / September 6, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2675 / September 6, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12752 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+Dean A. Nichols (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 Dean A. 
+Nichols (“Respondent” or “Nichols”) 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. Nichols, age 47, is and has been a certified public accountant licensed to 
+practice in the State of New Jersey.  He served as Controller of AFI Foodservice Distributor, Inc. 
+(“AFI”) from 1995 until his termination in March 2002. 
+2. At all relevant times, AFI, located in Elizabeth, New Jersey, was a subsidiary 
+of Performance Food Group Company (“PFG”), a Tennessee corporation headquartered in 
+Richmond, Virginia.  PFG was, at all relevant times, engaged in marketing, processing and selling 
+food and food-related products to restaurants, hotels, schools, and other businesses and institutions.  
+At all relevant times, PFG’s common stock was registered with the Commission pursuant to Section 
+12(g) of the Securities Exchange Act of 1934 (“Exchange Act”), and traded on the NASDAQ 
+National Market. 
+3. On July 24, 2007, a final judgment was entered against Nichols, 
+permanently enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange 
+Act and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting 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 Securities and Exchange Commission v. Dean A. Nichols, Civil Action Number 04-
+641 (HAA), in the United States District Court for the District of New Jersey.  Nichols was also 
+ordered to pay a $25,000 civil money penalty. 
+4. The Commission’s Complaint alleged, among other things, that during 2000 
+and 2001, Nichols made numerous improper accounting journal entries on the books of AFI that, 
+because AFI’s accounts were consolidated with those of PFG, caused PFG to file with the 
+Commission materially misleading financial statements in its quarterly reports for the quarters 
+ended June 30, 2000, September 30, 2000, March 31, 2001 and September 30, 2001.  The 
+Complaint alleged that Nichols engaged in a number of improper accounting practices that caused 
+PFG to overstate materially its reported net earnings for those quarters.  These practices included, 
+among other things, failing to reconcile properly imbalances in various AFI accounts, and making 
+improper accounting adjustments in an effort to make the accounts appear to balance.  
+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 Nichols’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that Nichols is suspended 
+from appearing or practicing before the Commission as an accountant. 
+For the Commission, by its Secretary, pursuant to delegated authority. 
+       N ancy M. Morris
+       S ecretary 
+3
diff --git a/raw/aaer/2007/AAER-2676.txt b/raw/aaer/2007/AAER-2676.txt
new file mode 100644
index 0000000000000000000000000000000000000000..17c24f5b28d586117274f9e85062fe4ade3bde93
--- /dev/null
+++ b/raw/aaer/2007/AAER-2676.txt
@@ -0,0 +1,1396 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly, MaryAnne E. Pahapill (a.k.a. Mary Anne Poland), Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor 
+     
+     
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+              Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly, MaryAnne E. Pahapill (a.k.a. Mary Anne Poland), Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor
+           
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+        Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly, MaryAnne E. Pahapill (a.k.a. Mary Anne Poland), Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20275 / September 12, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2676 / September 12, 2007 
+
+  SEC v. Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly, MaryAnne E. Pahapill (a.k.a. Mary Anne Poland), Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor , Civil Action No. 07 CV 2058 (S.D.N.Y.) 
+
+ SEC Charges Four Additional Former Officers of Nortel Networks Corporation in Financial Fraud Scheme 
+
+ 
+
+ The Securities and Exchange Commission today charged four more former officers of Nortel Networks Corporation with engaging in accounting fraud by manipulating reserves to manage Nortel's earnings. The Commission filed an amended complaint in  SEC v. Dunn, et al. , Civil Action No. 07 CV 2058 (S.D.N.Y.), to add as defendants Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor, who were the former vice presidents of finance for Nortel's Optical, Wireline, Wireless and Enterprise business units, respectively. The Commission's original complaint, among other things, charged three former corporate officers of Nortel â€" CEO Frank Dunn, CFO Douglas Beatty and Controller Michael Gollogly â€" with directing the earnings management fraud. 
+
+ Among other allegations, the amended complaint alleges that Hamilton, Johnson, Kinney and Taylor engaged in the following misconduct: 
+
+  From the second half of 2002 through January 2003, Hamilton, Johnson, Kinney and Taylor all determined that their business units held tens of millions of dollars in excess reserves. The four finance vice presidents did not immediately release those excess reserves as required under U.S. Generally Accepted Accounting Principles ("GAAP"), but instead maintained them for earnings management purposes.   
+
+   In early January 2003, during the 2002 year-end closing process, Hamilton, Johnson, Kinney and Taylor acted on orders received from former executives Dunn, Beatty and Gollogly and improperly established over $44 million in additional excess reserves in order to lower Nortel's consolidated earnings and bring it in line with internal and market expectations. Their efforts helped erase Nortel's  pro forma  profit for the fourth quarter of 2002 and caused it to report a loss instead.   
+
+   In the first and second quarters of 2003, Dunn, Beatty and Gollogly directed the improper company-wide release of approximately $500 million of excess reserves specifically to inflate earnings and pay bonuses. These efforts turned Nortel's first quarter 2003 loss into a reported profit under US GAAP, largely erased Nortel's second quarter loss and generated a  pro forma  profit in the second quarter. The efforts of Hamilton, Johnson, Kinney and Taylor were essential to creating these false results because the four vice presidents improperly released approximately $154 million in reserves in the first quarter of 2003, and approximately $191 million in reserves in the second quarter. 
+  The amended complaint charges Hamilton, Johnson, Kinney and Taylor with violating and/or aiding and abetting violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. The Commission seeks a permanent injunction, a civil monetary penalty, an officer and director bar, and disgorgement with prejudgment interest against each of these defendants. 
+
+ In its original complaint, filed on March 12, 2007, the Commission alleged that (1) Dunn, Beatty and Gollogly learned that the Company was carrying massive amounts of excess reserves and then directed the alleged reserve manipulations to meet earnings targets, fabricate profits and pay performance-related bonuses, and also (2) that Dunn, Beatty and former Assistant Controller MaryAnne Pahapill altered Nortel's revenue recognition policies from late 2000 through January 2001 to accelerate revenue to meet publicly announced revenue targets. See Litigation Release No. 20036 (March 12, 2007) / Accounting and Auditing Enforcement Release No. 2576 (March 12, 2007). 
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56400 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2680 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12761 
+In the Matter of 
+Berger, Apple & Associates Ltd. and 
+Mitchell S. Seifert, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted against Berger, Apple & Associates Ltd. and 
+Mitchell S. Seifert, CPA (collectively “Respondents”) pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), and that public administrative proceedings be, and 
+hereby are, instituted against Berger, Apple & Associates Ltd. pursuant to Section 4C1 of the 
+Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . 
+to h ave willfully v iolated, or willfu lly aid ed a nd ab etted th e v iolation of, an y provision of the 
+securities laws or the rules and regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+The C ommission m ay censure a pers on or  deny , t emporarily or perm anently, t he p rivilege o f 
+appearing or practicin g b efore it in an y way to  an y p erson who is fou nd . . . t o have willfu lly 
+violated, or willfully aided and abetted the violation of any provision of the Federal securities laws 
+or the rules and regulations thereunder. 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. Berger, Apple & Associates Ltd. (the “Firm”) is an Ohio limited liability 
+company and public accounting firm based in Beachwood, Ohio.  The Firm audited MC Industrial 
+Group, Inc.’s (“MC Industrial”) financial statements for the company’s 2003 fiscal year ended 
+December 31, 2003.   
+2. Mitchell S. Seifert, CPA, (“Seifert”), 43, of Solon, Ohio, is a certified public 
+accountant licensed in the state of Ohio since 1997.  Seifert was the engagement partner in 
+connection with the Firm’s audit of MC Industrial for the company’s 2003 fiscal year ended 
+December 31, 2003.  
+B. FACTS 
+1. MC Industrial (known as New Jersey Acquisition, Inc. during the relevant time 
+period) is a Delaware corporation with its headquarters in Lakewood, New Jersey.  MC Industrial’s 
+common stock is registered pursuant to Section 12(g) of the Exchange Act and does not currently 
+trade on any market.  For its fiscal year ended December 31, 2003, MC Industrial reported no 
+revenues and no assets. 
+2. MC Industrial has at all relevant times been an issuer as defined by the Sarbanes-
+Oxley Act of 2002 (the “Act”). 
+3. The Firm audited MC Industrial’s 2003 financial statements included in MC 
+Industrial’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on 
+March 12, 2004. As part of that audit, the Firm prepared and issued an audit report dated March 8, 
+2004 (the “MC Industrial audit report”), which the company included in its 2003 Form 10-KSB.  
+The Firm did not collect any fees for the audit work. 
+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
+3 
+4. At the time the Firm issued the MC Industrial audit report, it was not registered 
+with the Public Company Accounting Oversight Board (the “Board”), as required by Section 
+102(a) of the Act. 
+5. Seifert was the engagement partner on the Firm’s audit of MC Industrial’s 2003 
+financial statements.  Seifert participated in the preparation and issuance of the MC Industrial audit 
+report. 
+C. VIOLATIONS 
+1. 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.”4 
+2. The provisions of Section 102(a) of the Act became effective on October 22, 2003.5 
+3. Based on the conduct described above, the Firm willfully6 violated Section 102(a) 
+of the Act. 
+4. Based on the conduct described above, Seifert caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDI NGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Seifert caused the Firm’s violation of Section 
+102(a) of the Act. 
+E. UNDERTAKING 
+Respondents have undertaken not to request, demand, or accept, directly or indirectly, any 
+compensation from MC Industrial in connection with the audit work associated with the MC 
+Industrial audit report.  In determining whether to accept the Offer, the Commission has considered 
+this undertaking. 
+4 A violation of the Act or any rule that the Board 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). 
+5 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). 
+6 “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. Berger, Apple & Associates Ltd. 
+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 censured. 
+C. The Firm may practice before the Commission as an independent accountant 
+provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+2. It has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+2. Mitchell S. Seifert, CPA 
+A. Seifert shall cease and desist from committing or causing any violations and 
+any future violations of Section 102(a) of the Act. 
+B. Seifert 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 Board 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 Board’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 
+4
diff --git a/raw/aaer/2007/AAER-2681.txt b/raw/aaer/2007/AAER-2681.txt
new file mode 100644
index 0000000000000000000000000000000000000000..537ab61a27f1f7af45a561238c1547b61ef594a4
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+ UNITED STATES OF AMERICA 
+ B efore the
+   SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56401 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2681 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12762 
+In the Matter of 
+Beutel Accountancy Corporation 
+and Todd W. Beutel, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A 
+CEASE-AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted against Beutel Accountancy 
+Corporation and Todd W. Beutel, CPA (collectively “Respondents”) pursuant to Section 21C of 
+the Securities Exchange Act of 1934 (“Exchange Act”) and that public administrative 
+proceedings be, and hereby are, instituted against Beutel Accountancy Corporation pursuant to 
+Section 4C1 of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or  deny, tem porarily or perm anently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . to ha ve willfully violate d, or willfully aided 
+and abetted the violation of, any provision of  the securities laws or the rules and 
+regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+ II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an 
+Offer of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, which are admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. Beutel Accountancy Corporation (the “Firm”) is a California corporation and a 
+public accounting firm headquartered in Agoura Hills, California.  The Firm audited Vital Health 
+Technologies, Inc.’s (also known as Caribbean American Health Resorts, Inc.) financial 
+statements for the company’s 2003 and 2004 fiscal years ended December 31, 2003, and 
+December 31, 2004, respectively.  Vital Health Technologies, Inc. dismissed the Firm as its 
+independent auditor on May 20, 2005. 
+2. Todd W. Beutel, CPA (“Beutel”), age 42, is a certified public accountant 
+licensed in the state of California since 1995.  Beutel was the engagement partner in connection 
+with the Firm’s audit of Vital Health Technologies, Inc.’s financial statements for the company’s 
+2003 and 2004 fiscal years ended December 31, 2003, and December 31, 2004, respectively.  
+B. FACTS 
+1. Vital Health Technologies, Inc. (“Vital Health”) is a Minnesota corporation with 
+its headquarters in Beverly Hills, California. Vital Health’s common stock is quoted on the Pink 
+Sheets under the symbol “CAHR” and is registered with the Commission pursuant to Section 
+12(g) of the Exchange Act. For fiscal year ended December 31, 2003, Vital Health reported 
+revenues of $10,500, and total assets of $1 million.  For fiscal year ended December 31, 2004, 
+The Commission may censure a person or deny, temporarily or perm anently, the 
+privilege of appearing or pr acticing before it in any way to any person who is 
+found . . . to have willfully violated, or willfully aided and abetted the violation of 
+any provision of the Federal securities  laws or the rules and regulations 
+thereunder. 
+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
+3 
+Vital Health reported revenues of $5,500, and total assets of $1 million. 
+2. Vital Health has at all relevant times been an issuer as defined by the Sarbanes-
+Oxley Act of 2002 (the “Act”). 
+3. The Firm audited Vital Health’s 2003 financial statements included in Vital 
+Health’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on April 
+14, 2004. As part of that audit, the Firm prepared and issued an audit report dated March 29, 
+2004, which the company included in its 2003 Form 10-KSB.   
+4. The Firm audited Vital Health’s 2004 financial statements included in Vital 
+Health’s annual report for fiscal year 2004 on Form 10-KSB, filed with the Commission on April 
+15, 2005. As part of that audit, the Firm prepared and issued an audit report dated April 14, 2005 
+(together with the March 29, 2004 audit report, the “Vital Health audit reports”), which the 
+company included in its 2004 Form 10-KSB.  Vital Health paid the Firm a total of $22,000 for 
+the 2003 and 2004 audit work.4 
+5. At the time the Firm issued the Vital Health audit reports, it was not registered 
+with the Public Company Accounting Oversight Board (the “Board”), as required by Section 
+102(a) of the Act. 
+6. Beutel was the engagement partner on the Firm’s audits of Vital Health’s 2003 
+and 2004 financial statements.  Beutel participated in the preparation and issuance of the Vital 
+Health audit reports. 
+7. By public notice of disapproval dated July 28, 2005, effective as of May 10, 2005, 
+the Board disapproved an application for registration submitted by the Firm based in part on the 
+Firm’s violation of Section 102(a) of the Act in issuing the Vital Health audit reports.5 
+C. VIOLATIONS 
+1. 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.”6 
+4 During the course of the Commission’s investigation, the Firm voluntarily reimbursed 
+Vital Health the $22,000 in audit fees.  In view of the Firm’s reimbursement, the Commission is 
+not ordering disgorgement in this matter. 
+5 PCAOB Release No. 2005-017 (July 28, 2005). The public notice of disapproval also 
+found that the Firm’s issuance of the Vital Health audit reports violated Board Rule 2100, which 
+implemented Section 102(a) of the Act.  Id. 
+6 A violation of the Act or any rule that the Board 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
+
+2. The provisions of Section 102(a) of the Act became effective on October 22, 
+2003.7 
+3. Based on the conduct described above, the Firm willfully8 violated Section 102(a) 
+of the Act. 
+4. Based on the conduct described above, Beutel caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDINGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Beutel caused the Firm’s violation of Section 
+102(a) of the Act. 
+E. UNDERTAKINGS 
+Respondents undertake not to request, demand, or accept, directly or indirectly, any 
+compensation from Vital Health in connection with the audit work associated with the Vital 
+Health audit reports.  In determining whether to accept the Offer, the Commission has considered 
+this undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+1. Beutel Accountancy Corporation  
+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 censured. 
+7 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). 
+8 “Willfully” as used in this Offer 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). 
+4
+
+C. The Firm may practice before the Commission as an independent accountant 
+provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+2. It has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+2. Todd W. Beutel, CPA  
+A. Beutel shall cease and desist from committing or causing any violations and 
+any future violations of Section 102(a) of the Act. 
+B. Beutel 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 Board 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 Board’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/2007/AAER-2689.txt b/raw/aaer/2007/AAER-2689.txt
new file mode 100644
index 0000000000000000000000000000000000000000..67bf985b6acdd198e5eb20fe4028ecbe894b2eb0
--- /dev/null
+++ b/raw/aaer/2007/AAER-2689.txt
@@ -0,0 +1,223 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56409 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2689 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12770 
+In the Matter of 
+David M. Winings, CPA, An 
+Accountancy Corporation and 
+      David M. Winings, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted against David M. Winings, CPA, An 
+Accountancy Corporation and David M. Winings, CPA (collectively “Respondents”) pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and that public 
+administrative proceedings be, and hereby are, instituted against David M. Winings, CPA, An 
+Accountancy Corporation pursuant to Section 4C1 of the Exchange Act and Rule 102(e)(1)(iii) of 
+the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or  deny, tem porarily or perm anently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . to ha ve willfully violate d, or willfully aided 
+and abetted the violation of, any provision of  the securities laws or the rules and 
+regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. David M. Winings, CPA, An Accountancy Corporation (the “Firm”) is a 
+California corporation and a public accounting firm headquartered in Palm Desert, California.  The 
+Firm audited the financial statements of the following six companies: 1) Silver Bow Antique 
+Aviation (fiscal years ended December 31, 2002 and 2003); 2) Animal Cloning Sciences, Inc. 
+(fiscal year ended December 31, 2003); 3) Knickerbocker Capital Corporation (fiscal year ended 
+December 31, 2003); 4) Asian Financial, Inc. (fiscal year ended December 31, 2003); 5) Apex 
+Capital Group, Inc. (fiscal year ended December 31, 2003); and 6) Woodstock Tree Farms, Inc. 
+(fiscal years ended December 31, 2002 and 2003).    
+2. David M. Winings, CPA, (“Winings”), 43, of Palm Desert, California, is a certified 
+public accountant licensed in the state of California since 1992.  Winings was the engagement 
+partner in connection with the Firm’s audits of the financial statements of the following six 
+companies: 1) Silver Bow Antique Aviation (fiscal years ended December 31, 2002 and 2003); 2) 
+Animal Cloning Sciences, Inc. (fiscal year ended December 31, 2003); 3) Knickerbocker Capital 
+Corporation (fiscal year ended December 31, 2003); 4) Asian Financial, Inc. (fiscal year ended 
+December 31, 2003); 5) Apex Capital Group, Inc. (fiscal year ended December 31, 2003); and 6) 
+Woodstock Tree Farms, Inc. (fiscal years ended December 31, 2002 and 2003). 
+B. FACTS 
+The Commission may censure a person or deny, temporarily or perm anently, the 
+privilege of appearing or pr acticing before it in any way to any person who is 
+found . . . to have willfully violated, or willfully aided and abetted the violation of 
+any provision of the Federal securities  laws or the rules and regulations 
+thereunder. 
+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
+3 
+1. During the relevant period, Silver Bow Antique Aviation (“Silver Bow”), Animal 
+Cloning Sciences, Inc. (“Animal Cloning”), Knickerbocker Capital Corporation 
+(“Knickerbocker”), Asian Financial, Inc. (“Asian Financial”), Apex Capital Group, Inc. (“Apex 
+Capital”), and Woodstock Tree Farms, Inc. (“Woodstock”), were all under common control and 
+ownership, and the common stock of Silver Bow, Animal Cloning, Knickerbocker, Asian 
+Financial, and Apex Capital was registered with the Commission pursuant to Section 12(g) of the 
+Exchange Act.  None of the companies reported revenue for 2003.  Silver Bow reported $37,675 in 
+total assets for December 31, 2003, and Woodstock reported $282,593 in total assets for December 
+31, 2003. 
+2. Silver Bow, Animal Cloning, Knickerbocker, Asian Financial, Apex Capital, and 
+Woodstock have at all relevant times each been an issuer as defined by the Sarbanes-Oxley Act of 
+2002 (the “Act”). 
+3. The Firm audited Silver Bow’s 2002 financial statements included in Silver Bow’s 
+annual report for fiscal year 2002 on Form 10-KSB, filed with the Commission on May 20, 2004.  
+As part of the audit, the Firm prepared and issued an audit report dated November 30, 2003, which 
+the company included in its 2002 Form 10-KSB.  The Firm also audited Silver Bow’s 2003 
+financial statements included in Silver Bow’s annual report for fiscal year 2003 on Form 10-KSB, 
+filed with the Commission on May 21, 2004, and in Silver Bow’s registration statement on Form 
+SB-2/A, filed with the Commission on May 25, 2004.  As part of the audit, the Firm prepared and 
+issued an audit report dated May 3, 2004 (together with the November 30, 2003 audit report, the 
+“Silver Bow audit reports”), which the company included in its 2003 Form 10-KSB and in its 
+registration statement on Form SB-2/A. 
+4. The Firm audited Animal Cloning’s 2003 financial statements included in Animal 
+Cloning’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on 
+February 13, 2004.  As part of that audit, the Firm prepared and issued an audit report dated 
+February 9, 2004 (the “Animal Cloning audit report”), which the company included in its 2003 
+Form 10-KSB. 
+5. Animal Cloning retained a new, registered firm to audit its financial statements for 
+fiscal year 2004. However, because of a reclassification regarding a note payable, the company 
+restated its financial statements for fiscal year 2003.  As a result, because the Firm had originally 
+audited Animal Clonings’ financial statements for fiscal year 2003, it issued an updated audit 
+report on October 28, 2005, explaining the reclassification.  Animal Cloning included the new 
+audit report in a Form 10-KSB filed with the Commission on December 12, 2005.  The Firm 
+issued the October 28, 2005 audit report after the Public Company Accounting Oversight Board 
+(the “Board”) had disapproved the Firm’s application for registration.  See paragraph 13 below. 
+6. The Firm audited Knickerbocker’s 2003 financial statements included in 
+Knickerbocker’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission 
+on March 30, 2004.  As part of that audit, the Firm prepared and issued an audit report dated March 
+23, 2004 (the “Knickerbocker audit report”), which the company included in its 2003 Form 10-
+KSB. On May 3, 2004, Knickerbocker dismissed the firm as its independent auditor. 
+3
+
+7. The Firm audited Asian Financial’s 2003 financial statements included in Asian 
+Financial’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on 
+April 6, 2004. As part of that audit, the Firm prepared and issued an audit report dated March 26, 
+2004 (the “Asian Financial audit report”), which the company included in its 2003 Form 10-KSB. 
+8. The Firm audited Apex Capital’s 2003 financial statements included in Apex 
+Capital’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on April 
+6, 2004. As part of that audit, the Firm prepared and issued an audit report dated March 27, 2004 
+(the “Apex Capital audit report”), which the company included in its 2003 Form 10-KSB. 
+9. The Firm audited Woodstock’s 2002 and 2003 financial statements, which were 
+included in Woodstock’s registration statement on Form SB-2/A, filed with the Commission on 
+June 14, 2004. As part of that audit, the Firm prepared and issued an audit report dated April 29, 
+2004 (the “Woodstock audit report”), which the company included in its Form SB-2/A.   
+10. The Firm collected no fees for the audit work performed for Silver Bow, Animal 
+Cloning, Knickerbocker, Asian Financial, Apex Capital, and Woodstock.   
+11. At the time the Firm issued the Silver Bow, Animal Cloning, Knickerbocker, Asian 
+Financial, Apex Capital, and Woodstock audit reports, it was not registered with the Board as 
+required by Section 102(a) of the Act. 
+12. Winings was the engagement partner on the Firm’s audit of the financial statements 
+of Silver Bow, Animal Cloning, Knickerbocker, Asian Financial, Apex Capital, and Woodstock.  
+Winings participated in the preparation and issuance of the Silver Bow, Animal Cloning, 
+Knickerbocker, Asian Financial, Apex Capital, and Woodstock audit reports. 
+13. By order dated April 18, 2005, the Board disapproved an application for 
+registration submitted by the Firm based in part on the Firm’s violation of Section 102(a) of the 
+Act in issuing the Silver Bow, Animal Cloning, Knickerbocker, Asian Financial, Apex Capital, and 
+Woodstock audit reports.4  The order effectively prevented the Firm from becoming registered with 
+the Board until after February 15, 2006, approximately 15 months from the date the Board issued a 
+notice of hearing on the Firm’s application.5  Winings has only worked as an accountant through 
+the Firm since before the Board’s order and has not otherwise been associated with a public 
+4 PCAOB Release No. 2005-005 (Apr. 18, 2005).  The order also found that the Firm’s 
+issuance of the Silver Bow, Animal Cloning, Knickerbocker, Asian Financial, Apex Capital, and 
+Woodstock audit reports violated Board Rule 2100, which implemented Section 102(a) of the Act, 
+and that the Firm violated Board Rule 2101 when it failed to identify and to provide required 
+information concerning the Knickerbocker audit report on the Firm’s registration application.  Id. 
+5 The order states that with respect to any new registration application the Firm submits 
+after February 15, 2006, the Board will not issue a notice of hearing to determine whether to 
+approve or disapprove such application based solely on the violations subject to the Board’s 
+order. Id. 
+4
+
+accounting firm registered with the Board. 
+C. VIOLATIONS 
+1. 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.”6 
+2. The provisions of Section 102(a) of the Act became effective on October 22, 2003.7 
+3. Based on the conduct described above, the Firm willfully8 violated Section 102(a) 
+of the Act. 
+4. Based on the conduct described above, Winings caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDI NGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Winings caused the Firm’s violation of Section 
+102(a) of the Act. 
+E. UNDERTAKING 
+Respondents undertake not to request, demand, or accept, directly or indirectly, any 
+compensation from Silver Bow, Animal Cloning, Knickerbocker, Asian Financial, Apex Capital, 
+and Woodstock in connection with the audit work associated with the respective audit reports.  In 
+determining whether to accept the Offer, the Commission has considered this undertaking. 
+6 A violation of the Act or any rule that the Board 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). 
+7 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). 
+8 “Willfully” as used in this Offer 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). 
+5
+
+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. David M. Winings, CPA, An Accountancy Corporation 
+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 censured.  
+C. The Firm may practice before the Commission as an independent 
+accountant provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+2. It has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+2. David M. Winings, CPA  
+A. Winings shall cease and desist from committing or causing any violations 
+and any future violations of Section 102(a) of the Act. 
+B. Winings 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 Board in accordance with the Act, and such registration continues to be effective; and 
+6
+
+2. He has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’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 
+7
diff --git a/raw/aaer/2007/AAER-2690.txt b/raw/aaer/2007/AAER-2690.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8cf7b43f00c3d74bc53dbdcfcca9ab6cb3cbebb1
--- /dev/null
+++ b/raw/aaer/2007/AAER-2690.txt
@@ -0,0 +1,154 @@
+ UNITED STATES OF AMERICA 
+ B efore the
+   SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56410 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2690 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12771 
+In the Matter of 
+Forbush & Associates and Daniel 
+J. Forbush, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 AND 
+RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted against Forbush & Associates and 
+Daniel J. Forbush, CPA (collectively “Respondents”), pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), and that public administrative proceedings be, and 
+hereby are, instituted against Forbush & Associates pursuant to Section 4C1 of the Exchange Act 
+and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or  deny, tem porarily or perm anently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . to ha ve willfully violate d, or willfully aided 
+and abetted the violation of, any provision of  the securities laws or the rules and 
+regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+ II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an 
+Offer of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, which are admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. Forbush & Associates (the “Firm”) is a Nevada partnership and a public 
+accounting firm headquartered in Reno, Nevada.  The Firm audited SulphCo, Inc.’s financial 
+statements for the company’s 2003 fiscal year ended December 31, 2003.  SulphCo, Inc. 
+dismissed the Firm as its independent auditor on May 14, 2004.   
+2. Daniel J. Forbush, CPA (“Forbush”), age 54, is a certified public accountant 
+licensed in the state of Nevada since 1986.  Before becoming licensed in Nevada, Forbush 
+became licensed as a CPA in California in 1978.  Forbush was the engagement partner in 
+connection with the Firm’s audit of SulphCo, Inc.’s financial statements for the company’s 2003 
+fiscal year ended December 31, 2003.   
+B. FACTS 
+1. SulphCo, Inc. (“SulphCo”) is a Nevada corporation with its headquarters in 
+Sparks, Nevada. SulphCo’s common stock trades on the American Stock Exchange under the 
+symbol SUF and is registered with the Commission pursuant to Section 12(g) of the Exchange 
+Act. SulphCo reported no revenues for its fiscal year ended December 31, 2003, and total assets 
+The Commission may censure a person or deny, temporarily or perm anently, the 
+privilege of appearing or pr acticing before it in any way to any person who is 
+found . . . t o have willfully violated , or willfully aided and abetted the viola tion 
+of any provision of the Federal securities laws or th e rules and regulations 
+thereunder. 
+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
+3 
+of $2 million.   
+2. SulphCo has at all relevant times been an issuer as defined by the Sarbanes-Oxley 
+Act of 2002 (the “Act”). 
+3. The Firm audited SulphCo’s 2003 financial statements included in SulphCo’s 
+annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on March 29, 
+2004. As part of that audit, the Firm prepared and issued an audit report dated March 25, 2004 
+(the “SulphCo audit report”), which the company included in its 2003 Form 10-KSB.  SulphCo 
+paid the Firm $15,000 for the audit work.4 
+4. At the time the Firm issued the SulphCo audit report, it was not registered with 
+the Public Company Accounting Oversight Board (the “Board”), as required by Section 102(a) 
+of the Act. 
+5. Forbush was the engagement partner on the Firm’s audit of SulphCo’s 2003 
+financial statements.  Forbush participated in the preparation and issuance of the SulphCo audit 
+report. 
+C. VIOLATIONS 
+1. 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.”5 
+2. The provisions of Section 102(a) of the Act became effective on October 22, 
+2003.6 
+3. Based on the conduct described above, the Firm willfully7 violated Section 102(a) 
+4 During the course of the Commission’s investigation, the Firm voluntarily reimbursed 
+SulphCo the $15,000 in audit fees through the provision of non-audit services.  In view of the 
+Firm’s reimbursement, the Commission is not ordering disgorgement in this matter. 
+5 A violation of the Act or any rule that the Board 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). 
+6 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). 
+7 “Willfully” as used in this Offer 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 
+3
+
+of the Act. 
+4. Based on the conduct described above, Forbush caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDINGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Forbush caused the Firm’s violation of 
+Section 102(a) of the Act. 
+E. UNDERTAKING 
+Respondents undertake not to request, demand, or accept, directly or indirectly, any 
+compensation from SulphCo in connection with the audit work associated with the SulphCo 
+audit report. In determining whether to accept the Offer, the Commission has considered this 
+undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+1. Forbush & Associates 
+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 censured. 
+C. The Firm may practice before the Commission as an independent accountant 
+provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+2. It has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+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). 
+4 
+2. Daniel J. Forbush, CPA 
+A. Forbush shall cease and desist from committing or causing any violations 
+and any future violations of Section 102(a) of the Act. 
+B. Forbush 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 Board 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 Board’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/2007/AAER-2694.txt b/raw/aaer/2007/AAER-2694.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2aee1e72c0f50d1b6234958a3a40b3e120466e3d
--- /dev/null
+++ b/raw/aaer/2007/AAER-2694.txt
@@ -0,0 +1,166 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56414 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2694 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12775 
+In the Matter of 
+Henry Schiffer, CPA, An    
+Accountancy Corporation and 
+      Henry Schiffer, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted against Henry Schiffer, CPA, An Accountancy 
+Corporation and Henry Schiffer, CPA (collectively “Respondents”) pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Exchange Act”), and that public administrative proceedings be, 
+and hereby are, instituted against Henry Schiffer, CPA, An Accountancy Corporation pursuant to 
+Section 4C1 of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or  deny, tem porarily or perm anently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . to ha ve willfully violate d, or willfully aided 
+and abetted the violation of, any provision of  the securities laws or the rules and 
+regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+The Commission may censure a person or deny, temporarily or perm anently, the 
+privilege of appearing or pr acticing before it in any way to any person who is 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. Henry Schiffer, CPA, An Accountancy Corporation (the “Firm”) is a California 
+corporation based in Beverly Hills, California.  The Firm audited USCorp’s financial statements 
+for the company’s 2003 fiscal year ended September 30, 2003.  USCorp dismissed the Firm as its 
+independent auditor on March 19, 2004. 
+2. Henry Schiffer, CPA (“Schiffer”), age 65, a resident of Los Angeles, California, is a 
+certified public accountant licensed in the state of California since 1966.  Schiffer was the 
+engagement partner in connection with the Firm’s audit of USCorp’s financial statements for the 
+company’s 2003 fiscal year ended September 30, 2003. 
+B. FACTS 
+1. USCorp is a Nevada corporation based in Las Vegas, Nevada.  USCorp’s common 
+stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades 
+on the OTC Bulletin Board under the symbol USCS.OB.  For its fiscal year ended September 30, 
+2003, USCorp reported no revenue and total assets of $2.5 million.   
+2. USCorp has at all relevant times been an issuer as defined by the Sarbanes-Oxley 
+Act of 2002 (the “Act”). 
+3. The Firm audited USCorp’s 2003 financial statements included in the company’s 
+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. 
+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 
+3 
+annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on December 24, 
+2003. As part of the audit, the Firm prepared and issued an audit report dated December 15, 2003 
+(the “USCorp audit report”) which the company included in its 2003 Form 10-KSB.  USCorp paid 
+the Firm $2,500 for the audit work.4 
+4. At the time the Firm issued the USCorp audit report, it was not registered with the 
+Public Company Accounting Oversight Board (the “Board”), as required by Section 102(a) of the 
+Act. 
+5. Schiffer was the engagement partner on the Firm’s audit of USCorp’s 2003 
+financial statements.  Schiffer participated in the preparation and issuance of the USCorp audit 
+report. 
+6. By order dated October 14, 2004, the Board disapproved an application for 
+registration submitted by the Firm based in part on the Firm’s violation of Section 102(a) of the 
+Act in issuing the USCorp audit report.5  The order effectively prevented the Firm from becoming 
+registered with the Board until after February 15, 2005, approximately one year from the date the 
+Board issued a notice of hearing on the Firm’s application.6  Schiffer has only worked as an 
+accountant through the Firm since before the Board’s order and has not otherwise been associated 
+with a public accounting firm registered with the Board. 
+C. VIOLATIONS 
+1. 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.”7 
+4 During the course of the Commission’s investigation, the Firm voluntarily reimbursed 
+USCorp the $2,500 in audit fees. In view of the Firm’s reimbursement, the Commission is not 
+ordering disgorgement in this matter. 
+5 PCAOB Release No. 2004-010 (October 14, 2004).  The order also found that the Firm’s 
+issuance of the USCorp audit report violated Board Rule 2100, which implemented Section 102(a) 
+of the Act. Id. 
+6 The order states that with respect to any new registration application the Firm submits 
+after February 15, 2005, the Board will not issue a notice of hearing to determine whether to 
+approve or disapprove such application based solely on the violations subject to the Board’s 
+order. Id. 
+7 A violation of the Act or any rule that the Board 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
+
+2. The provisions of Section 102(a) of the Act became effective on October 22, 2003.8 
+3. Based on the conduct described above, the Firm willfully9 violated Section 102(a) 
+of the Act. 
+4. Based on the conduct described above, Schiffer caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDI NGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Schiffer caused the Firm’s violation of Section 
+102(a) of the Act. 
+E. UNDERTAKING 
+Respondents undertake not to request, demand, or accept, directly or indirectly, any 
+compensation from USCorp in connection with the audit work associated with the USCorp audit 
+report. In determining whether to accept the Offer, the Commission has considered this 
+undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+1. Henry Schiffer, CPA, An Accountancy Corporation 
+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 censured. 
+8 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). 
+9 “Willfully” as used in this Offer 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). 
+4
+
+C. The Firm may practice before the Commission as an independent 
+accountant provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+2. It has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+2. Henry Schiffer, CPA  
+A. Schiffer shall cease and desist from committing or causing any violations 
+and any future violations of Section 102(a) of the Act. 
+ B . Schiffer 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 Board 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 Board’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/2007/AAER-2697.txt b/raw/aaer/2007/AAER-2697.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d2831ca08fc67d3296c057f48ccab770ef715431
--- /dev/null
+++ b/raw/aaer/2007/AAER-2697.txt
@@ -0,0 +1,150 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56417 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2697 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12778 
+In the Matter of 
+McNeal, Williamson & Co. and 
+Daniel L. Williamson, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted against McNeal, Williamson & Co. and 
+Daniel L. Williamson, CPA (collectively “Respondents”) pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), and that public administrative proceedings be, and 
+hereby are, instituted against McNeal, Williamson & Co. pursuant to Section 4C1 of the Exchange 
+Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . 
+to h ave willfully v iolated, or willfu lly aid ed a nd ab etted th e v iolation of, an y provision of the 
+securities laws or the rules and regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+The C ommission m ay censure a pers on or  deny , t emporarily or perm anently, t he p rivilege o f 
+appearing or practicin g b efore it in an y way to  an y p erson who is fou nd . . . t o have willfu lly 
+violated, or willfully aided and abetted the violation of any provision of the Federal securities laws 
+or the rules and regulations thereunder. 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. McNeal, Williamson & Co. (the “Firm”) is a West Virginia partnership and a 
+public accounting firm headquartered in Logan, West Virginia.  The Firm audited the financial 
+statements of Logan County BancShares, Inc. (“Logan County”) for the company’s 2003 fiscal 
+year ended December 31, 2003.  The Firm resigned as Logan County’s independent auditor on or 
+around July 28, 2004. 
+2. Daniel L. Williamson, 61, of Kenova, West Virginia, is a certified public 
+accountant licensed in the state of West Virginia since 1976.  Williamson was the engagement 
+partner in connection with the Firm’s audit of Logan County’s financial statements for the 
+company’s 2003 fiscal year ended December 31, 2003. 
+B. FACTS 
+1. Logan County is a West Virginia corporation with its headquarters in Logan, West 
+Virginia. For its fiscal year ended December 31, 2003, Logan County reported revenues of $8.8 
+million and total assets of $176 million. 
+2. Logan County has at all relevant times been an issuer as defined by the Sarbanes-
+Oxley Act of 2002 (the “Act”). 
+3. The Firm audited Logan County’s 2003 financial statements included in Logan 
+County’s annual report for fiscal year 2003 on Form 10-K, filed with the Commission on April 14, 
+2004. As part of that audit, the Firm prepared and issued an audit report dated February 26, 2004 
+(the “Logan County audit report”), which the company included in its 2003 Form 10-K.  Logan 
+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
+-
+3 
+County paid the Firm $32,000 for the audit work.4 
+4. At the time the Firm issued the Logan County audit report, it was not registered 
+with the Public Company Accounting Oversight Board (the “Board”), as required by Section 
+102(a) of the Act. 
+5. Williamson was the engagement partner on the Firm’s audit of Logan County’s 
+2003 financial statements.  Williamson participated in the preparation and issuance of the Logan 
+County audit report. 
+C. VIOLATIONS 
+1. 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.”5 
+2. The provisions of Section 102(a) of the Act became effective on October 22, 2003.6 
+3. Based on the conduct described above, the Firm willfully7 violated Section 102(a) 
+of the Act. 
+4. Based on the conduct described above, Williamson caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDI NGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Williamson caused the Firm’s violation of 
+Section 102(a) of the Act. 
+4 During the course of the Commission’s investigation, the Firm voluntarily reimbursed Logan County the 
+$32,000 in audit fees.  In view of the Firm’s reimbursement, the Commission is not ordering disgorgement in this 
+matter. 
+5 A violation of the Act or any rule that the Board 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). 
+6 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). 
+7 “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
+-
+E. UNDERTAKING 
+Respondents have undertaken not to request, demand, or accept, directly or indirectly, any 
+compensation from Logan County in connection with the audit work associated with the Logan 
+County audit report.  In determining whether to accept the Offer, the Commission has considered 
+this undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+1. McNeal, Williamson & Co. 
+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 censured. 
+C. The Firm may practice before the Commission as an independent accountant 
+provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+2. It has submitted to the Commission staff (attention:  Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+2. Daniel L. Williamson, CPA 
+A. Williamson shall cease and desist from committing or causing any violations 
+and any future violations of Section 102(a) of the Act. 
+B. Williamson 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 Board in accordance with the Act, and such registration continues to be effective; and 
+-4
+-
+2. He has submitted to the Commission staff (attention:  Office of the 
+Chief Accountant) the Board’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
+-
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2698.txt b/raw/aaer/2007/AAER-2698.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4c3f837574973be6d283aefb765ea225389b385d
--- /dev/null
+++ b/raw/aaer/2007/AAER-2698.txt
@@ -0,0 +1,106 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56418 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2698 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12779 
+In the Matter of 
+Michael C. Lingerman, CPA, 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Michael C. Lingerman, CPA (“Respondent” or 
+“Lingerman”). 
+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, Making Findings, and Imposing a Cease-And-Desist Order Pursuant to Section 21C 
+of the Securities Exchange Act Of 1934 (“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+A. RESPONDENT 
+Michael C. Lingerman, CPA, 40, of Philadelphia, Pennsylvania, is a certified public 
+accountant licensed in the state of Pennsylvania since 1994 and since the dissolution of his 
+previous accounting firm, Gross, Kreger & Passio, L.L.C. (the “Firm”), is doing business as 
+Lingerman and Associates, CPA, a sole proprietorship.  The Firm audited the financial statements 
+of Diversified Historic Investments, VI (“Diversified”) for the 2002 fiscal year ended December 
+31, 2002. Lingerman was the engagement partner for the Firm’s audit of Diversified. 
+B. FACTS 
+1. Diversified is a Pennsylvania limited partnership with its headquarters in 
+Philadelphia, Pennsylvania.  Diversified’s partnership units are registered with the Commission 
+pursuant to Section 12(g) of the Exchange Act but are not listed on any exchange.  For its fiscal 
+year ended December 31, 2002, Diversified reported revenues of $2.4 million and total assets of 
+$13 million. 
+2. Diversified has at all relevant times been an issuer as defined by the Sarbanes-
+Oxley Act of 2002 (the “Act”). 
+3. The Firm audited Diversified’s 2002 financial statements included in Diversified’s 
+annual report for fiscal year 2002 on Form 10-K, filed with the Commission on September 8, 2004.  
+As part of that audit, the Firm prepared and issued an audit report dated June 10, 2004 (the 
+“Diversified audit report”), which the company included in its 2002 Form 10-K.  Diversified never 
+paid the Firm or Lingerman any fee for the audit work. 
+4. At the time the Firm prepared and issued the Diversified audit report, the Firm was 
+not registered with the Public Company Accounting Oversight Board (the “Board”), as required by 
+Section 102(a) of the Act. 
+5. Lingerman was the engagement partner on the Firm’s audit of Diversified’s 2002 
+financial statements.  Lingerman participated in the preparation and issuance of the Diversified 
+audit report 
+C. VIOLATIONS 
+1. 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 
+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 
+issuance of, any audit report with respect to any issuer.”2 
+2. The provisions of Section 102(a) of the Act became effective on October 22, 2003.3 
+3. Based on the conduct described above, Lingerman caused the Firm’s violation of 
+Section 102(a) the Act. 
+D. FINDI NGS 
+Based on the foregoing, the Commission finds that Lingerman caused the Firm’s violation 
+of Section 102(a) of the Sarbanes-Oxley Act of 2002. 
+E. UNDERTAKING 
+Respondent has undertaken not to request, demand, or accept, directly or indirectly, any 
+compensation from Diversified in connection with the audit work associated with the Diversified 
+audit report. In determining whether to accept the Offer, the Commission has considered this 
+undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED that: 
+A. Lingerman shall cease and desist from committing or causing any violations and any 
+future violations of Section 102(a) of the Act. 
+B. Lingerman 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 Board in accordance with the Act, and such registration continues to be effective; and 
+2 A violation of the Act or any rule that the Board 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 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). 
+3
+
+2. He has submitted to the Commission staff (attention: Office of the Chief 
+Accountant) the Board’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 
+4
diff --git a/raw/aaer/2007/AAER-2702.txt b/raw/aaer/2007/AAER-2702.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5f1aa1eff5ba45d8704a1a7fcf2b5bef7d9e7ae7
--- /dev/null
+++ b/raw/aaer/2007/AAER-2702.txt
@@ -0,0 +1,160 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56422 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2702 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12783 
+In the Matter of 
+Randy Simpson, CPA, P.C. and 
+Randy Simpson, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted against Randy Simpson, CPA, P.C. and Randy 
+Simpson, CPA (collectively “Respondents”) pursuant to Section 21C of the Securities Exchange 
+Act of 1934 (“Exchange Act”) and that public administrative proceedings be, and hereby are, 
+instituted against Randy Simpson, CPA, P.C. pursuant to Section 4C1 of the Exchange Act and 
+Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or  deny, tem porarily or perm anently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . to ha ve willfully violate d, or willfully aided 
+and abetted the violation of, any provision of  the securities laws or the rules and 
+regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+The Commission may censure a person or deny, temporarily or perm anently, the 
+privilege of appearing or pr acticing before it in any way to any person who is 
+found . . . to have willfully violated, or willfully aided and abetted the violation of 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. Randy Simpson, CPA, P.C. (the “Firm”) is a Utah corporation based in Sandy, 
+Utah. The Firm audited Cap Central Access Point, Inc.’s and Franklin Life Resources, Inc.’s 
+financial statements for the companies’ 2003 fiscal years ended September 30, 2003, and October 
+31, 2003, respectively.   
+2. Randy Simpson, CPA, (“Simpson”), age 52, of Sandy, Utah, is a certified public 
+accountant licensed in the state of Utah since 1976.  Simpson was the engagement partner in 
+connection with the Firm’s audits of Cap Central Access Point, Inc.’s and Franklin Lake 
+Resources, Inc.’s financial statements for the companies’ 2003 fiscal years ended September 30, 
+2003, and October 31, 2003, respectively. 
+B. FACTS 
+1. Cap Central Access Point, Inc. (“Cap Central”) is a Nevada corporation based in 
+Las Vegas, Nevada.  During the relevant period, Cap Central’s common stock was registered with 
+the Commission pursuant to Section 12(g) of the Exchange Act.  For its fiscal year ended 
+September 30, 2003, Cap Central reported no revenue and total assets of $400.   
+2. Cap Central has at all relevant times been an issuer as defined by the Sarbanes-
+Oxley Act of 2002 (the “Act”). 
+3. Franklin Lake Resources, Inc. (“Franklin Lake”) is a Nevada corporation based in 
+any provision of the Federal securities  laws or the rules and regulations 
+thereunder. 
+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 
+3 
+South San Francisco, California.  Franklin Lake’s common stock trades over the OTC Bulletin 
+Board under the symbol FKLR.OB and is registered with the Commission pursuant to Section 
+12(g) of the Exchange Act.  For its fiscal year ended October 31, 2003, Franklin Lake reported no 
+revenue and total assets of $260,000.  
+4. Franklin Lake has at all relevant times been an issuer as defined by the Act. 
+5. The Firm audited Cap Central’s and Franklin Lakes’ 2003 financial statements 
+included in each company’s respective annual report for fiscal year 2003 on Form 10-KSB, filed 
+with the Commission on November 24, 2003, and February 13, 2004, respectively.  As part of the 
+audits, the Firm prepared and issued two audit reports dated November 8, 2003 (the “Cap Central 
+audit report”), and January 22, 2004 (the “Franklin Lake audit report”), which each  company 
+included in its respective 2003 Form 10-KSB.  The Firm collected no fees for the Cap Central 
+audit work. Franklin Lake paid the Firm $5,000 for the audit work.4 
+6. At the time the Firm issued the Cap Central and Franklin Lake audit reports, it was 
+not registered with the Public Company Accounting Oversight Board (the “Board”), as required by 
+Section 102(a) of the Act. 
+7. Simpson was the engagement partner on the Firm’s audits of Cap Central’s and 
+Franklin Lake’s 2003 financial statements.  Simpson participated in the preparation and issuance of 
+the Cap Central and Franklin Lake audit reports. 
+C. VIOLATIONS 
+1. 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.”5 
+2. The provisions of Section 102(a) of the Act became effective on October 22, 2003.6 
+4 During the course of the Commission’s investigation, the Firm voluntarily reimbursed 
+Franklin Lake $5,000 in audit fees. In view of the Firm’s reimbursement, the Commission is not 
+ordering disgorgement in this matter. 
+5 A violation of the Act or any rule that the Board 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). 
+6 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). 
+3
+
+3. Based on the conduct described above, the Firm willfully7 violated Section 102(a) 
+of the Act. 
+4. Based on the conduct described above, Simpson caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDI NGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Simpson caused the Firm’s violation of Section 
+102(a) of the Act. 
+E. UNDERTAKING 
+Respondents undertake not to request, demand, or accept, directly or indirectly, any 
+compensation from Cap Central and Franklin Lake in connection with the audit work associated 
+with the Cap Central and Franklin Lake audit reports.  In determining whether to accept the Offer, 
+the Commission has considered this undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+1. Randy Simpson, 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 censured. 
+C. The Firm may practice before the Commission as an independent accountant 
+provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+“Willfully” as used in this Offer 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). 
+4
+7 
+2. It has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+2. Randy Simpson, CPA
+ A. Simpson shall cease and desist from committing or causing any violations 
+and any future violations of Section 102(a) of the Act. 
+B. Simpson 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 Board 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 Board’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/2007/AAER-2705.txt b/raw/aaer/2007/AAER-2705.txt
new file mode 100644
index 0000000000000000000000000000000000000000..71dffde3001487930173cfb4dc1439724f0f04d0
--- /dev/null
+++ b/raw/aaer/2007/AAER-2705.txt
@@ -0,0 +1,163 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56425 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2705 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12786 
+In the Matter of 
+United Financial CPA PC and  
+Anowar Hossain, CPA,  
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted against United Financial CPA PC and Anowar 
+Hossain, CPA (collectively “Respondents”) pursuant to Section 21C of the Securities Exchange 
+Act of 1934 (“Exchange Act”), and that public administrative proceedings be, and hereby are, 
+instituted against United Financial CPA PC pursuant to Section 4C1 of the Exchange Act and Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . 
+to h ave willfully v iolated, or willfu lly aid ed a nd ab etted th e v iolation of, an y provision of the 
+securities laws or the rules and regulations thereunder. 
+2 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+The C ommission m ay censure a pers on or  deny , t emporarily or perm anently, t he p rivilege o f 
+appearing or practicin g b efore it in an y way to  an y p erson who is fou nd . . . t o have willfu lly 
+violated, or willfully aided and abetted the violation of any provision of the Federal securities laws 
+or the rules and regulations thereunder. 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, 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’ Offer, the Commission finds3 that: 
+A. RESPONDENTS 
+1. United Financial CPA PC (the “Firm”) (known as United Financial LLC during 
+the relevant time period) is a New York professional corporation and a public accounting firm 
+headquartered in New York, New York.  The Firm audited RedHand International, Inc.’s 
+(“RedHand”) financial statements for the company’s 2003 fiscal year ended December 31, 2003.  
+RedHand dismissed the Firm as its independent auditor in April 2005. 
+2. Anowar Hossain, CPA, (“Hossain”), 44, of New York, New York, is a certified 
+public accountant licensed in the state of New York since 1994.  Hossain was the engagement 
+partner in connection with the Firm’s audit of RedHand’s financial statements for the company’s 
+2003 fiscal year ended December 31, 2003. 
+B. FACTS 
+1. RedHand is a Nevada corporation with its headquarters in New York, New York.  
+RedHand’s common stock is registered with the Commission pursuant to Section 12(g) of the 
+Exchange Act.  For its fiscal year ended December 31, 2003, RedHand reported no revenues or 
+assets. 
+2. RedHand has at all relevant times been an issuer as defined by the Sarbanes-Oxley 
+Act of 2002 (the “Act”). 
+3. The Firm audited RedHand’s 2003 financial statements included in RedHand’s 
+annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on November 24, 
+2004. As part of that audit, the Firm prepared and issued an audit report dated November 9, 2004 
+(the “RedHand audit report”), which the company included in its 2003 Form 10-KSB.  RedHand 
+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
+3 
+paid the Firm $3,500 for the audit work.4 
+4. At the time the Firm issued the RedHand audit report, it was not registered with the 
+Public Company Accounting Oversight Board (the “Board”), as required by Section 102(a) of the 
+Act. 
+5. Hossain was the engagement partner on the Firm’s audit of RedHand’s 2003 
+financial statements.  Hossain participated in the preparation and issuance of the RedHand audit 
+report. 
+6. By order dated August 29, 2005, the Board disapproved an application for 
+registration submitted by the Firm based in part on the Firm’s violation of Section 102(a) of the 
+Act in issuing the RedHand audit report.5  The order effectively prevented the Firm from becoming 
+registered with the Board until after May 15, 2006, approximately one year from the date the 
+Board issued a notice of hearing on the Firm’s application.6  Hossain has only worked as an 
+accountant through the Firm since before the Board’s order and has not otherwise been associated 
+with a public accounting firm registered with the Board. 
+C. VIOLATIONS 
+1. 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.”7 
+2. The provisions of Section 102(a) of the Act became effective on October 22, 2003.8 
+4 During the course of the Commission’s investigation, the Firm voluntarily reimbursed RedHand the $3,500 
+in audit fees.  In view of the Firm’s reimbursement, the Commission is not ordering disgorgement in this matter. 
+5 PCAOB Release No. 2005-018 (Aug. 29, 2005).  The order also found that the Firm’s issuance of the 
+RedHand audit report violated Board Rule 2100, which implemented Section 102(a) of the Act, and that the Firm 
+violated Board Rule 2101 when it failed to identify and to provide required information concerning the RedHand audit 
+report on the Firm’s registration application.  Id. 
+6 The order states that with respect to any new registration application the Firm submits after May 15, 2006, 
+the Board will not issue a notice of hearing to determine whether to approve or disapprove such application based 
+solely on the violations subject to the Board’s order.  Id. 
+7 A violation of the Act or any rule that the Board 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). 
+8 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). 
+3
+
+3. Based on the conduct described above, the Firm willfully9 violated Section 102(a) 
+of the Act. 
+4. Based on the conduct described above, Hossain caused the Firm’s violation of 
+Section 102(a) of the Act. 
+D. FINDI NGS 
+Based on the foregoing, the Commission finds that the Firm willfully violated Section 
+102(a) of the Sarbanes-Oxley Act of 2002, and that Hossain caused the Firm’s violation of Section 
+102(a) of the Act. 
+E. UNDERTAKING 
+Respondents have undertaken not to request, demand, or accept, directly or indirectly, any 
+compensation from RedHand in connection with the audit work associated with the RedHand audit 
+report. In determining whether to accept the Offer, the Commission has considered this 
+undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+1. United Financial CPA PC 
+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 censured. 
+C. The Firm may practice before the Commission as an independent accountant 
+provided that: 
+1. It is registered with the Board in accordance with the Act, and such 
+registration continues to be effective; and 
+2. It has submitted to the Commission staff (attention: Office of the 
+Chief Accountant) the Board’s letter notifying the Firm that its registration application has been 
+approved. 
+“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). 
+4
+9 
+2. An owar Hossain, CPA 
+A. Hossain shall cease and desist from committing or causing any violations 
+and any future violations of Section 102(a) of the Act. 
+B. Hossain 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 Board 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 Board’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/2007/AAER-2707.pdf b/raw/aaer/2007/AAER-2707.pdf
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+U.S. SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56427 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2707 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12788 
+IN THE MATTER OF BANKER & CO. AND JITENDRA S. BANKER  
+The United States Securities and Exchange Commission (Commission) announced the 
+issuance of 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 
+(Order) against Banker & Co. and Jitendra S. Banker (J. Banker). 
+The Order alleges that Banker & Co. prepared and issued and J. Banker participated in the 
+preparation and issuance of audit reports on the financial statements of three public 
+companies in 2004, without first registering with the Public Company Accounting 
+Oversight Board (Board).  Section 102(a) of the Sarbanes-Oxley Act of 2002 (Sarbanes-
+Oxley Act) prohibits accounting firms not registered with the Board from preparing or 
+issuing audit reports with respect to any issuer after October 22, 2003.  The Order alleges 
+that, by this conduct, Banker & Co. and J. Banker lacked the requisite qualifications to 
+represent others and that Banker & Co. willfully violated Section 102(a) of the Sarbanes-
+Oxley Act. 
+Based on the above, the Order institutes proceedings against Banker & Co. and J. Banker 
+pursuant to Section 4C(a)(1) of the Securities Exchange Act of 1934 (Exchange Act) and 
+Rule 102(e)(1)(i) of the Commission’s Rules of Practice, and additionally as to Banker & 
+Co., Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice, to determine whether the allegations in the Order are true, and whether 
+they should be censured or temporarily or permanently denied the privilege of appearing or 
+practicing before the Commission as an accountant.   
+A hearing will be scheduled before an administrative law judge to determine whether the 
+allegations in the Order are true, to provide Banker & Co. and J. Banker an opportunity to 
+dispute these allegations, and to determine what sanctions, if any, are appropriate.  The 
+Order directs the Administrative Law Judge to issue an initial decision in this matter no later 
+than 300 days from the date of service of the Order. 
\ No newline at end of file
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+U.S. SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56428 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2708 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12789 
+IN THE MATTER OF CARL S. SANKO, CPA 
+The United States Securities and Exchange Commission (Commission) announced the 
+issuance of 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 
+(Order) against Carl S. Sanko, CPA (Sanko). 
+The Order alleges that Sanko prepared and issued an audit report on the financial 
+statements of a public company in 2004, without first registering with the Public 
+Company Accounting Oversight Board (Board).  Section 102(a) of the Sarbanes-Oxley 
+Act of 2002 (Sarbanes-Oxley Act) prohibits accounting firms not registered with the 
+Board from preparing or issuing audit reports with respect to any issuer after October 22, 
+2003. The Order alleges that, by this conduct, Sanko lacked the requisite qualifications to 
+represent others and that Sanko willfully violated Section 102(a) of the Sarbanes-Oxley Act. 
+Based on the above, the Order institutes proceedings against Sanko pursuant to Sections 
+4C(a)(1) and 4C(a)(3) of the Securities Exchange Act of 1934 and Rule 102(e)(1)(i) and 
+102(e)(1)(iii) of the Commission’s Rules of Practice to determine whether the allegations in 
+the Order are true, and whether it should be censured or temporarily or permanently denied 
+the privilege of appearing or practicing before the Commission as an accountant.   
+A hearing will be scheduled before an administrative law judge to determine whether the 
+allegations in the Order are true, to provide Sanko an opportunity to dispute these 
+allegations, and to determine what sanctions, if any, are appropriate.  The Order directs the 
+Administrative Law Judge to issue an initial decision in this matter no later than 300 days 
+from the date of service of the Order. 
\ No newline at end of file
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+U.S. SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56430 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2710 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12791 
+IN THE MATTER OF FREDERICK A. KADEN & CO. AND FREDERICK A. 
+KADEN, CPA 
+The United States Securities and Exchange Commission (Commission) announced the 
+issuance of 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 
+(Order) against Frederick A. Kaden & Co. (Kaden & Co.) and Frederick A. Kaden, CPA 
+(Kaden). 
+The Order alleges that Kaden & Co. prepared and issued and Kaden participated in the 
+preparation and issuance of an audit report on the financial statements of a public company 
+in 2004, without first registering with the Public Company Accounting Oversight Board 
+(Board). Section 102(a) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) 
+prohibits accounting firms not registered with the Board from preparing or issuing audit 
+reports with respect to any issuer after October 22, 2003.  The Order alleges that, by this 
+conduct, Kaden & Co. and Kaden lacked the requisite qualifications to represent others and 
+that Kaden & Co. willfully violated Section 102(a) of the Sarbanes-Oxley Act. 
+Based on the above, the Order institutes proceedings against Kaden & Co. and Kaden 
+pursuant to Section 4C(a)(1) of the Securities Exchange Act of 1934 (Exchange Act) and 
+Rule 102(e)(1)(i) of the Commission’s Rules of Practice, and additionally as to Kaden & 
+Co., Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice, to determine whether the allegations in the Order are true, and whether 
+they should be censured or temporarily or permanently denied the privilege of appearing or 
+practicing before the Commission as an accountant. 
+A hearing will be scheduled before an administrative law judge to determine whether the 
+allegations in the Order are true, to provide Kaden & Co. and Kaden an opportunity to 
+dispute these allegations, and to determine what sanctions, if any, are appropriate.  The 
+Order directs the Administrative Law Judge to issue an initial decision in this matter no later 
+than 300 days from the date of service of the Order. 
\ No newline at end of file
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+U.S. SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56432 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2712 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12793 
+IN THE MATTER OF JAY J. SHAPIRO, CPA, P.C. AND JAY J. SHAPIRO, CPA  
+The United States Securities and Exchange Commission (Commission) announced the 
+issuance of 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 (Order) against Jay J. Shapiro, CPA, P.C. (Shapiro 
+P.C.) and Jay J. Shapiro, CPA (Shapiro). 
+The Order alleges that Shapiro, a certified public accountant, knowingly caused his 
+accounting firm, Shapiro P.C., to prepare and issue an audit report on the financial 
+statements of a public company in 2004, without first registering with the Public 
+Company Accounting Oversight Board (Board).  Section 102(a) of the Sarbanes-Oxley 
+Act of 2002 (Sarbanes-Oxley Act) prohibits accounting firms not registered with the 
+Board from preparing or issuing audit reports with respect to any issuer after October 22, 
+2003. The Order alleges that, by this conduct, Shapiro P.C. and Shapiro lacked the requisite 
+qualifications to represent others and that Shapiro P.C willfully violated Section 102(a) of 
+the Sarbanes-Oxley Act. 
+Based on the above, the Order institutes cease-and-desist proceedings against Shapiro P.C. 
+and Shapiro pursuant to Section 21C of the Securities Exchange Act of 1934 (Exchange 
+Act), as well as proceedings under Section 4C(a)(1) of the Exchange Act and Rule 
+102(e)(1)(i) of the Commission’s Rules of Practice against Shapiro P.C. and Shapiro, and 
+additionally as to Shapiro P.C., Section 4C(a)(3) of the Exchange Act and Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice, to determine: whether the allegations 
+in the Order are true; whether a cease-and-desist order should be entered against Shapiro 
+P.C. and Shapiro; whether they should be censured or temporarily or permanently denied 
+the privilege of appearing or practicing before the Commission as an accountant; and 
+whether they should be ordered to pay disgorgement. 
+A hearing will be scheduled before an administrative law judge to determine whether the 
+allegations in the Order are true, to provide Shapiro P.C. and Shapiro an opportunity to 
+dispute these allegations, and to determine what sanctions, if any, are appropriate.  The 
+Order directs the Administrative Law Judge to issue an initial decision in this matter no later 
+than 300 days from the date of service of the Order. 
\ No newline at end of file
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@@ -0,0 +1,33 @@
+ADMINISTRATIVE RELEASE 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56433 / September 13, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2713 / September 13, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12794 
+IN THE MATTER OF MICHAEL DEUTCHMAN, CPA  
+The United States Securities and Exchange Commission (Commission) announced the 
+issuance of 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 (Order) against Michael Deutchman, CPA 
+(Deutchman). 
+The Order alleges that Deutchman, a certified public accountant, knowingly prepared and 
+issued an audit report on the financial statements of a public company in 2004, without 
+first registering with the Public Company Accounting Oversight Board (Board).  Section 
+102(a) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) prohibits accounting 
+firms not registered with the Board from preparing or issuing audit reports with respect to 
+any issuer after October 22, 2003. The Order alleges that, by this conduct, Deutchman 
+lacked the requisite qualifications to represent others and willfully violated Section 102(a) of 
+the Sarbanes-Oxley Act. 
+Based on the above, the Order institutes cease-and-desist proceedings against Deutchman 
+pursuant to Section 21C of the Securities Exchange Act of 1934 (Exchange Act), as well as 
+proceedings under Sections 4C(a)(1) and 4C(a)(3) of the Exchange Act and Rules 
+102(e)(1)(i) and 102(e)(1)(iii) of the Commission’s Rules of Practice, to determine whether 
+the allegations in the Order are true, whether a cease-and-desist order should be entered 
+against Deutchman and whether he should be censured or temporarily or permanently 
+denied the privilege of appearing or practicing before the Commission as an accountant.   
+A hearing will be scheduled before an administrative law judge to determine whether the 
+allegations in the Order are true, to provide Deutchman an opportunity to dispute these 
+allegations, and to determine what sanctions, if any, are appropriate.  The Order directs the 
+Administrative Law Judge to issue an initial decision in this matter no later than 300 days 
+from the date of service of the Order. 
\ No newline at end of file
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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56438 / September 13, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2717 / September 13, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12798 
+ 
+ 
+ 
+In the Matter of    ORDER INSTITUTING CEASE-AND-DESIST 
+      PROCEEDINGS, MAKING FINDINGS, AND 
+      I M P O S I N G  A  CEASE-AND-DESIST ORDER 
+FERRO CORPORATION and  PURS UANT TO SECTION 21C OF THE 
+ANTHONY J. MAIKUT,   SECURITIES EXCHANGE ACT OF 1934 
+                                                
+                                     Respondents.  
+ 
+ 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Ferro Corporation (“Ferro”) and against Anthony 
+J. Maikut (“Maikut”) (collectively, “Respondents”). 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+ 
+ 
+ 
+III. 
+ 
+ On the basis of this Order and Res pondents’ Offers, the Commission finds1 that: 
+ 
+Respondents
+ 
+1. Ferro is an Ohio corporation with its principal place of business in Cleveland, Ohio.  
+It manufactures, among other things, performance chemicals in facilities it owns in the U.S. and in 
+foreign countries.   Ferro’s common stock is registered pursuant to Section 12(b) of the Exchange 
+Act and trades on the New York Stock Exchange.  
+  
+2. Maikut, age 52, resides in Twinsburg, Ohio.  Maikut was the controller for Ferro’s 
+Performance Chemicals Group (“Chemicals Group”) from 1998 until July 2004, when Ferro 
+terminated his employment.  Maikut was a certified public accountant in the State of Ohio until 
+1997, when he failed to renew his license. 
+ 
+Related Party 
+ 
+3. Brian E. Haylor (“Haylor”), age 39, resides in Avon, Ohio.  From November 2000 
+until his resignation in July 2004, Haylor was the controller for Ferro’s Polymer Additives 
+Division (“PAD”), one of three divisions within the Chemicals Group.  In his position as PAD 
+controller, Haylor reported directly to Maikut.  
+ 
+Summary
+ 
+4.   Ferro issued materially false and misleading financial statements in its quarterly 
+reports for the first, second and third quarters of 2003, its annual report for 2003 and its quarterly 
+report for the first quarter of 2004.  Haylor caused Ferro to issue the false financial statements by 
+making numerous false accounting entries by omitting to make required entries in Ferro’s books 
+and records.  Maikut, as Haylor’s immediate supervisor, failed to adequately review Haylor’s 
+journal entries and account balances and participated in some erroneous accounting decisions.  
+Ferro failed to maintain adequate internal controls, which enabled Haylor to engage in his 
+fraudulent scheme.  As a result of Haylor and Maikut’s conduct, and as a result of other errors, 
+Ferro restated its financial statements for 2003 and the first quarter of 2004. 
+ 
+Haylor’s Fraudulent Conduct 
+ 
+5. From at least March 2003 through June 2004, Haylor intentionally recorded false 
+entries and omitted required entries in PAD’s accounting records.  The false entries and omissions 
+resulted in Ferro overstating its operating income2 in its Forms 10-Q for the quarters ended March 
+                                                 
+1  The findings herein are made pursuant to Respondents’ Offers of Settlement and 
+are not binding on any other person or entity in this or any other proceeding. 
+ 
+2  Operating income is net income before income taxes and gains or losses from 
+discontinued operations. 
+ - 2 -
+31, June 30 and September 30, 2003, in its 2003 Form 10-K  and in its Form 10-Q for the quarter 
+ended March 31, 2004. 
+ 
+6. Haylor made false entries in an account known as temporary accounts receivable.  
+Haylor should have used the temporary accounts receivable account to record sales for items sold 
+and shipped to a customer, but for which Ferro had not issued an invoice.  Once Ferro issued the 
+invoice, Haylor should have eliminated the entry to temporary accounts receivable and transferred 
+the balance to trade accounts receivable.  Haylor admitted that he recorded fictitious entries to 
+increase temporary accounts receivable and corresponding entries to reduce expenses.  Haylor’s 
+conduct resulted in an increase in operating income of $1,050,000 in the first quarter of 2003, 
+$527,000 in the second quarter, and $123,000 in the third quarter. 
+ 
+7. Haylor made false accounting entries in an account known as unrecorded liabilities.  
+This account is the mirror image of temporary accounts receivable because it reflects amounts 
+owed by Ferro for which it has not yet received an invoice.  Haylor reduced this account by 
+$120,000 in the third quarter of 2003 and by $300,000 in the fourth quarter of 2003, which resulted 
+in a reduction of Ferro’s expenses on its income statement.  Haylor did not have any legitimate 
+reason for these entries and no documentation to support them.  
+ 
+8. According to Ferro, the approximate effect of Haylor’s fraudulent entries and 
+omissions on Ferro’s operating income is as follows: 
+ 
+  2003 2004 Total 
+(All Dollar Amounts in Millions)       All 
+  Qtr 1 Qtr2 Qtr 3 Qtr 4 Total Qtr 1 Periods 
+Previously Reported Operating Income $14.2 $7.5 ($1.1) $3.6 $24.2 $19.3 $43.5 
+Less: Adj. for Fraudulent Accounting ($3.5) ($1.1) ($0.1) ($0.3) ($5.0) ($0.7) ($5.7) 
+Operating Income as Adjusted  $10.7 $6.4 ($1.2) $3.3 $19.2 $18.6 $37.8 
+Overstatement as a % of Oper. Inc. 32.7% 17.2% 8.3% 9.1% 26.0% 3.8% 15.1% 
+ 
+Maikut’s Negligent Conduct
+ 
+9. As the Chemicals Group controller, Maikut was responsible for the financial 
+statements prepared by Haylor.  Maikut did not, however, adequately review Haylor’s monthly and 
+quarterly post-closing adjusting entries or regularly review PAD’s balance sheet, even after senior 
+managers asked for more information about certain PAD account balances.   
+ 
+10.   Maikut’s failure adequately to review Haylor’s work enabled Haylor to engage in 
+his fraudulent conduct.  Haylor typically recorded false entries or omitted required entries during 
+the monthly or quarterly closing process via post-closing adjustments.  Had Maikut adequately 
+reviewed Haylor’s adjustments, he could have questioned them.  In addition, Haylor’s conduct 
+generated irregular account balances.  Senior management asked Maikut about an irregular balance 
+in temporary accounts receivable at the end of 2003, but Maikut did not request an account 
+reconciliation from Haylor until June 2004, when senior management demanded an explanation.  
+ - 3 -
+When Haylor failed to prepare the requested reconciliation, Ferro discovered his fraudulent 
+conduct.  
+ 
+11. Maikut also participated in some erroneous accounting decisions.  For example, in 
+July 2003, PAD sold products to a customer under a 12-month contract beginning in July 2003 and 
+ending in June 2004.  By the terms of the contract, the customer could earn rebates if its purchase 
+volume exceeded certain levels.  In April 2004, Haylor learned that the customer would earn a 
+rebate of $1.2 million.  Consistent with Generally Accepted Accounting Principles, Haylor should 
+have immediately recorded the amount of the rebate earned from July 2003 through April 2004.3  
+Haylor, however, at Maikut's direction, began recording the rebate expense in equal monthly 
+installments on a basis that would have fully expensed the item over an eight-month period to 
+avoid having the entire $1.2 million expense appear in PAD's results for the second quarter of 
+2004.  Ferro corrected the erroneous entries when they were discovered after Haylor left Ferro in 
+June 2004 and prior to filling its quarterly report for the second quarter of 2004. 
+ 
+Ferro’s Restatement 
+ 
+12. On March 31, 2006, Ferro filed its 2004 Form 10-K, which contained restated 
+financial results for 2003 and the quarter ended March 31, 2004.  The restatement corrected 
+inaccurate prior period results caused by Haylor’s fraudulent entries and omissions and by 
+numerous errors made by Ferro’s accounting personnel.  The errors were the result of poor 
+recordkeeping and inadequate internal controls, and caused Ferro to overstate its operating income 
+by an additional $6.6 million in 2003 and $4.6 million in the first quarter of 2004.  The individual 
+errors, however, resulted in both increases and decreases in Ferro’s operating income. 
+ 
+13. For example, in 2003, Ferro was in the process of incorporating new software for 
+its accounting systems.  Some business units used the existing system while others used the new 
+system.  This required Ferro to reconcile differences resulting from the use of different systems and 
+to make adjusting entries.  In reconciling these differences, Ferro erroneously made adjustments 
+that resulted in an overstatement of its income by $6.1 million in 2003 and by $191,000 in the first 
+quarter of 2004.  Another significant accounting error resulted when Ferro computed its employee 
+compensation expense.  Errors in these accounts resulted in an understatement of Ferro’s income 
+by $2.9 million in 2003 and an overstatement of $158,000 in the first quarter of 2004.   
+ 
+14. Ferro’s restatement had a material effect on the company’s earnings results for 
+2003 and the first quarter of 2004, as demonstrated in the following chart: 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+3  See Financial Accounting Standards Board, FAS No. 5. 
+ - 4 -
+ 2003 2004 Total 
+(All Dollar Amounts in Millions)       All 
+ Qtr 1 Qtr2 Qtr 3 Qtr 4 Total Qtr 1 Periods
+Previously Reported Operating Income $14.2 $7.5 ($1.1) $3.6 $24.2 $19.3 $43.5 
+Less: Adj. for Fraudulent Accounting ($3.5) ($1.1) ($0.1) ($0.3) ($5.0) ($0.7) ($5.7) 
+         Adj. for Accounting Errors ($2.8) ($3.4) ($0.8) $0.4 ($6.6) ($4.6) ($11.2) 
+                Total Adjustments ($6.3) ($4.5) ($0.9) $0.1 ($11.6) ($5.3) ($16.9) 
+Operating Income as Adjusted $7.9 $3.0 ($2.0) $3.7 $12.6 $14.0 $26.6 
+Over (Under)statement as a % of Oper. Inc. 79.7% 150.0% 45.9% (2.70%) 92.1% 37.9% 63.5% 
+ 
+15. Ferro also identified material weaknesses in its internal controls and concluded that 
+they had been ineffective. 
+ 
+16. Ferro’s deficient system of internal controls enabled Haylor to engage in his 
+fraudulent conduct.  For example, the company concluded that it had failed to perform timely 
+reviews of accounting reconciliations and journal entries.  More specifically, management did not 
+consistently approve post-closing journal entries.  Haylor was able to record fraudulent post-
+closing journal entries during 2003 and the first quarter of 2004 because his supervisor, Maikut, 
+did not adequately review and approve them.  The company also concluded that it had 
+insufficiently trained accounting personnel coupled with insufficient accounting policies and 
+procedures.  Haylor was able to carry out his scheme in part because his supervisor and others did 
+not consistently review and follow-up on suspicious account balances. 
+ 
+17. Ferro’s deficient system of internal controls also resulted in numerous errors.  For 
+example, the company’s failure to consistently review the calculations and accounting for amounts 
+due to employees under various compensation plans led to a material overstatement of employee 
+compensation expenses.  In addition, Ferro’s failure to timely perform and review accounting 
+reconciliations led to material errors in reconciling different accounting systems and recording 
+adjusting entries. 
+ 
+Legal Analysis 
+ 
+18. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require 
+issuers of securities registered pursuant to Section 12 of the Exchange Act to file accurate quarterly 
+and annual reports with the Commission.  Rule 12b-20 under the Exchange Act requires that these 
+reports must contain any material information necessary to make the required statements made in 
+the reports not misleading.  As a result of the conduct described above, Ferro violated these 
+provisions of the Exchange Act by issuing a materially inaccurate Form 10-K for 2003 and 
+materially inaccurate Forms 10-Q for the first three quarters of 2003 and the first quarter of 2004. 
+ 
+19. Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, 
+records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and 
+disposition of its assets.  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and 
+maintain a system of internal accounting controls sufficient to provide reasonable assurances that, 
+among other things, transactions are recorded as necessary to permit preparation of financial 
+ - 5 -
+statements in conformity with generally accepted accounting principles and to maintain 
+accountability of assets.  As a result of the conduct described above, Ferro violated Sections 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act because its books and records contained 
+numerous inaccurate entries and because it failed to devise and maintain a scheme of internal 
+controls adequate to detect and prevent Haylor’s false accounting entries. 
+ 
+20. As described above, Maikut, in part, caused Ferro’s violations of Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder 
+because he did not adequately review Haylor’s post-closing journal entries, did not adequately  
+review Haylor’s account balances, and did not follow up on questions from the company’s senior 
+management about a suspicious account balance. 
+ 
+Ferro’s Remedial Efforts
+ 
+21. In determining to accept Ferro’s Offer, the Commission considered remedial acts 
+promptly undertaken by Ferro and cooperation afforded the Commission staff. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ 1. Respondent Ferro cease and desist from  committing or causing any violations and 
+any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and 
+Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+ 
+ 2. Respondent Maikut cease and desist from  causing any violations and any future 
+violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 
+13a-1 and 13a-13 thereunder. 
+  
+ By the Commission.  
+ 
+ 
+        
+ 
+ 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+ - 6 -
\ No newline at end of file
diff --git a/raw/aaer/2007/AAER-2720.txt b/raw/aaer/2007/AAER-2720.txt
new file mode 100644
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+++ b/raw/aaer/2007/AAER-2720.txt
@@ -0,0 +1,640 @@
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56469 / September 19, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2720 / September 19, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12810 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+In the Matter of 
+ROBERT M. HARBRECHT, CPA, and  
+BRIAN R. SPIRES, CPA 
+Respondents. 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against Robert M. Harbrecht, CPA 
+(“Harbrecht”) and Brian R. Spires, CPA (“Spires”), pursuant to Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice.1 
+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. 
+II. 
+In anticipation of the institution of these proceedings, Respondents have each submitted an 
+Offer of Settlement (“Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds2 that: 
+A. SUMMARY 
+1. These proceedings concern the improper professional conduct, within the meaning 
+of  Commission Rule 102(e)(1)(iv)(B)(2), of Robert M. Harbrecht and Brian R. Spires (collectively 
+the “Respondents”) in connection with the audit of the 2000 consolidated financial statements 
+(“2000 audit”) of National Century Financial Enterprises, Inc. (“NCFE”), a Dublin, Ohio privately 
+owned healthcare finance company.  Harbrecht was the engagement partner for Deloitte & Touche 
+LLP’s (“Deloitte”) audits of NCFE for the years ended 1999 through 2001, and Spires was the 
+engagement manager for the 1999 and 2000 year-end audits.  Deloitte completed the 2000 audit in 
+May 2001. 
+2. NCFE operated programs through which special purpose subsidiaries conducted 
+private placement note offerings, the proceeds of which were used to purchase healthcare 
+receivables. NCFE represented to the note holders that NCFE would use the proceeds from the 
+note offerings exclusively for the purchase of patient-specific healthcare accounts receivable.  
+Although NCFE used note holder funds to purchase healthcare accounts receivable, NCFE used a 
+substantial portion of the private placement proceeds to make either unsecured loans or loans 
+secured by collateral other than healthcare accounts receivable (“non-permitted advances”), 
+contrary to NCFE’s representations to note holders and contrary to the requirements of the master 
+trust indentures (“indentures”) that governed NCFE’s programs.  The quality of the receivables 
+purchased in the programs was material to note holders because the pool of purchased receivables 
+was the sole source from which note holders would be repaid.  As part of a complex scheme, 
+NCFE concealed its non-permitted uses of note holder funds by, among other things, making false 
+and misleading statements in its annual financial statements, including in the 2000 consolidated 
+financial statements (“2000 Financials”) and by making false and misleading statements to its note 
+holders, the program trustees, rating agencies, and the auditors. 
+  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
+2
+3. As the engagement partner, Harbrecht signed an unqualified audit report for the 
+2000 audit and had overall responsibility for the planning and execution of the 2000 audit.  As the 
+engagement manager, Spires also participated in the planning and execution of the 2000 audit.  
+Respondents failed to plan and execute the 2000 audit in accordance with generally accepted 
+auditing standards (“GAAS”).  They failed to obtain sufficient competent evidential matter to 
+corroborate that NCFE’s receivables portfolio consisted of purchased healthcare accounts 
+receivables or to properly evaluate the adequacy of NCFE’s allowance for losses relating to those 
+receivables. Respondents also did not properly evaluate red flags during the audit which should 
+have alerted them to NCFE’s non-permitted advances and its borrowers’ inability to repay those 
+advances.  Additionally, Respondents failed to obtain sufficient competent evidential matter with 
+regard to the nature and substance of material related party transactions.  Many of these 
+transactions with related parties were non-permitted advances.   
+4. These audit deficiencies caused Harbrecht to sign an unqualified audit report that 
+erroneously stated that NCFE’s 2000 Financials were prepared in accordance with generally 
+accepted accounting principles (“GAAP”) and that Deloitte conducted its audit in accordance with 
+GAAS. Respondents engaged in improper professional conduct as defined in Rule 102(e) 
+(1)(iv)(B)(2) of the Commission’s Rules of Practice in connection with the 2000 audit. 
+B. RESPONDENTS 
+5. Robert M. Harbrecht, age 57, of Worthington, Ohio, joined Deloitte as an auditor in 
+1972 and was a partner from 1984 until he retired in 2004.  Harbrecht is a certified public 
+accountant in the state of Ohio and was licensed in Ohio until he allowed his license to lapse in 
+early 2006. Harbrecht served as the engagement partner on the 1999 through 2001 audits of 
+NCFE. At the time of the NCFE audits, Harbrecht had more than twenty-five years of auditing 
+experience, including extensive experience in the financial services industry, and he served on 
+Deloitte’s National Banking Committee. 
+6. Brian R. Spires, age 47, of New Albany, Ohio, joined Deloitte as an auditor in 1988 
+and was a senior manager from 1998 until he left Deloitte in 2001.  Spires is a licensed certified 
+public accountant in the state of Ohio.  Spires served as the manager on the 1999 and 2000 audits 
+of NCFE. At the time of the NCFE audits, Spires had more than ten years of auditing experience, 
+with a specialization in the financial services industry. 
+C. OTHER RELEVANT ENTITY 
+7. Deloitte & Touche LLP is a Delaware limited liability partnership whose principal 
+offices are located in New York, New York.  Deloitte provides, among other things, audit 
+assurance and business advisory services.  Deloitte has numerous branches domestically and 
+abroad, including a branch in Columbus, Ohio.  Deloitte served as auditor for NCFE for the 1999 
+to 2001 audits. 
+3
+
+D. FACTS 
+NCFE Background 
+8. NCFE was an Ohio corporation with its principal place of business in Dublin, Ohio 
+until it filed for bankruptcy in November 2002.  From 1991 through 2002, NCFE operated 
+programs through which special purpose subsidiaries purchased medical accounts receivable from 
+healthcare providers. The programs raised funds for the purchase of accounts receivable through 
+private offerings of highly rated debt securities to institutional investors (“note holders” or 
+“investors”).  NCFE represented to note holders that the programs would use the note proceeds 
+exclusively to purchase patient-specific medical accounts receivable from healthcare providers.  
+The programs and note offerings were structured as asset-backed securitizations, with the notes 
+being fully collateralized by the purchased medical accounts receivable and cash reserves held in 
+the programs.  From 1991 through 2002, NCFE’s subsidiaries issued more than $17 billion in 
+asset-backed bonds or notes through private placements. 
+9. NCFE’s programs were set out in a series of agreements between the special 
+purpose subsidiaries, healthcare providers, program trustees, and note holders, including, among 
+other things, an indenture which outlined the respective parties’ rights and obligations.  The 
+indentures allowed the programs to engage only in one type of business activity: the purchase of 
+“eligible” medical accounts receivable of a hospital, physicians’ group, or other healthcare 
+provider. Eligible receivables were defined to include only the insured portion of a receivable for 
+which medical services had already been rendered.  The program agreements required that the 
+special purpose subsidiaries purchase receivables at a price equal to 97% of the receivables’ 
+estimated collectible value. 
+10. The indentures also placed certain requirements on the programs that were designed 
+to protect note holders from loss.  Failure to comply with certain key provisions of the indentures 
+constituted an event of default.  If NCFE could not cure the defaults within a specified time period, 
+the indentures required the program trustees to declare a principal amortization event.  Such an 
+event would cause the program to cease purchasing receivables and would result in an immediate 
+liquidation of the program.  For example, to ensure that the programs had sufficient collateral to 
+cover the outstanding notes, the indentures required the programs to maintain at all times cash 
+reserves and eligible receivables equal to at least 111% of the amount of notes outstanding 
+(“collateral coverage test”). 3  If the collateral dropped below 111% for more than seven days, the 
+notes were immediately callable and the indentures required the programs to be immediately 
+liquidated. The indentures also required healthcare providers to immediately replace receivables 
+older than 180 days (“defaulted receivables”) with new eligible receivables.  If they did not, the 
+value of the defaulted receivables was to be deducted from the next funding to that provider, and 
+the defaulted receivables could not be counted as eligible collateral for purposes of the collateral 
+coverage test. 
+3 NCFE withheld 17% of the purchase price of eligible receivables as a safeguard against non-
+collection, and held this money as collateral in the form of cash reserves for the program note 
+holders. 
+4
+
+11. The indentures required an annual audit of NCFE’s consolidated financial 
+statements.  NCFE’s audited financial statements were provided to the program trustees, the rating 
+agencies that rated the notes, and were provided to investors upon request.  Deloitte served as 
+auditor of NCFE’s consolidated financial statements for the years ended 1999 through 2001.  
+Harbrecht was Deloitte’s engagement partner for the 1999 through 2001 year-end audits, and 
+Spires was Deloitte’s engagement manager for the 1999 and 2000 audits.  Harbrecht signed 
+unqualified audit reports on NCFE’s 1999 and 2000 financial statements.  He did not sign an audit 
+report on the 2001 financial statements because Deloitte did not complete its audit for that year. 
+NCFE’S Misuse of Note Proceeds and Misrepresentations 
+12. From at least 1994 until 2002, NCFE diverted note holder funds to make unsecured 
+loans or loans secured by collateral other than eligible healthcare receivables.  This practice 
+contradicted the requirements of the trust indentures and NCFE’s representations to investors that 
+NCFE was to use note holder funds exclusively for the purchase of eligible healthcare receivables.  
+NCFE used note holder funds to provide funding to healthcare providers that had already sold all 
+of their medical accounts receivables to NCFE and had no additional eligible receivables to sell.  
+Many of these providers had incurred significant operating losses over a period of years and lacked 
+the ability to repay NCFE.  NCFE made material non-permitted advances to providers that were 
+owned in part by NCFE or NCFE’s principals. 
+13. NCFE’s non-permitted advances had a much higher collection risk than purchased 
+eligible accounts receivable. Because eligible receivables were to be paid by highly rated third-
+party payers, such as insurance companies, HMOs, and governmental entities such as Medicare 
+and Medicaid, for medical services that had already been rendered and billed to the payers, the 
+eligible receivables were of the highest credit quality.  By contrast, it was much less likely that 
+NCFE would be able to collect on non-permitted advances because they were in substance 
+unsecured loans to severely financially distressed borrowers.  In fact, NCFE had very poor 
+collection experience on its non-permitted advances, and in some cases NCFE went more than a 
+year without receiving any payments from certain providers. 
+14. The amount and significance (as a percentage of NCFE’s total receivable portfolio) 
+of the non-permitted advances rapidly grew over time.  By 2000, non-permitted advances 
+represented more than half of NCFE’s entire provider receivable portfolio. 
+15. NCFE’s practice of making non-permitted advances caused the programs to be 
+under collateralized, with eligible receivables plus cash reserves falling well short of the required 
+111% of the value of the notes. A violation of this covenant required an immediate acceleration in 
+the maturity of the notes and liquidation of the programs. 
+16. NCFE concealed its non-permitted advances and the resulting indenture violations 
+by making materially false and misleading statements in its 2000 Financials and to its note holders, 
+the program trustees, rating agencies, and the auditors.4  The 2000 Financials departed from GAAP 
+due to misstatements and omissions relating to NCFE’s non-permitted advances.  The 2000 
+4 There were similar misstatements and omissions in NCFE’s earlier financial statements as well. 
+5
+
+Financials materially misrepresented that NCFE’s receivable portfolio consisted of purchased 
+medical accounts receivable, when in fact more than half of the portfolio consisted of non-
+permitted advances.  Further, NCFE failed to evaluate the impairment present in its receivable 
+portfolio attributable to the non-permitted advances to insolvent providers.  NCFE’s allowance for 
+losses was grossly inadequate given its non-permitted lending activity.  Finally, NCFE failed to 
+disclose that the programs were in default under the indentures and did not have the ability to cure 
+those defaults. 
+17. Note holders eventually uncovered NCFE’s fraud in October 2002.  The note 
+holders called the notes, which drove NCFE into bankruptcy in November 2002.  By that point, 
+however, most of NCFE’s approximately $3 billion of outstanding receivables were unsecured or 
+backed by collateral that was virtually worthless. As a result of NCFE’s fraudulent scheme, note 
+holders suffered more than $2 billion in losses.  Such losses do not reflect subsequent recoveries 
+from civil litigation. 
+Deloitte’s 2000 Audit of NCFE 
+18. NCFE’s fraud went undetected and investor losses continued to grow from 2000 
+through 2002. Harbrecht signed an unqualified audit report on NCFE’s 2000 Financials.  
+Deloitte’s 2000 audit report erroneously stated that the financial statements were prepared in 
+conformity with GAAP and that the audits had been conducted in accordance with GAAS.  
+Respondents were both responsible for the planning and execution of the 2000 audit.  Respondents 
+failed to perform certain audit procedures required by GAAS and failed to properly evaluate red 
+flags that could have alerted them to NCFE’s non-permitted advances and to the impairment of 
+NCFE’s receivable portfolio. 
+Existence of Purchased Accounts Receivable 
+19. According to Respondents, NCFE’s accounts receivable was one of the most 
+significant areas of the 2000 audit.  NCFE had $2.3 billion of accounts receivable outstanding at 
+the end of 2000, which represented 81% of the company’s $2.9 billion of total assets.  
+Nevertheless, Respondents failed to obtain evidential matter sufficient to corroborate NCFE’s 
+representation in its 2000 Financials that NCFE’s receivable portfolio represented purchased 
+patient-specific healthcare receivables.  Respondents’ failure to obtain sufficient competent 
+evidential matter supporting the purported purchase of accounts receivable resulted in their failure 
+to discover that NCFE’s receivables included a significant amount of non-permitted advances for 
+which no purchased patient-specific receivables existed. 
+20. Respondents devised an internal control reliance strategy in testing NCFE’s 
+receivable portfolio for the 2000 audit, placing some reliance on internal controls associated with 
+the processing of funding advances and the remittance of payments made by third party payers.  
+The testing of these controls had been performed during the 1999 audit and was updated 
+subsequently.  However, the internal controls testing performed by the engagement team provided 
+insufficient evidence as to the effectiveness of the controls in these areas.  The engagement team’s 
+internal controls testing consisted of a “walk-through” of NCFE’s control environment, which 
+included discussions with NCFE executive and mid-level management personnel, but did not 
+6
+
+include the identification of the specific controls that the engagement team intended to rely upon or 
+the specific documents and functions that it would examine in establishing the effectiveness of 
+those controls.  Through this walk-through, the engagement team learned about NCFE’s purported 
+process of purchasing eligible receivables that supposedly ensured NCFE’s receivable portfolio 
+consisted exclusively of purchased eligible receivables.  However, Respondents failed to obtain 
+sufficient competent evidential matter to corroborate that NCFE had in fact adhered to its controls 
+and that the controls operated effectively throughout the accounting period.  The engagement team 
+instead relied heavily on management’s representations as to how the controls were purportedly 
+operating and reviewed an insufficient sampling of documents that did not provide sufficient 
+competent evidential matter of NCFE’s purchase of eligible receivables.   
+21. Respondents also failed to design substantive audit procedures to corroborate the 
+existence of purchased patient-specific accounts receivable.  NCFE had three accounting systems: 
+the servicing department’s AS400 system that contained all the patient-specific receivable 
+information (“AS400”); the funding department’s DMaster system that tracked the amount funded 
+to providers (“DMaster”); and the general ledger.  NCFE represented that the funding department 
+was supposed to limit funding to the amount of patient-specific receivables residing in the AS400.  
+In practice, however, NCFE regularly advanced amounts to providers exceeding the amount of 
+patient-specific receivables available for purchase.  Respondents decided that the engagement team 
+should select accounts for confirmation using the amounts in the DMaster, based on their 
+erroneous conclusion that the amounts recorded as funded in the DMaster would be equivalent to 
+the amount of accounts receivable recorded in the AS400.  However, by using the DMaster 
+amounts, the engagement team merely confirmed the amounts funded to providers, not the amount 
+of purchased patient-specific receivables.  Moreover, the confirmations designed by the 
+engagement team asked only that the provider confirm “the balance due” to the NCFE program 
+rather than the amount of patient-specific receivables purchased by the program. 
+22. Similarly, the engagement team tested only the accounts receivable reconciliations 
+between the DMaster and the general ledger, despite being provided reconciliations for all three 
+systems by NCFE.  NCFE prepared detailed account reconciliations for each healthcare provider 
+with which it did business.  By testing the DMaster instead of the AS400, the engagement team 
+merely determined that the amount funded to providers, rather than the amount of purchased 
+receivables, reconciled to the general ledger.  This procedure did not provide sufficient competent 
+evidential matter concerning the existence of eligible purchased accounts receivable. 
+23. Respondents did not adequately investigate audit evidence contained in the 
+accounts receivable reconciliation schedules that revealed NCFE’s non-permitted lending.  The 
+reconciliation schedules showed significant shortfalls in the AS400 compared to the DMaster for 
+some providers due to the non-permitted advances; these advances appeared in the DMaster but 
+had no corresponding patient-specific receivable data in the AS400.  In fact, the single largest 
+reconciling item NCFE used to reconcile the AS400 to the DMaster and general ledger was a line 
+item entitled “Amount Over/(Under)Advanced to Seller,” which revealed the non-permitted 
+advances to the providers. The reconciliation for one provider showed an amount over-advanced 
+to that provider in excess of $200 million.  For another provider, the reconciliation showed a $42.1 
+million general ledger receivable balance but no AS400 receivable detail, indicating that the entire 
+general ledger amount constituted non-permitted advances. 
+7
+
+The Valuation of NCFE’s Accounts Receivable 
+24. Respondents also failed to obtain evidential matter sufficient to support NCFE’s 
+valuation of its receivable portfolio.  NCFE created an allowance for losses equal to 2% of its 
+receivable portfolio, which was based on its historical charge-off rate for uncollectible accounts. 
+NCFE’s allowance for losses was inadequate because of the impairment resulting from non-
+permitted advances made to financially insolvent providers.  The reason NCFE’s historical charge-
+off rate was so low was because NCFE did not charge off most of its impaired receivables. 
+25. Respondents determined that collectibility was not a significant issue for NCFE’s 
+receivable portfolio, based on their understanding of how the programs were supposed to operate 
+and based on management’s representations regarding collections.  Respondents understood that 
+there was a low risk of collection loss because the receivables were purportedly payable by 
+financially sound third-party insurers and government programs such as Medicare.  They also 
+understood that NCFE was required to return 180-day-old receivables to the selling providers, and 
+that NCFE also held back a percentage of the purchase price of the receivables as a safeguard 
+against unanticipated collection losses.  Thus, the engagement team accepted NCFE’s $43.7 
+million allowance for losses for its $2.5 billion receivable portfolio.  This allowance was intended 
+to cover the estimated losses in the $2.3 billion provider receivable portfolio and the losses 
+associated with $49.7 million of promissory notes from providers that were identified by the 
+engagement team as having a poor collection history.  NCFE deducted holdback reserves from 
+provider fundings that could absorb some credit and collection losses; however, these cash reserves 
+were available to cover only a limited percentage of each provider’s respective receivables 
+balance.5 
+26. Respondents did not obtain sufficient competent evidential matter to support its 
+conclusion that management’s methods for estimating the allowance for credit and collection 
+losses were reasonable. For example, Deloitte’s model audit program for the 2000 audit instructed 
+the engagement team to evaluate the reasonableness of management’s methods for its estimates of 
+the allowance for losses.  The model audit program advised reviewing, among other things, 
+accounts receivable aging.  When the engagement team requested a consolidated receivable aging 
+analysis from NCFE, management informed the team that the company could track aging by 
+program only and was incapable of generating a consolidated aging schedule.  Respondents 
+accepted this response and did not require NCFE to produce consolidated aging reports or other 
+similar information that would have enabled the engagement team to evaluate the delinquency rate 
+and collection losses in NCFE’s portfolio.  The engagement team did not perform an analysis of  
+5 NCFE’s programs withheld 17% of the amount funded to providers as cash reserves primarily 
+to provide additional collateral for note holders, and secondarily to absorb credit or collection 
+losses in the portfolio. These reserves totaled $332 million at the end of 2000.  These reserves 
+could be used on a provider-by-provider basis to absorb the first 17% of losses incurred for a 
+particular provider. However, the reserves for one provider could not be used to absorb losses in 
+another provider’s portfolio. Furthermore, in the event of early amortization of NCFE’s 
+programs, the cash reserves were to serve as collateral to guard against note holder losses rather 
+than to absorb losses in NCFE’s receivable portfolio.  
+8
+
+accounts receivable aging, nor did it review other information relating to delinquent accounts 
+receivable for the 2000 audit.  The engagement team did not perform other alternative audit 
+procedures to independently assess the reasonableness of the allowance for losses. 
+27. Respondents relied excessively on management’s representations regarding the 
+operation of the NCFE programs and collectibility of the receivables.  Respondents also failed to 
+obtain sufficient competent evidential matter to establish that NCFE was requiring providers to 
+replace 180-day-old receivables with new receivables or, alternatively, was deducting the value of 
+the defaulted receivables from future fundings.  Respondents thus failed to implement procedures 
+from which Deloitte could have discovered that NCFE had many receivables over 180 days old 
+still on its books. 
+28. Respondents did not properly evaluate audit evidence that revealed NCFE was 
+experiencing significant delinquencies in the receivable portfolio.  For example, NCFE provided 
+Deloitte with summarized statements for each provider that showed account activity during 2000.  
+The engagement team attached these statements to the audit confirmation requests.  These 
+statements revealed that NCFE had collected very little from many of its providers during 2000, 
+and in some cases had not made any collections for the entire year.  Similarly, each client prepared 
+accounts receivable reconciliation also contained a roll-forward analysis from the 2000 beginning 
+balance to the ending balance.  These schedules also showed poor collections.6  Despite being 
+presented with this information about collections, Respondents did nothing further to reconcile this 
+evidence with their conclusion that the programs were operating as they were designed. 
+29. Deloitte’s audit work on the reconciliations between the general ledger accounts 
+receivable balance and the DMaster balance also raised questions about the collectibility of 
+NCFE’s receivables.  Respondents learned that NCFE had reclassified $110 million of accounts 
+receivable to notes receivable. The reclassified receivables represented instances where NCFE had 
+poor or no collection activity on receivables, and where NCFE set up a note with the provider to 
+establish a collection schedule.  Respondents also became aware that NCFE did not recognize $21 
+million of program fee revenues because cash collections on the underlying receivables were 
+insufficient to cover the program fees earned on the advances made to those providers.  This 
+should have indicated to them that NCFE’s receivables portfolio included approximately $200 
+million of non-performing, delinquent receivables.  Respondents did not make additional audit 
+inquiries into these matters or into collections on NCFE’s receivables, despite the contradictions 
+between these facts and management’s representations about the operation of the programs and the 
+collectibility of NCFE’s receivables.   
+6 Deloitte’s confirmation sample represented more than 80% of the value of NCFE’s receivable 
+portfolio. Thus, the age of receivables in this sample revealed that a significant portion of 
+NCFE’s receivables were more than a year old, even though the programs contemplated the 
+receivables turning over every 90 to 120 days. 
+9
+
+NCFE’s Compliance with Trust Indenture Covenants 
+30. Respondents were aware that NCFE’s programs were in violation of certain 
+provisions of the trust indentures.  Although NCFE misleadingly claimed that the indenture 
+violations were not material, the engagement team identified these violations as an area that would 
+require “heightened audit attention.” 
+31. Respondents failed to obtain sufficient competent evidential matter to determine 
+whether NCFE was in compliance with the key provisions of the indentures that could lead to 
+defaults and require liquidation of the programs.  Among other things, the engagement team relied 
+on client-prepared investor reports provided to the program trustees on a monthly basis as evidence 
+of NCFE’s compliance with certain indenture covenants.  Because these reports were prepared by 
+NCFE, they routinely misrepresented that NCFE was in compliance with the most critical terms of 
+the indentures, as NCFE was concealing its violations from the trustees.  The engagement team 
+failed to obtain sufficient competent evidential matter to corroborate the accuracy of the data on 
+these reports. 
+NCFE’s Related Party Transactions 
+32. Respondents identified related party transactions as a risk area that would require 
+attention during the audit. Approximately half of NCFE’s receivables portfolio constituted 
+business with related parties, which was the most Harbrecht had ever encountered in an audit. 
+33. The engagement team’s audit procedures for related party transactions were limited 
+to receiving a schedule from NCFE that depicted related party receivable balances and program 
+fees and agreeing such amounts to the associated disclosures in the footnotes to the 2000 
+Financials.  Respondents relied on management’s representations that NCFE had made these 
+related party advances pursuant to the terms and requirements of the programs.  Respondents did 
+not scrutinize these transactions in order to understand the nature and business purpose of the 
+transactions, notwithstanding the high concentration of business with related parties.  Respondents 
+also failed to obtain information about the financial condition of non-consolidated related parties to 
+determine whether NCFE was avoiding the recognition of losses associated with these business 
+relationships.  Further analysis by the engagement team could have revealed that a significant 
+portion of the business conducted with related parties represented non-permitted advances for 
+which the providers did not have the financial capacity to repay.  It also could have revealed that, 
+despite the lack of collections, NCFE was continuing to make unsecured advances to these related 
+parties. 
+34. Furthermore, NCFE’s three largest related party relationships constituted 46% of its 
+entire $2.4 billion receivable portfolio at the end of 2000.  The engagement team failed to evaluate 
+the risk associated with this concentration of receivables among only a few providers, despite those 
+providers being related parties. 
+10
+
+Departures from GAAS 
+35. The third standard of field work requires that an auditor must obtain “sufficient 
+competent evidential matter” to provide “a reasonable basis for an opinion regarding the financial 
+statements under audit.”  (AU § 326, Evidential Matter, at AU 326.01)  GAAS further states that 
+“representations from management are part of the evidential matter the independent auditor 
+obtains, but they are not a substitute for the application of those auditing procedures necessary to 
+afford a reasonable basis for an opinion regarding the financial statements under audit.”  (AU § 
+333, Management Representations, at AU 333.02)  The third general standard requires that “[d]ue 
+professional care is to be exercised in the planning and performance of the audit and the 
+preparation of the [audit] report.”  (AU § 230, Due Professional Care in the Performance of Work, 
+at AU 230.01) “Due professional care requires the auditor to exercise professional skepticism,” 
+(AU 230.07), and “[i]n exercising professional skepticism, the auditor should not be satisfied with 
+less than persuasive evidence because of a belief that management is honest.” (AU 230.09)  “The 
+auditor obtains written representations from management to complement other auditing 
+procedures.”  (AU 333.03) 
+36. Respondents placed too much reliance on management’s representations regarding 
+the operation of NCFE’s programs, which led to improper assumptions in several audit areas.  
+Based primarily on management representations, Respondents improperly concluded that all of 
+NCFE’s funding to providers represented eligible purchased patient-specific accounts receivable.  
+This caused them to erroneously utilize the funding department’s system for confirmation and 
+reconciliation procedures instead of the servicing department’s system, which contained the 
+patient-specific accounts receivable detail.  Respondents failed to obtain sufficient competent 
+evidential matter to corroborate that NCFE had actually purchased patient-specific receivables 
+from providers.  Respondents also relied heavily on management’s representations regarding the 
+operation of the programs in concluding that NCFE had a low risk of credit and collection losses.  
+As a result, they decided to forgo performing certain audit procedures designed to corroborate the 
+reasonableness of management’s assumptions underlying its estimates of the allowance for losses.  
+Respondents failed to obtain sufficient competent evidential matter and failed to exercise due 
+professional care and professional skepticism when auditing the existence and valuation of 
+NCFE’s receivable portfolio. 
+37. Furthermore, Respondents failed to obtain sufficient competent evidential matter to 
+verify NCFE’s compliance with key provisions of the trust indentures.  They instead relied on 
+client-prepared monthly investor reports without adequately corroborating the veracity of the data 
+in those reports.  Thus, Respondents failed to obtain sufficient competent evidential matter to 
+conclude that NCFE was in compliance with the most significant provisions of the trust indentures. 
+38. GAAS states that the purpose of assessing control risk during an audit “is to 
+contribute to the auditor’s evaluation of the risk that material misstatements exist in the financial 
+statements.”  (AU § 319, Consideration of Internal Control in a Financial Statement Audit7, at AU 
+7 AU 319 was modified by Statement on Auditing Standards No. 94, The Effect of Information 
+Technology on the Auditor’s Consideration of Internal Control in a Financial Statement Audit, 
+which was integrated into AU 319 in May 2001 and applied to audits of financial statements for 
+11
+
+319.79 (pre-amendment), AU 319.105 (post-amendment))  When the auditor intends to place 
+reliance on internal controls, the auditor must identify specific controls that are relevant to specific 
+assertions in the financial statements and perform tests of those controls.  (AU 319.48 (pre-
+amendment), AU 319.70 (post-amendment)) 
+39. Respondents failed to design audit tests of internal control procedures sufficient to 
+justify the amount of reliance the engagement team placed on NCFE’s internal controls in 
+connection with auditing NCFE’s accounts receivable.  With regard to NCFE’s receivable 
+portfolio, Respondents failed to identify specific controls that Deloitte would rely upon with 
+respect to specific assertions in NCFE’s financial statements and failed to obtain sufficient 
+competent evidential matter to establish the operating effectiveness of those controls. 
+40. GAAS states that, when testing the effectiveness of internal controls through 
+observation, the auditor should consider “that the observed application of a control might not be 
+performed in the same manner when the auditor is not present.”  (AU 319.68 (pre-amendment), 
+AU 319.94 (post-amendment))  Observation therefore “may be insufficient to evaluate the 
+effectiveness of the design or operation of controls for periods not subjected to [observation].  In 
+such circumstances, the auditor may decide to supplement [observation] with other tests of controls 
+that are capable of providing evidential matter about the entire audit period.”  (AU 319.70 (pre-
+amendment), AU 319.96 (post-amendment)) 
+41. Respondents failed to design adequate internal control testing procedures to ensure 
+that NCFE’s internal controls operated effectively throughout the audit period.  By making 
+corroborative inquiries as to the operation of controls and by observing NCFE’s various control 
+functions, the engagement team obtained an understanding of the design of NCFE’s controls.  
+However, Respondents failed to obtain sufficient competent evidential matter that the controls 
+were operating effectively at all times during the audit period, such as tests of those controls at 
+different times throughout the audit period.   
+42. GAAS states that “for evidence to be competent, it must be reliable and relevant.  
+The relevance of evidence depends on its relationship to the financial statement assertion being 
+addressed.”  (AU § 330, The Confirmation Process, at AU 330.11)  When designing confirmation 
+requests, “the auditor should consider the assertion(s) being addressed and the factors that are 
+likely to affect the reliability of the confirmations.”  (AU 330.16) An auditor should consider 
+factors such as a confirmation respondent’s motivation, objectivity, and freedom from bias when 
+designing confirmation requests, and should consider whether other procedures are necessary as a 
+result. (AU 330.27)  Furthermore, “there may be circumstances . . . in which the auditor should 
+exercise a heightened degree of professional skepticism relative to these factors”, such as “where 
+the confirmation respondent is the custodian of a material amount of the audited entity’s assets.” 
+(Id.) 
+periods beginning on or after June 1, 2001. These amendments did not apply to the 2000 NCFE 
+audit. Therefore, all citations to AU 319 will include the pre-amendment citation in effect at the 
+time of the audit, as well as the post-amendment citation to the current AU 319. 
+12 
+43. Respondents failed to design confirmation requests tailored to the audit objective of 
+confirming management’s financial statement assertion that its receivables constituted eligible 
+purchased patient-specific receivables.  The confirmations requested that the provider confirm the 
+“balance due” NCFE instead of the amount of patient-specific receivables NCFE had purchased 
+from the provider.  Thus, Deloitte confirmed only the amount funded by NCFE to a particular 
+provider, not the amount of purchased receivables.  Based on management’s representations and 
+reliance on internal control testing, Respondents decided their confirmation approach was 
+acceptable because they incorrectly concluded that the amount funded by NCFE in all cases 
+equaled the amount of eligible patient specific receivables NCFE had purchased.  Furthermore, 
+Respondents failed to exercise the necessary level of professional skepticism by placing too much 
+reliance on confirmation responses from customers in which NCFE had an ownership interest or 
+which were financially dependent on NCFE, and which also were custodians of a significant 
+portion of NCFE’s assets.  Respondents did not sufficiently evaluate whether these confirmation 
+responses would provide competent evidence given that NCFE was the primary funding source for 
+many of its providers.  The engagement team did not obtain sufficient competent evidential matter 
+about the providers’ operating histories or their financial condition in order to assess whether those 
+providers were subject to improper influence by NCFE. 
+44. GAAS states that “[i]f a representation made by management is contradicted by 
+other audit evidence, the auditor should investigate the circumstances and consider the reliability of 
+the representation made.  Based on the circumstances, the auditor should consider whether his or 
+her reliance on management’s representations relating to other aspects of the financial statements is 
+appropriate and justified.”  (AU 333.04) 
+45. Respondents gathered audit evidence during the 2000 audit that should have caused 
+them to question management’s representations about the operations of the programs and to 
+reevaluate their conclusions as to the existence of purchased accounts receivable and as to the 
+credit and collection risk for NCFE’s receivables.  Most notably, they became aware that NCFE 
+had required providers to provide notes receivable to secure $110 million of delinquent accounts 
+receivable. Respondents also became aware that NCFE did not recognize $21 million of program 
+fee revenues because cash collections on the underlying receivables were insufficient to cover the 
+program fees earned on the advances made to those providers.  This should have indicated to them 
+that NCFE’s receivables portfolio included approximately $200 million of non-performing, 
+delinquent receivables.  Respondents failed to exercise professional skepticism when faced with 
+these facts. At a minimum, they should have questioned why, despite these collection issues, 
+NCFE did not create a specific allowance for or write off these receivables.   
+46. GAAS states that an auditor should “be aware of the possibility that transactions 
+with related parties may have been motivated solely, or in large measure, by conditions” such as, 
+among other things, the “[l]ack of sufficient working capital or credit to continue the business.”  
+(AU § 334, Related Parties, at AU 334.06)  “The auditor should place emphasis on testing material 
+transactions with [related parties].”  (AU 334.07)  “The auditor should apply the procedures he 
+considers necessary to obtain satisfaction concerning the purpose, nature, and extent of [related 
+party] transactions and their effect on the financial statements.” (AU 334.09) “The procedures 
+should be directed toward obtaining and evaluating sufficient competent evidential matter and 
+should extend beyond inquiry of management.”  (Id.) Such procedures may include inspecting or 
+13
+
+confirming the value of collateral in the transaction.  (Id.) When necessary to fully understand a 
+particular transaction, if there are material uncollected balances, an auditor should consider 
+obtaining information about the financial capability of the other party to the transaction.  (AU 
+334.10) “The higher the auditor’s assessment of risk regarding related party transactions, the more 
+extensive or effective the audit tests should be.”  (AU § 9334, Related Parties – Auditing 
+Interpretations of Section 334, at AU 9334.19)  To understand a related party transaction, or obtain 
+evidence regarding it, “the auditor may have to refer to . . . financial statements of the related 
+party.” (Id.) 
+47. Respondents did not perform audit procedures necessary to understand and test the 
+terms of NCFE’s related party transactions.  This was especially significant because approximately 
+half of NCFE’s business was with related parties.  The risk associated with NCFE’s related party 
+transactions was further exacerbated because 46% of NCFE’s receivable portfolio was 
+concentrated in three related parties. A careful review of NCFE’s relationships with these three 
+related parties would have revealed that these customers were severely financially distressed and 
+were receiving unsecured loans from NCFE to fund their operating losses.  Despite this material 
+concentration risk, Respondents failed to properly scrutinize NCFE’s related party transactions.   
+E. RULE 102(e) 
+48. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice states, in pertinent part, 
+that, “[t]he Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it in any way to any person who is found . . . to have engaged in unethical or 
+improper professional conduct.”  With respect to persons licensed to practice as accountants, such 
+as Respondents, “improper professional conduct” under Rule 102(e)(1)(ii) includes, among other 
+things, the following type of negligent conduct: “repeated instances of unreasonable conduct, each 
+resulting in a violation of applicable professional standards, that indicate a lack of competence to 
+practice before the Commission”.  (Rule 102(e)(1)(ii)(B)(2)) 
+49. As described above, Respondents engaged in improper professional conduct in 
+connection with the 2000 audit.  Respondents negligently failed to conduct the 2000 audit of 
+NCFE in conformity with the requirements of GAAS.  Harbrecht and Spires engaged in repeated 
+instances of unreasonable conduct, which resulted in violations of GAAS, and which indicate a 
+lack of competence to practice before the Commission. 
+F. FINDI NGS 
+Based on the foregoing, the Commission finds that Respondents engaged in improper 
+professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+14
+
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Harbrecht is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+B. After eighteen months from the date of this order, Harbrecht 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 Harbrecht’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) Harbrecht, 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) Harbrecht, 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 Harbrecht’s or the firm’s quality control system that would indicate that 
+Harbrecht will not receive appropriate supervision; 
+(c) Harbrecht 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) Harbrecht 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.   
+C. The Commission will consider an application by Harbrecht 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 
+15
+
+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 Harbrecht’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+D. Spires is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+E. After one year from the date of this order, Spires 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 Spires’ 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) Spires, 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) Spires, 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 Spires’ or the firm’s quality control system that would indicate that Spires 
+will not receive appropriate supervision;
+ (c) Spires 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) Spires acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to comply with all requirements 
+of the Commission and the Board, including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality control standards.   
+F. The Commission will consider an application by Spires 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  
+16
+
+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 Spires’ character, 
+integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+17
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+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56484 / September 20, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2722 / September 20, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12817  
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  Paul R. Venesky (CPA),   : 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 Paul R. 
+Venesky (“Respondent” or “Venesky”) 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 Responde nt’s Offer, the Commission finds that:  
+ 
+ 1. Venesky, age 44, is and has been a certified public accountant licensed to 
+practice in the State of Ohio since 1986.  He was Controller of OMG Americas, an OM Group 
+subsidiary, from August 1993 to September 2001 and Director of Operations from September 2001 
+to October 2002.  He was also Controller of the Cobalt division from October 2002 through August 
+2003.  Venesky left the company in May 2004. 
+ 
+ 2. OM Group, Inc. (“OM Group”) was,  at all relevant times, a Delaware 
+Corporation headquartered in Cleveland, Ohio.  The company has over 1,400 employees in North 
+America, Europe, Asia and Africa and annual revenues of over $1 billion.  OM Group’s common 
+stock is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (“Exchange 
+Act”) and is listed on the New York Stock Exchange under the ticker symbol “OMG.”  Its fiscal 
+year end is December 31 and its independent auditor is Ernst & Young LLP. 
+ 
+ 3. On July 18, 2007, th e Commission filed a complaint against Venesky in 
+SEC v. James M. Materna, John R. Holtzhauser, and Paul R. Venesky, 07-CV-01274 (D.D.C.).  
+On September 11, 2007, the court entered an order permanently enjoining Venesky, by consent, 
+from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-
+1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.  
+Venesky was also ordered to pay a $25,000 civil money penalty. 
+ 
+  4. The Commission’s Complaint alleges, among other things, that Venesky 
+aided and abetted fraudulent accounting practices in September 2001 and prior, which resulted in 
+OM Group 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 and, in part, the fiscal year 
+ended December 31, 2002.  The Complaint alleges that OM Group issued a restatement in 
+March 2005 reducing its retained earnings by $64 million as a result of fraudulent conduct.  
+According to the Complaint, Venesky recorded numerous erroneous and unsupported accounting 
+entries at the direction of OM Group’s former Chief Financial Officer and former Controller to 
+ 3
+OMG Americas’ books and records, which were consolidated into OM Group’s financial 
+statements.  These accounting practices allegedly included, among other things, recording 
+inaccurate inventory estimates, and recording erroneous journal entries related to certain 
+litigation involving OMG Americas.  In addition, the complaint alleges that Venesky, in part, 
+failed to provide sufficient information to OMG’s independent auditor about the accounting 
+entries and estimates.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Venesky’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Venesky is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After three (3) years from  the date of this order, Respondent may request that 
+the Commission consider his reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his/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 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 
+ 4
+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 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/2007/AAER-2723.pdf b/raw/aaer/2007/AAER-2723.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..f7d3f4c80106e9c98c5060f3b2d22ee76f54b7cb
Binary files /dev/null and b/raw/aaer/2007/AAER-2723.pdf differ
diff --git a/raw/aaer/2007/AAER-2723.txt b/raw/aaer/2007/AAER-2723.txt
new file mode 100644
index 0000000000000000000000000000000000000000..97e0718fd86aca710fbfe9a1149e76dd4647310b
--- /dev/null
+++ b/raw/aaer/2007/AAER-2723.txt
@@ -0,0 +1,160 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56485 / September 20, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2723 / September 20, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12818  
+       
+      :  
+ :  
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+            JOHN R. HOLTZHAUSER   : 102(e) OF THE COMMISSION’S RULES OF 
+            (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 John R. 
+Holtzhauser (“Respondent” or “Holtzhauser”) 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 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. Holtzhauser, age 50, is  and has been a certified public accountant licensed to 
+practice in the State of Ohio.  He served as Controller of OM Group, Inc. (“OMG”) from 1991 until 
+his resignation in August 2003. 
+ 
+ 2. OMG was, at all relevant times, a Delaware corporation with its principal 
+place of business in Cleveland, Ohio.  OMG was engaged in the production and marketing of value-
+added, metal based specialty chemicals and related materials produced from cobalt and nickel.  At 
+all relevant times, OMG’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 New York Stock 
+Exchange under the symbol “OMG.” 
+ 
+ 3. On July 18, 2007, the Commission filed a complaint against Holtzhauser in  
+SEC v. James M. Materna, John R. Holtzhauser, and Paul R. Venesky, 07-CV-01274 (D.D.C.).  
+On September 11, 2007, the court entered an order permanently enjoining Holtzhauser, by consent, 
+from future violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and 
+Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, 
+and 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.  Holtzhauser was also ordered to pay 
+$76,707 in disgorgement of certain past bonus payments, and a $100,000 civil money penalty.  
+ 
+  4. The Commission’s complaint alleges, among other things, that Holtzhauser 
+engaged in fraudulent accounting practices, which resulted in OMG filing materially false and 
+misleading financial statements in the company’s annual report on Form 10-K for the fiscal 
+years ended December 31, 2001 and December 31, 2002, and in the company’s quarterly reports 
+on Form 10-Q for all four quarters of 2002 and the first three quarters of 2003.  The complaint 
+alleges that OMG issued a restatement in March 2005 reducing its retained earnings for the 
+relevant period by $64 million as a result of the fraudulent conduct.  According to the complaint, 
+Holtzhauser recorded and directed numerous erroneous and unsupported accounting entries, 
+estimates, and top side adjustments to OMG’s books and records that materially increased 
+ 3
+OMG’s annual and quarterly net income in a departure from generally accepted accounting 
+principles.  These accounting practices allegedly included, among other things, overcapitalizing 
+overhead costs, improperly recording supplier receivables, recording inflated inventory recovery 
+yields, recording inaccurate inventory estimates, and duplicating entries made at the operating 
+unit level.  In addition, the complaint alleges that Holtzhauser failed to provide sufficient 
+information to OMG’s independent auditor about the accounting entries, estimates, and top side 
+adjustments.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Holtzhauser’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Holtzhauser is suspended from appear ing or practicing before the Commission as 
+an accountant.   
+ 
+ B. After five (5) years from the date of  this order, Respondent may request that 
+the Commission consider his reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the Respondent’s or the firm’s quality control system that would 
+indicate that the Respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all 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 
+ 
+ 4
+   (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 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/2007/AAER-2724.txt b/raw/aaer/2007/AAER-2724.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3e0cb7e140494988040b9c58c8f97c9f667736a6
--- /dev/null
+++ b/raw/aaer/2007/AAER-2724.txt
@@ -0,0 +1,158 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56486 / September 20, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2724 / September 20, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12819  
+       
+      :  
+ :  
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+            JAMES M.  MATERNA        : 102(e) OF THE COMMISSION’S RULES OF 
+            (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 James 
+M. Materna (“Respondent” or “Materna”) 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 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. Materna, age 62, is and has been a certified public accountant licensed to 
+practice in the State of Ohio.  He served as Chief Financial Officer of OM Group, Inc. (“OMG”) 
+from July 1992 until his retirement in May 2002.  His CPA license went inactive thereafter. 
+ 
+ 2. OMG was, at all relevant times, a Delaware corporation with its principal 
+place of business in Cleveland, Ohio.  OMG was engaged in the production and marketing of value-
+added, metal based specialty chemicals and related materials produced from cobalt and nickel.  At 
+all relevant times, OMG’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 New York Stock 
+Exchange under the symbol “OMG.” 
+ 
+ 3. On July 18, 2007, th e Commission filed a complaint against Materna in 
+SEC v. James M. Materna, John R. Holtzhauser, and Paul R. Venesky, 07-CV-01274 (D.D.C.).  
+On September 11, 2007, the court entered an order permanently enjoining Materna, by consent, 
+from future violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) and 
+Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, 
+and 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.  Materna was also ordered to pay a 
+$100,000 civil money penalty.  
+ 
+  4. The Commission’s complaint alleges, among other things, that Materna 
+engaged in fraudulent accounting practices in May 2002 and prior, which resulted in OMG 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 and, in part, the fiscal year ended December 31, 
+2002, and in the company’s quarterly report on Form 10-Q for the first quarter of 2002.  The 
+complaint alleges that OMG issued a restatement in March 2005 reducing its retained earnings 
+by $64 million as a result of fraudulent conduct.  According to the complaint, Materna recorded 
+and directed numerous erroneous and unsupported accounting entries, estimates, and top side 
+adjustments to OMG’s books and records that materially increased OMG’s annual and quarterly 
+ 3
+net income in a departure from generally accepted accounting principles.  These accounting 
+practices allegedly included, among other things, overcapitalizing overhead costs, improperly 
+recording supplier receivables, recording inflated inventory recovery yields, recording inaccurate 
+inventory estimates, and duplicating entries made at the operating unit level.  In addition, the 
+complaint alleges that Materna, in part, failed to provide sufficient information to OMG’s 
+independent auditor about the accounting entries, estimates, and top side adjustments.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Materna’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Materna is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five (5) years from the date of  this order, Respondent may request that 
+the Commission consider his reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the Respondent’s or the firm’s quality control system that would 
+indicate that the Respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all 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 
+ 4
+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 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/2007/AAER-2726.txt b/raw/aaer/2007/AAER-2726.txt
new file mode 100644
index 0000000000000000000000000000000000000000..22659f7cd1bde1406526d949e151dafa604d80b4
--- /dev/null
+++ b/raw/aaer/2007/AAER-2726.txt
@@ -0,0 +1,1405 @@
+
+
+ 
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+              Chandramowli Srinivasan
+           
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+        Chandramowli Srinivasan
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20296 / September 25, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2726 / September 25, 2007 
+
+  SEC v. Chandramowli Srinivasan , Civil Action No. 1:07-CV-01699 (RBW)(D.D.C.) 
+
+ Former President of EDS's Indian Subsidiary Settles SEC Injunctive Action Relating to Violations of the Foreign Corrupt Practices Act 
+
+ Chandramowli Srinivasan Agrees to Pay a $70,000 Penalty 
+
+ In Separate Administrative Proceeding, EDS Agrees to Cease-and-Desist Order and to Pay $490,902 in Disgorgement and Prejudgment Interest Relating to Issuer Reporting, Books-and-Records, and Regulation FD Violations 
+
+ 
+
+ The Securities and Exchange Commission announced today that it filed a settled civil action in United States District Court for the District of Columbia against Chandramowli Srinivasan, the former president of A.T. Kearney India (ATKI), which was a subsidiary of Electronic Data Systems Corp. (EDS) at the time, relating to his role in a bribery scheme. The Commission's complaint against Srinivasan states that between early 2001 and September 2003, ATKI made at least $720,000 in illicit payments to senior employees of Indian state-owned enterprises to retain its business with those enterprises. ATKI made these payments at the direction of Srinivasan after the senior employees threatened to cancel the contracts with ATKI. Srinivasan, on a neither admit nor deny basis, consented to the entry of a final judgment enjoining him from violating Sections 13(b)(5) and 30A of the Securities Exchange Act of 1934 (Exchange Act) and ordering him to pay a $70,000 penalty. 
+
+ In a separate but related action, the Commission today instituted administrative proceedings against EDS for various violations of the issuer reporting and books-and-records provisions of the federal securities laws. Simultaneously with the institution of the proceedings, EDS consented to the entry of an SEC cease-and-desist order that provides for disgorgement and prejudgment interest of $490,902. The Commission order found that EDS engaged in the following misconduct: 
+
+  EDS failed to disclose the cost of certain derivatives contracts for the first and second quarters of 2002, and then selectively disclosed the cost and early settlement in the third quarter of 2002.   
+
+   EDS failed to adequately disclose in its Form 10-Q for the second quarter of 2002 an extraordinary transaction that comprised over 25 percent of EDS's operating cash flow in the first six months of 2002.   
+
+   EDS maintained inaccurate books and records by employing certain inaccurate assumptions in accounting models used to estimate revenues and expenses for the company's multi-billion dollar Navy/Marine Corps Intranet contract.   
+
+   The improper payments made by Srinivasan caused EDS to maintain inaccurate books and records. 
+  As a result of the above, the Commission found that EDS, which did not admit or deny the charges, violated Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-13, and Regulation FD. EDS was also ordered to pay $358,800 in disgorgement and $132,102 in prejudgment interest.  See  Administrative Proceeding No. 3-12825. 
+
+ 
+
+ 
+   SEC Complaint in this matter    Administrative Proceeding 34-56519  
+
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diff --git a/raw/aaer/2007/AAER-2727.txt b/raw/aaer/2007/AAER-2727.txt
new file mode 100644
index 0000000000000000000000000000000000000000..88c8aa2631cf3fcab08fb1713c5b500044fd950c
--- /dev/null
+++ b/raw/aaer/2007/AAER-2727.txt
@@ -0,0 +1,250 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56533 / September 26, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2727 / September 26, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12833 
+In the Matter of 
+BRISTOW GROUP INC., 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+I. 
+The Securities and Exchange 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 Bristow Group Inc. (“Bristow” or 
+“Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+Summary 
+From at least 2003 through approximately the end of 2004, Bristow’s wholly-
+owned United States subsidiary, AirLog International, Ltd. (“AirLog”), through its Nigerian 
+affiliate, Pan African Airlines Nigeria Ltd. (“PAAN”), made improper payments totaling 
+approximately $423,000 (the “improper payments”) to employees of the governments of two 
+Nigerian states (the “tax officials”) to influence them to improperly reduce the amount of 
+expatriate employment taxes payable by PAAN to the respective Nigerian state governments.  The 
+improper payments were not properly recorded in AirLog’s books and records, which were 
+consolidated into Bristow’s books and records.  During the same time period, PAAN also 
+underreported its expatriate payroll expenses in Nigeria.  Those expenses were not properly 
+recorded in AirLog’s books and records, and accordingly, were not accurately reported in 
+Bristow’s books and records.  Bristow’s internal controls failed to detect and prevent the improper 
+payments and underreported expatriate payroll expenses.  In addition, Bristow’s internal controls 
+failed to provide reasonable assurances that the company’s books and records accurately reflected 
+the nature and purpose of the improper payments and the company’s expatriate payroll expenses.2 
+Respondent 
+1. Bristow, a Delaware corporation with its headquarters in Houston, Texas, provides 
+helicopter transportation services and operates oil and gas production facilities.  Prior to August 22, 
+2005, Bristow was headquartered in Lafayette, Louisiana.  Bristow’s common stock is registered 
+with the Commission pursuant to Section 12(b) of the Exchange Act and is listed on the New York 
+Stock Exchange. 
+Other Relevant Entities
+ 2. AirLog is a Delaware corporation headquartered in New Iberia, Louisiana.  AirLog 
+is a wholly-owned subsidiary of Bristow. 
+1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+2 During the same time period, another Bristow affiliate, Bristow Helicopters (International), Ltd. (“Bristow 
+Helicopters”), also made similar improper payments to Nigerian tax officials through its Nigerian affiliate Bristow 
+Helicopters (Nigeria), Ltd. (“Bristow Nigeria”).  Neither Bristow Helicopters nor Bristow Nigeria is an issuer for 
+purposes of Section 30A of the Exchange Act and neither company is organized under the laws of the United States. 
+However, Bristow Helicopters’ and Bristow Nigeria’s financials were consolidated into Bristow Aviation Holding, 
+Ltd.’s (“Bristow Aviation”) financials, which were ultimately consolidated into Bristow’s financials.  Further, in 
+addition to PAAN, Bristow Nigeria underreported its expatriate payroll expenses (collectively, “payroll expenses”).  
+As a result, Bristow’s reporting, books and records and internal controls violations are based on the improper 
+payments of Bristow Helicopters, Bristow Nigeria, AirLog and PAAN as well as Bristow Nigeria and PAAN’s 
+underreported payroll expenses.   
+2
+
+ 3. PAAN, a Bristow affiliate operating in Nigeria, was 40% owned by ALN Inc., a 
+Delaware corporation which is a wholly-owned subsidiary of Bristow, during the relevant period. 
+4. Bristow Aviation, incorporated and headquartered in Redhill, England, is a Bristow 
+affiliate.  Bristow owns 49% of Bristow Aviation’s common stock and 100% of Bristow 
+Aviation’s subordinated debt. 
+5. Bristow Helicopters, incorporated and headquartered in Redhill, England, is a 
+Bristow affiliate and is ultimately owned by Bristow Aviation.  
+6. Bristow Nigeria, a Bristow affiliate operating in Nigeria, was 40% owned by 
+Bristow Aviation during the relevant period.   
+Facts 
+An Overview of the Improper Payments 
+7. From at least 2003 through approximately the end of 2004, Bristow’s subsidiary, 
+AirLog, through its Nigerian affiliate, PAAN, made at least $423,000 in improper payments to tax 
+officials employed by two Nigerian state governments.  These payments had the purpose and effect 
+of influencing the tax officials to reduce the annual amount of expatriate employment tax, referred 
+to as the expatriate “Pay As You Earn” (“PAYE”) tax, PAAN owed to the Nigerian state 
+governments.  The payments were made with the knowledge and approval of senior employees of 
+PAAN, and the release of funds for the payments was approved by at least one former senior 
+officer of Bristow (the “senior officer”). 
+8. PAAN was responsible for paying an annual PAYE tax to the Nigerian state 
+governments in each state where PAAN operated.  At the end of each year, the government of each 
+Nigerian state assessed a tax on the salaries, as determined by each Nigerian state, of PAAN 
+employees in that state and sent PAAN a demand letter.  The Nigerian state governments used their 
+own pre-determined, or “deemed,” salaries in making their demand calculations.  PAAN then 
+negotiated with the tax officials to lower the amount assessed.  In each instance, the PAYE tax 
+demand amount was lowered and a separate cash payment amount for the tax officials was 
+negotiated. Each state government then sent a new demand letter to PAAN, reflecting only the 
+negotiated payment to the state government, and not the separate cash payment negotiated for the 
+tax officials. Upon payment, each state government provided PAAN with a receipt reflecting only 
+the amount payable to the state government.  The demand letters and receipts were sent to lower 
+level accounting personnel at AirLog in the United States.  That documentation was not forwarded 
+to Bristow’s corporate headquarters. 
+Bristow’s Discovery of the Improper Payments and its Response 
+9. Bristow discovered the potentially improper payments at a company management 
+meeting in October 2004 where Bristow’s newly appointed chief executive officer (“CEO”) heard 
+a comment suggesting the possibility that payments had been made to government officials in 
+3
+
+Nigeria. The CEO immediately brought the matter to the attention of the audit committee and 
+contacted outside counsel.  The audit committee hired independent counsel to conduct an internal 
+investigation. Bristow promptly brought this matter to the Commission’s staff’s attention. 
+The Specifics of the Improper Payments 
+10. PAAN made the following payments for 2002 and 2003 PAYE tax to two Nigerian 
+state governments and additional personal payments in cash:3 
+State/Year Original 
+Demand 
+Negotiated 
+Payment 
+Tax Paid to 
+State 
+(receipted) 
+Personal 
+Payment 
+(unreceipted 
+cash) 
+Bristow’s 
+Savings 
+Delta State – 
+2002 
+$568,000 $165,000 $54,690 $110,310 $403,000 
+Delta State – 
+2003 
+$660,940 $270,000 $54,870 $215,130 $390,940 
+Lagos State – 
+2002 
+$130,000 $50,000 $5,780 $44,220 $80,000 
+Lagos State – 
+2003 
+Unknown $60,000 $6,360 $53,640 Unknown 
+TOTAL $1,358,940 $545,000 $121,700 $423,300 $873,940 
+Improper Payments to the Nigerian Delta State 
+11. In 2003 the Nigerian Delta State (“Delta State”) made an initial demand on PAAN 
+for its 2002 PAYE tax of $568,000, although the demand was made in local currency.  PAAN’s 
+accounting personnel in Nigeria negotiated with the tax officials and the demand was reduced to 
+$165,000. The government then sent PAAN a new demand for $54,690.  This new demand did not 
+reflect the negotiated $165,000 amount because the balance was to be paid in cash to the tax 
+officials. PAAN employees requested that AirLog wire transfer $165,000 to PAAN for payment 
+of the PAYE tax. The senior officer approved the transfer of funds.  PAAN paid the difference 
+between the $165,000 negotiated and the $54,690 in the demand letter, $110,310, in cash to the tax 
+officials.  The Delta State provided PAAN with a receipt for only $54,690 for the 2002 PAYE tax.  
+The improper payments helped Bristow avoid $403,000 in taxes. 
+12. Similarly, in 2004 the Delta State demanded 2003 PAYE tax of $660,940.  PAAN 
+negotiated the amount down to $270,000.  The Delta State then sent PAAN a demand letter for 
+$54,870. PAAN paid the difference between the $270,000 negotiated and the $54,870 in the 
+demand letter, $215,130, in cash to the tax officials.  After PAAN negotiated the original demand 
+down to $270,000, in May 2004, the senior officer received an e-mail from PAAN’s former 
+general manager requesting approval to pay the negotiated amount.  The senior officer approved 
+3 Payment amounts are approximate and are based on a conversion rate of 139 Nigerian naira to the United States 
+dollar. 
+4
+
+the release of funds for the payment.  The Delta State provided PAAN with a receipt for only 
+$54,870 for the 2003 PAYE tax.  The improper payments helped Bristow avoid $390,940 in taxes. 
+Improper Payments to the Nigerian Lagos State 
+13. In 2003, PAAN received an initial demand from the Nigerian Lagos State (“Lagos 
+State”) for $130,000, for its 2002 PAYE tax.  PAAN accounting employees in Nigeria negotiated 
+the amount down to $50,000.  The senior officer approved the transfer of funds.  PAAN paid 
+$5,780 to the Lagos State government for PAYE tax and $44,220 in personal cash payments.  The 
+improper payments helped Bristow avoid $80,000 in taxes.  Similarly, regarding the 2003 PAYE 
+tax, PAAN paid $6,360 to the Lagos State government for taxes and $53,640 in personal cash 
+payments. 
+Underreported Payroll Expenses 
+14. During Bristow’s investigation into the improper payments, Bristow discovered that 
+it had underreported PAAN and Bristow Nigeria’s payroll expenses to certain Nigerian state 
+governments.  As a result, its periodic reports filed with the Commission did not accurately reflect 
+certain of the company’s payroll-related expenses.  Bristow restated its financial statements for the 
+fiscal years 2000 through 2004 and the first three quarters of 2005, in part, to correct inaccuracies 
+regarding the improper payments and underreported payroll expenses in Nigeria.4  The 
+underreported payroll expenses in Nigeria were the primary factor that caused Bristow to restate.   
+Bristow Improperly Recorded the Improper Payments 
+and Payroll Expenses in its Books and Records 
+15. Bristow has conducted business through AirLog and PAAN in Nigeria since 2002 
+and through Bristow Helicopters and Bristow Nigeria since the acquisition of its interest in Bristow 
+Aviation in the late 1990s.  During the relevant period, the books and records of AirLog, PAAN, 
+Bristow Helicopters and Bristow Nigeria were a component of the consolidated financial 
+statements included in Bristow’s Commission filings.   
+16. AirLog and Bristow Helicopters’ books and records improperly reflected PAAN 
+and Bristow Nigeria’s cash payments to the tax officials as legitimate tax expenses.  The PAYE tax 
+payments were recorded in summary fashion, either broken out in a line item for “PAYE taxes” or 
+compiled together with other expenses.  AirLog and PAAN booked both the amount that was paid 
+to the government and the cash amount that was given to the tax officials as “payroll tax 
+expenses.”  Additionally, PAAN and Bristow Nigeria underreported their payroll expenses.  As a 
+result, Bristow’s books, records and accounts did not, in reasonable detail, accurately and fairly 
+reflect PAAN and Bristow Nigeria’s improper payments and payroll-related expenses for the 
+relevant time period, when AirLog and Bristow Helicopters’ books and records were consolidated 
+into Bristow’s. 
+4 The restatement also covered underreported payroll expenses outside of Nigeria, customer reimbursements and 
+severance benefits. 
+5
+
+Bristow Lacked Adequate Internal Controls to Detect and Prevent  
+Foreign Corrupt Practices Act Violations and Underreported Payroll Expenses 
+17. Prior to Bristow’s internal investigation in Fall 2004, the internal controls at 
+Bristow, AirLog, Bristow Helicopters, PAAN, and Bristow Nigeria were deficient and were not 
+adequately designed to safeguard against Foreign Corrupt Practices Act violations.  As a result, 
+Bristow’s internal controls failed to provide reasonable assurances that its affiliates’ books and 
+records accurately reflected the nature and purpose of the improper payments.  Similarly, Bristow’s 
+internal controls failed to provide reasonable assurances that the company’s payroll-related 
+expenses were accurately stated in accordance with generally accepted accounting principles.   
+Federal Securities Laws Violations 
+18. As a result of the improper payments described above, Bristow violated Section 
+30A of the Exchange Act, which prohibits any issuer with a class of securities registered pursuant 
+to Section 12 of the Exchange Act, in order to obtain or retain business, from giving, or authorizing 
+the giving of, anything of value to any foreign official for purposes of influencing the official or 
+inducing the official to act in violation of his or her lawful duties, or to secure any improper 
+advantage; or to induce a foreign official to use his influence with a foreign government or foreign 
+governmental instrumentality to influence any act or decision of such government or 
+instrumentality.  
+19. As a result of the conduct described above, Bristow violated Section 13(a) of the 
+Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder. 
+20. As a result of the conduct described above, Bristow violated Section 13(b)(2)(A) of 
+the Exchange Act, which requires reporting companies to make and keep books, records, and 
+accounts, which, in reasonable detail, accurately and fairly reflect their transactions and disposition 
+of their assets. 
+21. As a result of the conduct described above, Bristow 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 in accordance with management’s general or specific authorization; transactions are 
+recorded as necessary to permit preparation of financial statements in conformity with generally 
+accepted accounting principles or any other criteria applicable to such statements, and to maintain 
+accountability for assets; access to assets is permitted only in accordance with management’s 
+general or specific authorization; and the recorded accountability for assets is compared with the 
+existing assets at reasonable intervals and appropriate action is taken with respect to any 
+differences. 
+6
+
+Bristow’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 sanctions 
+agreed to in Respondent Bristow’s Offer. 
+Accordingly, it is hereby ORDERED that Respondent Bristow cease and desist from 
+committing or causing any violations and any future violations of Sections 30A, 13(a), 13(b)(2)(A) 
+and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+7
diff --git a/raw/aaer/2007/AAER-2729.txt b/raw/aaer/2007/AAER-2729.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ead9337727fdaebe7565123079337a964cb3b35d
--- /dev/null
+++ b/raw/aaer/2007/AAER-2729.txt
@@ -0,0 +1,162 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8850 / September 27, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2729 / September 27, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12842 
+In the Matter of 
+ROBERT C. DEAN 
+Respondent. 
+ORDER INSTITUTING  
+CEASE-AND-DESIST PROCEEDINGS, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A 
+CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933  
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, institu ted pursuant to Section 8A of the Securities of 
+1933 (“Securities Act”) against Robert C. Dean (“Dean” or “Respondent”). 
+II. 
+In anticipation of these proceedings, Respondent has submitted an Offer of Settlement to 
+the Commission (herein “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 jurisd iction over hi m and the subject matter of thes e 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and I mposing Remedial Sanctions and a Cease-and-
+Desist Order Pursuant to Section 8A of the Securities Act of 1933 (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+Summary
+  This matter concerns Respondent’s role in altering the method by which the Federal 
+Home Loan Mortgage Corpora tion (“Freddie Mac” or “Company” ) valued certai n derivatives 
+known as swaptions at year-end for its fiscal year 2000.  As a result of the change in methodology, 
+Freddie Mac issued materially false and misleading financial statements. 
+Respondent 
+1. Robert C. Dean, age 42, was a Vice President of Freddie Mac from February 1998 
+through June 2000 and a Senior Vice President of the Company from June 2000 through October 
+2003, when he resigned from the Company.  His duties included work in Freddie Ma c’s Market 
+Risk Oversight department. 
+Other Relevant Entities 
+2. Freddie Mac, was ch artered by Congress in 1970 by the  Federal Hom e Loan 
+Mortgage Corporation Act (“Act”) .  Its princi pal place of business is in McLean, Virginia. 
+Congress created Freddie Mac to  provide stability in the seco ndary m arket f or residential 
+mortgages by increasing the liquidit y of mortgage investments and i mproving the distribution of 
+investment capital available for residential mortgage financing. 
+Background 
+3. In June 1998, t he Financial Accounti ng Standards Boar d (“FASB”)  released 
+Statement of Financial Accounting Standards No. 133 (“SFAS 133”), which related to accounting 
+for derivative instruments and hedging activities.  Derivatives are financial instruments, such as 
+options or futures contracts, whose value depends on the value of another “underlying” security or 
+asset. Financial companies such as Freddie Mac frequently use derivatives to manage interest rate 
+and other risk. SFAS 133 provi ded generally that, commencing January 1, 2001, holders of 
+derivatives must acc ount for s uch assets at fai r value.  SFAS 133 also set out detailed rules 
+concerning when a company could use hedge accounting to account for the changes in the value of 
+a derivative as hedging the change  in the fair valu e or fut ure cash flows of a he dged asset or 
+liability. The requirements of  SFAS 133 represen ted a signif icant change f rom the accounting 
+practices required by GAAP before SFAS 133 was issued.  
+4. For Fr eddie Mac, a ma jor holder of de rivatives subject to SFAS 133, the ne w 
+standard required the Company to revalue and “ mark to market” (i.e ., report at actual quoted 
+market prices or esti mated m arket value) its portfolio of derivatives  every reporting period. 
+Changes in the fair value of c ertain derivatives were required by SFAS 133 to be r ecorded as 
+income or loss on the Company’s income statement. 
+2
+
+5. Absent action by Freddi e Mac, the adop tion of SFAS 133 would have re sulted in 
+the Company reporting a large one-time gain effective January 1, 2001, because the fair value of its 
+derivatives portfolio greatly exceeded the book value and, thereafter, it would have been required 
+to m ark to market certa in derivatives, ther eby introducing a ne w c omponent of volatility that 
+complicated the Company’s ability to maintain steady and predictable reported earnings. 
+Changes in the Methodology for Valuing Swaptions 
+6. Consistent with the Company’s general policy of reporting steady a nd predictable 
+earnings growth, the Company reacted to SFAS 133 by setting a goal to minimize the transitional 
+effects of SFAS 133 – i.e., the transition gain that would be reported effective January 1, 2001.  On 
+December 12, 2000, several days after brainstorming alternative ways to reduce the transition gain, 
+Respondent suggested that the Company coul d r ecord a lower valuation – and thus reduce its 
+transition gain – if it altered the method by which it valued its swap tions.  Beginning on or about 
+December 22, 2000, in a series of me moranda written by or in consultation with Respondent, the 
+Company undertook to revise its methodology for valuing its swaptions portfolio, incorporating the 
+unproven premise that prevailing market prices were not indicative of where the Compa ny could 
+conduct transactions in the swaptions market. 
+7. On January 2, 2 001, the  Company for mally adopted a  revis ed methodology for 
+valuing swaptions.  The new methodology – which the Company used to calculate the fair value 
+that was reported in its year-end f inancial statements – used volatility values f rom November 20, 
+2000, a date  six wee ks prior to January 1, 2001.  This contributed to t he Company’s swaptions 
+portfolio being valued approximately $731 million less than it would have been had the Company 
+used current market implied volatilities, i.e., values from December 29, 2000, the last business day 
+of the ye ar.  The Company premised its use of November 20 pric ing data on (i) the m arket for 
+swaptions purportedly being illiquid as of December 29, 2000 to a degree seen only during certain 
+historic events, and (ii) the Company purportedly being unable to transact business in swaptions at 
+prices derived through implied volatility reported in the then-current market.   
+8. Respondent and others developed a test to support the illiquidity premise.  The test 
+involved retroactively c omparing the daily percentage changes in i mplied volatility levels of 
+swaptions to their five-year historical standard deviation, or differences from mean values.  The 
+stated purpose of this te st was t o show that the frequency and magnitude of change s in i mplied 
+volatilities during November and D ecember 2000 were unprecedented versus other prior m arket 
+liquidity crises. When the critical standard deviation parameter of this t est failed to “prove” the 
+requisite historic market illiquidity at three standard deviations, the test was altered until it showed 
+the swaptions market was at historically illiquid levels.  The final test used two standard deviations. 
+9. Respondent initiated the concept a nd significantly contributed to the development 
+of the Company’s revised methodology for calculating the fair value of its swaptions portfolio.  It 
+was formally approved by Responden t and ot hers, and it was adopted i n the preparation of the 
+Company’s year-end financial statements. 
+3
+
+10. Respondent negligently a pproved the use of the  methodology that resulted in the 
+swaptions valuation bei ng materially under stated, despite his knowledge of c ertain facts tha t 
+should have called into question the validity of the methodology and its suitability for determining 
+the fair value of the Company’s swaptions.  Among other things, Respondent: 
+a.	 knew the Company had not previously deviated from the use of current market 
+implied volatilies, but rather, the Comp any generally used f or its swaptions 
+valuation model current  end-of-da y market inputs from the Indepe ndent 
+Swaptions Pricing Service. 
+b.	 was not aware of a ny c ompany that had ever used historica l data to price a 
+portfolio of swaptions. 
+c.	 knew the methodol ogy was not use d in c onnection with the  Company’s risk 
+management practices and activities throughout the period whereas the revised 
+methodology was used for accounting purposes. 
+d.	 should have known that  the methodology improperly reduced the Comp any’s 
+reported tra nsition gain and there fore did not  result in the swaptions  being 
+reported at a reasonable estimate of t heir fair value at year-end as required by 
+GAAP, and that the circum stances surrounding the  development of th e 
+valuation methodology created substantial risk that the swaptions would not be 
+disclosed at their fair value on the balance sheet date as required by GAAP. 
+Effect on Reported Results 
+11. The c hanged valuation me thod enabled Freddie Mac to val ue its s waptions at a 
+value approxim ately $731 m illion lower than w ould have been if  current m arket im plied 
+volatilities (i.e., December 29, 2000 volatilities) had been used, thus offsetting approximately $731 
+million of the SFAS 133 transition gain and causing the following reported financial metrics to be 
+materially misstated in Freddie Mac’s Information Statement and Annual Report for 2000: 
+a.	 “Futures and Options” in Table 10 were valued at  $2.008 billion; the value 
+using year-end volatilities (the historically utilized method) was $2.739 billion – 
+a 26.7% understatement. 
+b.	 “Total—Net  Fair Value ” of deri vatives in t he s ame ta ble was negati ve $257 
+million; this figure should have been $474 million. 
+c.	 “Gross Positive Fair Value” of Futures and Options in Table 9-3 in the notes to 
+the financia l state ments shows a va lue of $2.187 billion; using year-end 
+volatilities, it would have been $2.918 billion – a 25.1% understatement. 
+4
+
+d.	 The “Gross Positive Fair Value” of Freddie Mac’s derivatives portfolio in the 
+same table was $6.312 billi on; using year-end volatilities, it would have been 
+$7.033 billion – a 10.4% understatement. 
+These misstated financial statements were included in offerings of de bt securities by Fre ddie 
+Mac. 
+12. As a result of the conduct de scribed above, Respondent violated Sections 17(a)(2) 
+and (3) of the Securities Act. 
+IV. 
+In view of the foregoi ng, the Commission deems it appropriate to accept the Offer 
+submitted by Respondent and to impose the sanctions agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED that:  
+Pursuant to Section 8A of the Securities Act, Respondent Dean shall cease and desist from 
+committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the 
+Securities Act. 
+ By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+5
diff --git a/raw/aaer/2007/AAER-2731.pdf b/raw/aaer/2007/AAER-2731.pdf
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diff --git a/raw/aaer/2007/AAER-2734.txt b/raw/aaer/2007/AAER-2734.txt
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+ 
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  56574 / September 28, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2734 / September 28, 2007 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-10516 
+ 
+In the Matter of  
+Walter Cercavschi, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN INDEPENDENT 
+ACCOUNTANT 
+ 
+On June 19, 2001, Walter Cercavschi ("Cercavschi") was suspended from appearing or 
+practicing as an accountant before the Commission as a result of settled public administrative 
+proceedings instituted by the Commission against Cercavschi pursuant to Rule 102(e)(3) of the 
+Commission's Rules of Practice.
+1  On May 12, 2005, Cercavschi was 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.2  This order is issued in response 
+to Cercavschi’s application for reinstatement to practice before the Commission as an 
+independent accountant. 
+ For each of the years 1994 through 1996, Cercav schi was a partner at Arthur Andersen 
+and a member of the Waste Management, Inc. engagement team.  The Commission’s complaint 
+alleged that Cercavschi knew of Waste Management’s quantified misstatements and of 
+accounting practices that gave rise to further possible misstatements.  Still, he approved the 
+issuance of an unqualified audit report.  Furthermore, the complaint alleged that Cercavschi 
+knew, or was reckless in not knowing, that the unqualified audit reports for the years 1994 
+through 1996 were materially false and misleading.  Finally, it was alleged that Cercavschi knew 
+that these unqualified audit reports would be incorporated into one or more registration 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 1408 dated June 19, 2001.  Cercavschi was permitted, 
+pursuant to the order, to apply for reinstatement after three years upon making certain showings. 
+ 
+2 See Accounting and Auditing Enforcement Release No. 2244 dated May 12, 2005. 
+ 
+                                                
+statements filed with the Commission.  He consented to the entry of an order of permanent 
+injunction and a Rule 102(e) suspension order. 
+ 
+Cercavschi has met all of the conditions set forth in his suspension order and, in his 
+capacity as an independent accountant, has stated that he will comply with all requirements of 
+the Commission and the Public Company Accounting Oversight Board, including, but not 
+limited to all requirements relating to registration, inspections, concurring partner reviews and 
+quality control standards. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”
+3  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Cercavschi, it appears that he has complied with the terms of the June 19, 2001 order 
+suspending him from practice before the Commission as an accountant, that no information has 
+come to the attention of the Commission relating to his character, integrity, professional conduct 
+or qualifications to practice before the Commission that would be a basis for adverse action 
+against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Cercavschi, 
+by undertaking to comply with all requirements of the Commission and the Public Company 
+Accounting Oversight Board, including, but not limited to all requirements relating to 
+registration, inspections, concurring partner reviews and quality control standards in his practice 
+before the Commission as an independent accountant, has shown good cause for reinstatement.  
+Therefore, it is accordingly, 
+ 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Walter Cercavschi, CPA is hereby reinstated to appear and practice before the Commission as an 
+independent accountant. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Nancy M. Morris  
+Secretary  
+ 
+3 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/2007/AAER-2736.txt b/raw/aaer/2007/AAER-2736.txt
new file mode 100644
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@@ -0,0 +1,399 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8855 / September 28, 2007 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56576 / September 28, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2736 / September 28, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12857 
+:
+ : 
+In the Matter of : ORDER INSTITUTING PUBLIC 
+: ADMINISTRATIVE AND CEASE-AND- 
+ROBERT D. DOTY, JR., : DESIST PROCEEDINGS, MAKING 
+: FINDINGS, AND IMPOSING 
+: REMEDIAL SANCTIONS AND A 
+: CEASE-AND-DESIST ORDER 
+: PURSUANT TO SECTION 8A 
+: OF THE SECURITIES ACT OF 1933, 
+Respondent : SECTION 21C OF THE SECURITIES 
+: EXCHANGE ACT OF 1934, AND RULE 
+: 102(e) OF THE COMMISSION’S RULES 
+: OF PRACTICE 
+: 
+I. 
+The Securities and Exchange Commission (“SEC” or “Commission”) deems it appropriate 
+that (i) cease-and-desist proceedings be, and here by are, instituted pursuant to Section 8A of the 
+Securities Act of 1933 (the “Securities Act”) and S ection 21C of the Securities Exchange Act of 
+1934 (the “Exchange Act”) against Robert D. Doty, Jr. (“Doty”) ( “Respondent”), and (ii) public 
+administrative proceedings be, and hereby are, instituted against Doty pursuant to Rule 102(e)(1)(iii) 
+of the Commission’s Rules of Practice.1 
+Rule 102(e)(1)(iii) provides, in pertinent part, that:  The Commission may . . . deny, temporarily or permanently, 
+the privilege of appearing or practicing before it . . . to any person who is found . . . to have willfully violated, or willfully 
+aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. 
+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 br ought by or on behalf of the Com mission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as to 
+the Commission’s jurisdiction over Respondent and the subject matter of these proceedings, which 
+are admitted, Respondent consents to the entry of this Order Instituting Public Administrative and 
+Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-
+and-Desist Order Pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities 
+Exchange Act of 1934, and Rule 102(e) of the Co mmission’s Rules of Practice (“Order”), as set 
+forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+A. RESPONDENT 
+Robert D. Doty, Jr., 49, of Houston, Texas, was Dynegy Inc.’s (“Dynegy”) Executive Vice-
+President and Chief Financial Officer during the relevant period.  Doty joined Dynegy in 1991 after 
+ten years as a tax practitioner in a public accounting firm and advanced through Dynegy’s tax and 
+finance departments before ascending to CFO in  2000.  Doty permitted his CPA license to lapse 
+after joining Dynegy and is no longer a CPA.  Doty resigned from Dynegy in August 2002 and is 
+now employed by a private company.   
+B. OTHER RELEVANT ENTITY 
+Dynegy is an Illinois corporation headquartered in Houston, Texas.  Dynegy’s shares are 
+registered with the Commission under Section 12(b) of the Exchange Act and trade on the New 
+York Stock Exchange under the sym bol DYN.  During the relevant period, Dynegy’s business 
+consisted of production and delivery of energy, including natural gas, electricity, natural gas liquids 
+and coal, to customers in North America, the United Kingdom and Continental Europe.  In addition 
+to energy production and delivery, energy tradi ng was a key com ponent of Dynegy’s business 
+during the relevant period. 
+C. FACTS 
+1. Summary 
+These proceedings arise out of Respondent’s role in Dynegy’s m aterially misleading use 
+of a structured-finance transaction calle d Project Alpha (“Al pha”).  In 2001, Dynegy 
+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 proceedings. 
+2 
+2 
+implemented Alpha to enhance cash flow from  operations by approximately $300 million and to 
+realize an associated tax benefit of $79 m illion.  Over approxim ately six m onths, Dynegy’s 
+accounting and tax adviser worked closely with  the Respondent and other m embers of the 
+Dynegy deal team to structure Alpha in a m anner consistent with generally accepted accounting 
+principles (“GAAP”). In particular, the accounti ng and tax adviser warned Dynegy that certain 
+forms of risk-hedging in the transaction w ould underm ine Dynegy’s intended accounting for 
+Alpha and require Dynegy to record the cash flow from Alpha as a financing activity, rather than 
+as cash from  operations.  Dynegy’s failure to follow this advice would also elim inate the tax 
+benefit. 
+In April 2002, it becam e clear that Alpha did not conform to the explicit guidelines that 
+Dynegy’s accounting and tax adviser had established.  As a result, Dynegy’s accounting and tax 
+adviser withdrew its opinion letters previously  issued regarding Alpha, and in Novem ber 2002, 
+Dynegy restated its 2001 financial statements to eliminate $290 million, or 37%, of operating cash 
+flow, and to elim inate the previously reported tax savings of $79 m illion, reducing Dynegy’s net 
+income by 12%. 
+2. Project Alpha Overview 
+Alpha was essentially a $300 m illion loan to Dynegy, disguised as cash from  operations 
+through the purchase and sale of natural gas. Dynegy received loan proceeds in 2001 in the form of 
+contractually assured natural gas trading profits. The loan was to be repaid over Alpha’s remaining 
+term through contractually assured trading losses.3  W hile structured as a complex sale of natural 
+gas, Alpha had no business purpose aside from minimizing Dynegy’s taxes and narrowing the gap 
+between Dynegy’s net income and operating cash flow.   
+For Dynegy to report Alpha’s cash flow as de riving from operating activity, rather than a 
+loan, Dynegy’s outside accounting and tax adviser required that Alpha exhibit characteristics of a 
+commercial transaction.  For instance, Dynegy a nd ABG Supply (the parties to the gas supply 
+contract) were required to bear som e amount of ris k.  To assure that such risk was present, the 
+purchase price under the gas contract was partly fixed, exposing the buyer and seller to fluctuations 
+in the market price of natural gas.4 
+3 More specifically, in the initial nine months of Alpha’s five-year term, a Dynegy affiliate purchased gas from a 
+Dynegy-sponsored SPE, ABG Supply, at below-market prices and then sold the gas in the market for a $300 m illion 
+profit.  Dynegy is repaying the loan, with interest, over the remaining four years and three months, by purchasing gas 
+from ABG Supply at above-market prices.  The losses generated by this non-commercial pricing structure were t he 
+source of Alpha’s tax benefit; Dynegy used the losses in 2001 as an offset against its taxable income, giving rise to a $79 
+million increase in Dynegy’s net income. 
+4 The purchase price is 86% variable and 14% fixed. In Alpha’s first nine months, the 86% variable component 
+was at market price, m inus a pre-determ ined discount (i.e., NYMEX settlem ent pri ce less a Base Period Price 
+Adjustment).  Over Alpha’s remaining 51 m onths, the 86% vari able com ponent was at  m arket pri ces, plus a pre-
+determined premium (i.e., NYMEX settlement p rice plus a Term  Period Price Ad justment).  For all 6 0 months, the 
+remaining 14% was at a fixed price. 
+3
+
+ 
+The parties to the gas contract planned to hedge this commodity price risk by entering into 
+certain derivatives – fixed-for-floating swaps – to substitute the market price of natural gas for the 
+fixed price. Similarly, the parties planned to hedge against fluctuating interest rates by executing 
+interest rate swaps. Such hedging was necessary to guarantee the lenders’ return.  Although the 
+reduction of risk was acceptable to a point, Dynegy’s accounting and tax adviser warned that certain 
+hedging activities would invalidate Alpha’s accounting benefits. 
+3. Issues Relating to Hedging 
+Dynegy’s accounting and tax adviser notified Dynegy that, for Alpha to qualify for the 
+desired accounting treatment, Alpha’s commodity price swaps and interest rate swaps (and other 
+derivatives) would have to be conducted in the or dinary course of business.  Specifically, the 
+swaps could not be linked to the gas contract or to each other.  Any provision in one swap, such 
+as a default provision, that would also have an effect on another swap, such as triggering an 
+automatic term ination or a right of term ination, would require Dynegy to treat Alpha as a 
+financing.5  Contrary to this advice, Dynegy entered into com modity price and interest rate 
+swaps with contractual linkage in the f orm of cross-term ination or “tear-up” provisions. 6 
+Moreover, the im permissible tear-up provisions were docum ented in am endments to the swap 
+confirmations, executed simultaneously with the confirmations they purported to amend. 
+The equity investors in ABG Supply and th e other Alpha SPEs were required to be 
+independent of Dynegy and contribute at least 3% (approximately $10 million) of the SPE’s total 
+capitalization. The 3% equity investm ent had to rem ain at risk throughout Alpha’s term , 
+including exposure to the m ost significant risk in a gas purchase arrangem ent: commodity price 
+risk. 
+On or about April 6, 2001, Dynegy’s accounting and tax adviser issued Dynegy a letter 
+5 As articulated in the technical memorandum in support of the April 6, 2001 tax opinion by Dynegy’s outside tax 
+adviser (signed in conjunction with Alpha’s closing): “ABG (i) will not hedge i ts entire risk under t he Natural Gas 
+Purchase Agreement and (ii) to the extent its risks are hedged, they will not be directly hedged with [Dynegy], an affiliate 
+of [Dynegy], or any other entities that are a party to the transaction other than in the ordinary course of business as a 
+typical counterparty.”   
+6 Hedging of fi xed-price exposure with Dynegy and AB G Supply as di rect swap count er-parties was cl early 
+prohibited. Instead, Dynegy and ABG Supply entered into back-to-back swaps with Citigroup Inc., placing Citigroup in 
+the middle of mirror-image swaps.  The tear-up provisions protected Citigroup by granting it the right to terminate one 
+swap if the back-to-back swap was terminated.  For example, were Dynegy to default on its swap, Citigroup would have 
+the right to terminate (or “tear up”) its swap with ABG Supply, thereby relieving it of i ts obligation to make a swap 
+payment.  The t ear-up provisions rendered the back-to-back swaps economically indistinguishable from direct hedges 
+between Dynegy and ABG Supply and impermissibly linked the swaps together.  On July 28, 2003, the Commission 
+issued a settled cease-and-desist order against Citigroup, In the Matter of Citigroup, Inc., Securities Exchange Act o f 
+1934, Rel. No. 48230, and filed a settled civil suit against Citigroup in the Southern District of Texas, Houston Division, 
+SEC v. Dynegy Inc. (H-02-3623). The Commission made findings in the cease-and-desist order (and alleged in the civil 
+complaint) that Citigroup caused violations of Section 10(b) and Exchange Act Rule 10b-5, relating to its involvement in 
+Project Alpha. Citigroup, without admitting or denying the Commission’s findings, agreed to the issuance of the cease-
+and-desist order and paid a civil penalty in the related civil suit. 
+4
+
+under Statement on Auditing Standards 50 (the “SAS 50 letter”).  The SAS 50 letter instructed 
+that any hedging of com modity price risk could not extend to the m inimum 3% equity 
+investment in the SPE ABG Suppl y.  The SAS 50 letter also rested on representations that, aside 
+from certain specified derivative transactions, there would be “no residual insurance, residual 
+guarantee, or any other type of investm ent or in strument . . . that would ensure ABG’s equity 
+investors’ recovery of their portion of the ABG required minimum equity investment.”  The SAS 
+50 opinion also was based on an assumption that the “equity contributed will be … at risk f or the 
+life of ABG [Supply]” and “will not be guaranteed in recovery or return through financial hedges 
+or other m echanisms.”  The 97% debt capita lization could, however, be hedged, and face no 
+commodity price risk.7 
+Contrary to these principles, Dynegy and certain of  its em ployees facilitated the equity 
+investors’ hedging of all price and interest rate  risk – at Dynegy expense – and even funded a 
+swap that ensured the equity investors would have a claim  functionally equivalent to Dynegy 
+senior unsecured credit. In particular, the e quity investors established a holding com pany – 
+ABG Holdings LLC – as ABG Supply’s parent. ABG Holdings housed the equity investm ents 
+and executed the hedges that protected the equit y.  Because of the ABG Holdings hedges, the 
+equity was not at risk under GAAP. 
+Further, according to the April 6, 2001 opini on issued by Dynegy’s accounting and tax 
+adviser, the Internal Revenue Service requires th at structured tax transactions, at a m inimum, 
+have som e non-tax business justification.  According to the tax opinion, Dynegy’s desired 
+accounting treatment  of the Alpha cash flow – as flow ing from  operations, as opposed to 
+financing – constituted the prim ary non-tax busin ess justification for Alpha.  Consequently, 
+when Dynegy publicly disclosed that it would rest ate its 2001 cash flow statem ent to reflect the 
+Alpha cash flow as financing, rather than ope rating cash flow, the accounting and tax adviser 
+withdrew the tax opinion. 
+4. The Restatement 
+On April 3, 2002, the W all Street Journal published an article reporting that Dynegy used 
+Alpha to enhance its financial presentation and minimize its tax liabilities.  The SEC then contacted 
+Dynegy to inquire about the transaction. After learning of the equity investors’ hedging and the 
+contractual linkage among the swaps and underl ying gas contract, Dynegy’s tax and accounting 
+adviser withdrew the tax opinion and SAS 50 opinion in April 2002. 
+On September 24, 2002, the Com mission entered a settled cease-and-desist order against 
+Dynegy making findings that Dynegy engaged in securities fraud in connection with its disclosures 
+and accounting for Alpha. The Commission ordered Dynegy to cease and desist from  violating, 
+committing or causing violations of Sections 17(a) of the Securities Act, and Sections 10(b), 13(a) 
+Under GAAP, were the equity not at risk, ABG Supply would have to be consolidated in Dynegy’s financial 
+statements. If ABG Supply were consolidated, its borrowing from the lending syndicate to cover its losses in making the 
+below-market sales of gas to Dynegy in Alpha’s initial nine months (i.e., the $300 million loan to Dynegy) would appear 
+on Dynegy’s Statement of Cash Flow as cash flow from financing (i.e., debt), rather than operating, activities.  
+5 
+7 
+and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder. 
+On September 30, 2002, the U.S. District Court for the Southern District of Texas entered a Final 
+Judgment by consent in which Dynegy was ordere d to pay a $3 m illion civil penalty for its 
+violations of the federal securities laws described above. 
+On November 15, 2002, Dynegy filed a Form 8-K restating its 2001 financial results by 
+reporting approximately $290 m illion of Alpha-relate d cash flow as derivi ng from a financing 
+activity rather than operations; eliminating the $79 m illion Alpha-related income tax benefit; and 
+consolidating the assets, liabilities and results of operations of the SPE ABG Gas Supply into 
+Dynegy's financial statements, increasing Dynegy's reported indebtedness by approximately $280 
+million.  The increased debt reflects ABG Supply's borrowing to cover the losses it sustained during 
+the first year of Alpha. 
+5. Doty’s Role 
+Doty, Dynegy’s then-CFO, was involved in the decision to proceed with Alpha in order to 
+minimize the gap between Dynegy’s reported net income and operating cash flow, and to realize a 
+related tax benefit. In addition, Doty was involved in the decision not to m ake any separate 
+disclosure of Alpha’s unique, non-commercial pricing characteristics, or that 37% of Dynegy’s 2001 
+operating cash flow originated from  a syndicate of  off-balance-sheet lenders, or that 12% of 
+Dynegy’s net income derived from a tax shelter that had never been tested in court or approved by 
+the IRS. Doty knew or was reckless in not knowi ng that these and other characteristics of Alpha 
+rendered Dynegy’s financial presentation inaccurate and required separate disclosure of Alpha. 
+Further, Doty took no steps to prohibit or monitor hedging of risks by the sophisticated 
+financial institutions serving as equity investors.  Finally, Doty knew that Alpha’s primary business 
+purposes were m inimizing taxes and m anufacturing operating cash flow.  Nonetheless, when 
+Alpha’s existence was exposed in an April 3, 2002 newspaper article, Doty em phasized the 
+“substantial source of physical gas supply” provided by Alpha, while downplaying Alpha’s cash-
+flow effects. 
+D. LEGAL ANALYSIS 
+Section 17(a) of the Securities Act prohib its employing a fraudulent schem e or m aking 
+material misrepresentations and omissions in the o ffer or sale of a securit y.  Section 10(b) of the 
+Exchange Act and Rule 10b-5 thereunder prohibit the same conduct, if com mitted in connection 
+with the purchase or sale of securities.  To violate these provisions, the alleged misrepresentations or 
+omitted facts must be m aterial.  Information is deemed material upon a showing of a substantial 
+likelihood that the omitted facts would have assumed significance in the investment deliberations of 
+a reasonable investor. Basic, Inc. v. Levinson , 485 U.S. 224 (1988). Establishing violations of 
+Section 17(a)(1) of the Securities Act and Sec tion 10(b) of the Exchange Act and Rule 10b-5 
+thereunder requires a showing of scienter. Aaron v. SEC, 446 U.S. 680 (1980). However, actions 
+pursuant to Sections 17(a)(2) and 17(a)(3) of the Securities Act do not require such a showing.  Id. 
+Scienter is the “mental state embracing intent to deceive, manipulate or defraud.”  Ernst & Ernst v. 
+Hochfelder, 425 U.S. 185, 193 (1976). Scienter is established by a showing that the defendants 
+6
+
+ 
+acted intentionally or with severe recklessness. See Broad v. Rockwell International Corp., 642 F.2d 
+929 (5th Cir.) (en banc), cert. denied, 454 U.S. 965 (1981). 
+Respondent willfully violated the antifra ud provisions of the Securities Act and the 
+Exchange Act.8  Respondent was one of Dynegy’s senior  reporting officials.  Alpha was an 
+undisclosed, highly complex transaction that incorrectly reported the source of Dynegy’s cash flow 
+and dramatically overstated Dynegy’s cash flow from operations.  Doty signed Dynegy’s 2001 
+Form 10-K, which m isstated Alpha’s im pact on Dynegy’s financial statements.  Because of 
+Respondent’s failure to ensure appropriate accounting treatment and failure to disclose the financing 
+transactions underlying Alpha, Dynegy’s financial performance was materially misstated. There is a 
+substantial likelihood that these false representations and associated omissions would have assumed 
+actual significance in the investm ent deliberations of a reasonable investor.  As a result of the 
+conduct stated herein, Respondent violated Section 17(a) of the Securities Act and Section 10(b) of 
+the Exchange Act and Rule 10b-5 thereunder. 
+Section 13(a) of the Exchange Act requires issuers such as Dynegy to file periodic reports 
+with the Commission containing such information as the Commission prescribes by rule.  Exchange 
+Act Rule 13a-1 requires issuers to file annual reports, and Exchange Act Rule 13a-13 requires 
+issuers to file quarterly reports. Under Exchange Act Rule 12b-20, the reports m ust contain, in 
+addition to disclosures expressly required by statute and rules, such other information as is necessary 
+to ensure that the statem ents made are not, unde r the circumstances, materially misleading.  The 
+obligation to file reports includes the requirement that the reports be true and correct.  United States 
+v. Bilzerian, 926 F.2d 1285, 1298 (2d Cir.), cert. denied, 502 U.S. 813 (1991). The reporting 
+provisions are violated if false and misleading reports are filed.  SEC v. Falstaff Brewing Corp., 629 
+F.2d 62, 67 (D.C. Cir. 1980). Scienter is not an element of a violation of Section 13(a) or Rules 13a-
+1, 13a-13 or 12b-20 of the Exchange Act. See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1167 (D.C. 
+Cir. 1978). 
+Dynegy violated these provisions by filing second and third quarter 2001 Forms 10-Q and a 
+2001 Form 10-K that were false and misleading.  Dynegy’s false accounting treatment of Alpha, and 
+the absence of any clarifying disclosure of Alpha’s true purpose and effect, caused the violations. 
+Dynegy should have treated the cash flow from Alpha as a loan and ABG Supply should have been 
+consolidated in Dynegy’s financial statements, which would have had numerous material effects on 
+Dynegy’s financial statements.  If consolidated, ABG Supply’s $300 million borrowing to fund the 
+losses during the first nine months of the Gas Contract would have been reflected as cash flow from 
+financing activities, rather than operations, on Dynegy’s Statem ent of  Cash Flow; the liability 
+associated with Alpha would have appeared as debt on Dynegy’s Balance Sheet, rather than risk-
+Respondent’s misrepresentations and omissions relating to Alpha were committed in connection with purchases 
+and sales of Dynegy securities on the secondary market, and violated, therefore, Section 10(b) of the Exchange Act and 
+Rule 10b-5, thereunder. Because Dynegy’s Alpha-related misrepresentations and omissions were contained in Dynegy’s 
+second and third quarter 2001 Forms 10-Q and its 2001 Form 10-K, which are incorporated by reference in the registered 
+securities offerings Dynegy was conducting during the period, a nd in the Dynegy financial statements distributed in 
+connection with those offerings, those Alpha-related misrepresentations and omissions also violated Sections 17(a)(1), 
+17(a)(2) and 17(a)(3) of the Securities Act. 
+7
+8 
+management liability; and the tax benefit would not have been available to Dynegy, meaning that 
+Dynegy’s net income would have been reduced by $79 million on Dynegy’s Income Statement.  By 
+the conduct described herein, Respondent aided a nd abetted or caused Dynegy’s violations of 
+Exchange Act Section 13(a) and Rules 13a-1, 13a-13 and 12b-20 thereunder. 
+Section 13(b)(2)(A) of the Exchange Act re quires all issuers to m ake and keep books, 
+records, and accounts that, in reasonable detail, accurately and fairly reflect their transactions and 
+dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and 
+maintain an adequate system  of  internal accounting controls. Scienter and m ateriality are not 
+elements of a violation of these provisions.  SEC v. World-Wide Coin Inv., Ltd., 567 F. Supp. 724, 
+749-50 (N.D. Ga. 1983). Section 13(b)(5) of the Exchange Act provides that “no person shall 
+knowingly circumvent or knowingly fail to implement a system of internal accounting controls or 
+knowingly falsify any book, record, or account described [in Section 13(b)(2)].”   
+Dynegy, through its treatm ent of Alpha, violat ed Section 13(b)(2)(A) by failing to keep 
+books, records and accounts that accurately and fairly reflected its assets and financial results. 
+Dynegy violated Section 13(b)(2)(B) by failing to devise and maintain a system of internal controls 
+sufficient to provide reasonable assurances that structured transactions involving special purpose 
+entities are recorded as necessary to permit preparation of financial statements in conformity with 
+GAAP. Respondent aided and abetted or caused these violations by the conduct described herein. 
+Through the same conduct, Doty also violated Section 13(b)(5) of the Exchange Act. 
+Exchange Act Rule 13b2-1 (prom ulgated under Section 13(b)(2) of the Exchange Act) 
+prohibits any person from falsifying or causing to be falsified any accounting books and records of 
+reporting public companies.  Scienter is not an elem ent of a violation of Rule 13b2-1.  SEC v. 
+McNulty, 137 F.3d 732 (2d Cir. 1998). Respondent’s falsification of Dynegy’s books in connection 
+with Alpha effectively disguised a loan as operating cash flow in violation of Exchange Act Rule 
+13b2-1. 
+IV. 
+Based on the foregoing, the Commission finds that: 
+Doty willfully violated 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 willfully aided and abetted and caused 
+Dynegy’s violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 
+12b-20, 13a-1 and 13a-13 promulgated thereunder. 
+V. 
+In determining whether to accept the Offer, the Com mission has considered the following 
+undertakings: 
+8
+
+A. Doty undertakes and agrees to pa y a civil penalty of $120,000, which shall be 
+available for allocation in accordance with Section 308 of the Sarbanes-Oxley Act of 2002.  Doty 
+consents to pay the civil penalty in a separately filed civil action. 
+B. Doty undertakes and agrees that, for a period of five years, he will not act as an 
+officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the 
+Exchange Act [15 U.S.C. § 78(l)] or that is required to file reports pursuant to Section 15(d) of the 
+Exchange Act [15 U.S.C. § 78o(d)]. Doty consents to the imposition of the officer and director bar 
+in a separately filed civil action. 
+C. Doty undertakes and agrees to cooperate with the Commission and its staff in any 
+further investigation of this matter. 
+VI. 
+In view of the foregoing, the Com mission deems it appropriate to im pose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange 
+Act, and Rule 102(e)(1)(iii) of the Com mission’s Rules of Practice, it is hereby ORDERED, 
+effective immediately, that: 
+A. Respondent Doty 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) and 13(b)(5) of 
+the Exchange Act and Rules 10b-5 and 13b2-1 ther eunder, and cease and desist from  aiding and 
+abetting or causing violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act 
+and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+B. Within thirty days of  the entry of  th is Order, Doty shall pay disgorgem ent of 
+$200,000, plus prejudgment interest of $56,560,  which shall be delivered into the Registry of the 
+Court for the United States District Court f or the Southern District of Te xas by wire transfer or 
+certified check made payable to Clerk, United States District Court.  Such funds shall thereafter be 
+distributed in the course of litigation pending in the United States District Court for the Southern 
+District of Texas, captioned Securities and Exchange Commission v. Dynegy Inc., Civil Action No. 
+H-02-3623 (S.D. Tex. 2002). Simultaneously, Respondent shall transm it by facsim ile or hand 
+delivery to Andy Gould, Clerk’s Office, United States District Court for the Southern District of 
+Texas, a letter that describes the fact and purpose of the wire transfer or certified check, identifies the 
+Respondent, and identifies the case nam e a nd num ber of the Dynegy litigation.  A copy 
+documentary proof of the wire transfer or certified check and a copy of the letter to the Clerk shall 
+be sim ultaneously transmitted by f acsimile to Ro se L. Rom ero, Fort W orth Regional Director, 
+Securities and Exchange Com mission, 801 Cherry Street, 19 th Floor, Fort W orth, Texas 76102, 
+(817) 978-2700 (facsimile). 
+9
+
+C. Doty is denied the privilege of appearing or practicing before the Commission as an 
+accountant. 
+D. After five years from the date of this Order, Doty 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 com pany’s financial statements that are filed with the Com mission.  Such an 
+application m ust satisfy the Com mission 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 m ust satisfy the 
+Commission that: 
+(a) Doty, 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) Doty, 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 adequate supervision; 
+(c) Doty has resolved all disciplin ary issues with the Board, and has 
+complied with all term s and conditions of any sanctions im posed by the Board (other than 
+reinstatement by the Commission); and 
+(d) Doty acknowledges his responsibility, as long as he appears or 
+practice before the Commission, as an independent accountant, to comply with all requirements of 
+the Commission and the Board, including, but not limited to, all requirements relating to registration, 
+inspections, concurring partner reviews and quality control standards. 
+E. The Com mission will consider an appli cation by Doty to resum e appearing or 
+practicing before the Com mission provided that hi s state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy. However, 
+if state licensure is dependant on rein statement by the Com mission, the Com mission will 
+consider an application on its other m erits. The Commission’s review may include consideration 
+of, in addition to the m atters referenced above, any other m atters relating to Doty’s character, 
+integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+10
+
+F. There shall be, pursuant to Section 308( a) of the Sarbanes-Oxley Act of 2002, a 
+Fair Fund established for the funds described in this Order. 
+By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+11
diff --git a/raw/aaer/2007/AAER-2737.txt b/raw/aaer/2007/AAER-2737.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4fbd18c516ee9df592708493961db8d6e59be978
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+++ b/raw/aaer/2007/AAER-2737.txt
@@ -0,0 +1,79 @@
+_______________________________
+ UNITED STATES OF AMERICA 
+ B efore the
+   SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56577 / September 28, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2737 / September 28, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12858 
+: 
+In the Matter of : ORDER INSTITUTING 
+: ADMINISTRATIVE PROCEEDINGS
+ :  PURSUANT TO RULE 102(e) OF THE 
+ Gene S. Foster, :  COMM ISSION’S RULES OF PRACTICE, 
+:  MAKING FINDINGS, AND IMPOSING 
+Respondent. : 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 Gene S. 
+Foster (“Foster” or “Respondent”) pursuant to Rule 102(e) of the Commission’s Rules of Practice.1 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlem ent (the “Offer”), wh ich the Comm ission has determ ined to accept.  Solely for the 
+purpose of these pro ceedings and  any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and  w ithout ad mitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject m atter of 
+these p roceedings, and  the f indings conta ined in Sec tion II I.E. belo w, which a re adm itted, 
+Respondent consents to the en try of this Orde r Instituting Administrative Proceedings Pursuant 
+Rule 102(e)(3)(i) provides in relevant part: 
+The Commission, with due regard to t he public interest and without prelim inary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . per manently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action bro ught by the Commission, from violating or aiding and abetting 
+the violation  of any  pro vision of the Federal s ecurities laws or of the rules and regulations 
+thereunder. 
+1 
+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: 
+A. Foster, age 48, is a cer tified public accountant in the State of Texas. 
+During the relevant tim e period, Foster was employed as Vice President of Taxation of Dynegy 
+Inc. (“Dynegy”), and substantially participat ed in a Dynegy financing transaction known as 
+Project Alpha. 
+B. Dynegy is an Illinois corporation headquartered in Hou ston, Texas . 
+Dynegy’s shares are registered with the Comm ission under Section 12(b) of the Securities 
+Exchange Act of 1934 and trade on the New York Stock Exchange. 
+C. On Septe mber 24, 2002, the Comm ission entered an order by consent 
+against Dynegy resulting from the company’s improper accounting and m isleading disclosures 
+relating to Project Alpha.  Dynegy used Project Al pha to enhance cash flow from  operations by 
+$300 million in 2001 and to achieve a related $79 million tax benefit.  Dynegy failed to disclose 
+properly the financing transactions  underlying Project Alpha, and fa iled to clarif y that the cash 
+flow reported on its 2001 Statem ent of Cash Fl ows derived from  fi nancing activities, not 
+operations. See Order Instituting P roceedings Pursuant to  Section 8A of the Securities Act of 
+1933 and Section 21C of the Securities Excha nge Act of 1934, Making Findings and Imposing a 
+Cease-And-Desist Order, Adm in. File 3-10897 (S ept. 24, 2002).  Dynegy further consented to 
+pay a $3 million civil penalty.  SEC v. Dynegy Inc., Civil Action H-02-3623 (S.D. Tex. Sept. 30, 
+2002). 
+D. On June 11, 2003, the Commission filed a complaint against Foster in 
+SEC v. Foster et al., (Civil Action H-03-2044), in the United States District Court for the 
+Southern District of Texas. The Commission’s complaint alleged that Foster willfully 
+disregarded accounting advice from Dynegy’s outside auditor on Project Alpha and concealed 
+critical transaction details from the auditor in violation of the federal securities laws.   
+E. On September 7, 2007, the court entered an order perm anently enjoining 
+Foster from future violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) 
+and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder. 
+2
+
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+accept Respondent’s Offer.  
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+ Foster 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/2007/AAER-2738.txt b/raw/aaer/2007/AAER-2738.txt
new file mode 100644
index 0000000000000000000000000000000000000000..34dd9ac3b87759dc5eafaffae8d093e2b4b32717
--- /dev/null
+++ b/raw/aaer/2007/AAER-2738.txt
@@ -0,0 +1,46 @@
+______________________________ 
+UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56578 / September 28, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2738 / September 28, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12859 
+: 
+In the Matter of  :
+ : ORDER OF SUSPENSION PURSUANT 
+JAMIE OLIS, 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 Jamie Olis (“Olis”) 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. Olis was a certified public accountant in Texas until December 2003. 
+2. On September 25, 2006, an amended judgment of conviction was entered against 
+Olis in United States v. Olis, et al, No. 4:03CR00217-001, in the United States District Court for 
+the Southern District of Texas, finding him guilty of six felony counts: one count of conspiracy  
+to commit securities fraud, mail fraud and wire fraud; one count of securities fraud; one count of 
+Rule 102(e)(2) provides in pertinent part: AAny ... person who has been convicted of a felony or a 
+misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the 
+Commission.” 
+1 
+mail fraud; and three counts of wire fraud.  This judgment of conviction arose from Olis’s role in 
+a fraudulent transaction code-named “Project Alpha” at Dynegy Inc.     
+3. As a result of this conviction, Olis was sentenced to 72 months imprisonment in a 
+federal penitentiary and ordered to pay a fine of $25,000. 
+III. 
+In view of the foregoing, the Commission finds that Olis 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 Jamie Olis 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/2007/AAER-2739.txt b/raw/aaer/2007/AAER-2739.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4efb7cc05ec8c93712fa5826f850b30313d80cf9
--- /dev/null
+++ b/raw/aaer/2007/AAER-2739.txt
@@ -0,0 +1,1390 @@
+
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+        Robert D. Doty, Jr. and Gene S. Foster, et al.
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20320 / October 2, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2739 / October 2, 2007 
+
+  SEC v. Robert D. Doty, Jr. , Civil Action No. 4:07-CV-03186 (S.D. Tex.) 
+
+  SEC v. Gene S. Foster, et al. , Civil Action No. H:03-2044 (S.D. Tex.) 
+
+ 
+
+ The Securities and Exchange Commission today announced settlement of enforcement proceedings against three former executives of Dynegy Inc. in connection with their roles in Dynegy's Project Alpha, a $300 million loan that disguised the company's true financial condition by appearing on the company's financial statements as a commercial operating activity. 
+
+ Without admitting or denying the Commission's allegations, former Dynegy CFO Robert D. Doty, Jr. agreed to a settled civil enforcement action requiring him to pay a civil penalty of $120,000 and prohibiting him from serving as an officer or director of a public company for a period of five years. In addition, without admitting or denying the Commission's findings, Doty consented to a public administrative and cease-and-desist order (i) directing him to cease and desist from committing or causing future violations of the antifraud and internal controls provisions of the federal securities laws, or aiding and abetting or causing violations of the record-keeping and reporting provisions; (ii) requiring him to pay disgorgement of $200,000 plus prejudgment interest of $56,560; and (iii) suspending him from appearing or practicing before the Commission as an accountant for five years. 
+
+ The Commission also announced settlement with two of the three former Dynegy executives sued in connection with Project Alpha in June 2003. Without admitting or denying the Commission's allegations, defendants Gene S. Foster and Helen C. Sharkey consented to orders permanently enjoining them from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-2 thereunder. Foster and Sharkey also consented to administrative orders barring them from appearing or practicing before the Commission as accountants. 
+
+ The third defendant in the Commission's civil enforcement action, Jamie Olis, recently asserted a counterclaim for attorney fees and costs. The Court struck his counterclaim on September 7, 2007. Immediately thereafter, the Court granted the Commission's motion to dismiss its claims against Olis, who is currently incarcerated after being convicted in a parallel criminal proceeding of six felony counts relating to his role in Project Alpha. The Commission also issued an administrative order suspending Olis from appearing or practicing before the Commission as an accountant based on his criminal convictions. 
+
+ Project Alpha was the subject of a settled cease-and-desist order issued by the Commission on Sept. 24, 2002. In its order, the Commission found that Dynegy violated the antifraud, reporting, record-keeping and internal controls provisions of the federal securities laws by improperly recording Alpha's impact on Dynegy's financial statements as $300 million in operating cash flow and $79 million in net income (from a presumed tax benefit), when instead, the $300 million was actually a loan and the tax benefit was invalid. In settling the Commission's action, Dynegy paid a $3 million penalty. 
+
+ The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of Texas, the Federal Bureau of Investigation and the United States Postal Inspection Service. 
+
+ For additional information, see: 
+
+ Administrative Proceeding No. 3-12857 (Doty) 
+Administrative Proceeding No. 3-12858 (Foster) 
+Administrative Proceeding No. 3-12859 (Olis) 
+Administrative Proceeding No. 3-12856 (Sharkey) 
+
+ For additional information on related Commission actions, see: 
+
+ SEC v. Gene S. Foster, Jamie Olis and Helen C. Sharkey â€" Litigation Release No. 18188; Accounting and Auditing Release No. 1800 (June 12, 2003) 
+
+ In the Matter of Dynegy Inc. â€" Litigation Release No. 177744; Accounting and Auditing Release No. 1632; Securities Exchange Act of 1934 Release No. 34-46537 
+
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diff --git a/raw/aaer/2007/AAER-2740.txt b/raw/aaer/2007/AAER-2740.txt
new file mode 100644
index 0000000000000000000000000000000000000000..21dcf36b2f06a3c4c63a6cd39f50591593c17bff
--- /dev/null
+++ b/raw/aaer/2007/AAER-2740.txt
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+        Nortel Networks Corporation and Nortel Networks Limited
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
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+
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20333 / October 15, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2740 / October 15, 2007 
+
+  SEC v. Nortel Networks Corporation and Nortel Networks Limited , Civil Action No. 07-CV-8851 (S.D.N.Y.) 
+
+ Nortel Networks Pays $35 Million to Settle Financial Fraud Charges 
+
+  The Securities and Exchange Commission today filed civil fraud charges in the U.S. District Court for the Southern District of New York against Nortel Networks Corporation and its principal operating subsidiary Nortel Networks Limited (Nortel) alleging that Nortel engaged in accounting fraud from 2000 through 2003 to close gaps between its true performance, its internal targets and Wall Street expectations.  Nortel is a Canadian manufacturer of telecommunications equipment.
+
+ Without admitting or denying the Commission's charges, Nortel has agreed to settle the Commission's action by consenting to be permanently enjoined from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws - namely, Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13a-13.  Nortel also has agreed to pay a $35 million civil penalty, which the Commission will seek to place in a Fair Fund for distribution to affected shareholders, and to report periodically to the Commission's staff on its progress in implementing remedial measures and resolving an outstanding material weakness over its revenue recognition procedures. 
+
+ According to the Commission's complaint, from late 2000 through January 2001, Nortel made changes to its revenue recognition policies that were not in conformity with U.S. Generally Accepted Accounting Principles (GAAP).  The changes were made to fraudulently accelerate revenue into 2000 to meet its publicly-announced revenue targets for the fourth quarter of 2000 and for that year.  The complaint alleges that Nortel also selectively reversed certain revenue entries during the 2000 year-end closing process when its acceleration efforts pulled in more revenue than necessary to meet its targets.  These actions, the complaint alleges, inflated Nortel's fourth quarter and fiscal year 2000 revenues by approximately $1.4 billion. 
+
+ The complaint further alleges that Nortel had improperly established, and was improperly maintaining, over $400 million in excess reserves by the time it announced its fiscal year 2002 financial results.  According to the complaint, these reserve manipulations erased Nortel's fourth quarter 2002 pro forma profit and allowed it to report a loss instead so that Nortel would not show a profit earlier than it had previously forecast to the market.  The complaint alleges that in the first and second quarters of 2003, Nortel improperly released approximately $500 million in excess reserves to boost its earnings and fabricate a return to profitability.  These efforts turned Nortel's first quarter 2003 loss into a reported profit under US GAAP, and largely erased its second quarter loss while generating a pro forma profit.  According to the complaint, in both quarters Nortel's inflated earnings allowed it to pay tens of millions of dollars in so-called "return to profitability" bonuses, largely to a select group of senior managers. 
+
+ In settling the matter, the Commission acknowledges Nortel's substantial remedial efforts and cooperation. 
+
+ The Commission previously announced the filing of civil fraud charges in U.S. District Court against Nortel's former CEO Frank Dunn, former CFO Douglas Beatty, former Controller Michael Gollogly and former Assistant Controller MaryAnne Pahapill (a.k.a. Mary Anne Poland) for their roles in Nortel's accounting fraud.  See  Litigation Release No. 20036 (March 12, 2007) / Accounting and Auditing Enforcement Release No. 2576  (March 12, 2007).  The Commission subsequently amended its complaint to bring charges against Douglas Hamilton, Craig Johnson, James Kinney and Kenneth Taylor, the former vice presidents of finance of Nortel's business units.  See  Litigation Release No. 20275 (September 12, 2007) / Accounting and Auditing Enforcement Release No. 2676  (September 12, 2007). 
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diff --git a/raw/aaer/2007/AAER-2741.txt b/raw/aaer/2007/AAER-2741.txt
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--- /dev/null
+++ b/raw/aaer/2007/AAER-2741.txt
@@ -0,0 +1,1390 @@
+
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+ 
+ 
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+              Urs Kamber, Stephan Husi and Richard Jon May
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+        Urs Kamber, Stephan Husi and Richard Jon May
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20336 / October 17, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2741 / October 17, 2007 
+
+  SEC v. Urs Kamber, Stephan Husi and Richard Jon May , Civil Action No. 1:07-CV-01867 (JDB) (D.D.C.) 
+
+ SEC Charges Three Former Officers of Centerpulse Ltd. in Financial Fraud Scheme 
+
+ The Securities and Exchange Commission today filed civil fraud charges in the U.S. District Court for the District of Columbia against three former officers of Centerpulse Ltd., alleging that they fraudulently inflated Centerpulse's third and fourth quarter 2002 income by manipulating reserves and refusing to recognize expenses and liabilities.  Named in the Commission's complaint are former CFO Urs Kamber, former Controller Stephan Husi, and Richard Jon May, the former group vice president of finance, tax counsel and treasurer of Centerpulse USA Holding Company.  Centerpulse (which was acquired by Zimmer Holdings Inc. in 2003) was a medical implants manufacturer headquartered in Switzerland during the alleged misconduct. 
+
+ The complaint alleges that Kamber, Husi and May engaged in the following misconduct: 
+
+  They fraudulently inflated Centerpulse's third quarter 2002 income by improperly deferring recognition of a $25 million expense, refusing to write down $3.4 million in costs associated with an impaired asset, and approving $3.6 million in improper reserve adjustments.  As a result, Centerpulse overstated its third quarter 2002 pretax income by approximately $32 million.   
+
+ They fraudulently inflated Centerpulse's fourth quarter and fiscal 2002 income by refusing to increase a reserve to cover at least $18 million in liabilities, improperly using anticipated refund credits to offset another $5 million in expenses, and again refusing to write down $3.4 million in costs associated with an impaired asset.  As a result, Centerpulse overstated its fourth quarter and fiscal year 2002 pretax income by at least $26.4 million. 
+  The complaint charges Kamber, Husi and May with violating and/or aiding and abetting violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws - namely, 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-16 and 13b2-1.  Kamber is also charged with violating the certification provision of the Sarbanes-Oxley Act of 2002, found in Exchange Act Rule 13a-14, and May is charged with violating the lying to auditors provision of Exchange Act Rule 13b2-2.  The Commission seeks a permanent injunction, a civil monetary penalty, an officer and director bar, and disgorgement with prejudgment interest against each defendant. 
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diff --git a/raw/aaer/2007/AAER-2743.txt b/raw/aaer/2007/AAER-2743.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2bc7138d41c103c2c95ec945f49ef94f52a829d0
--- /dev/null
+++ b/raw/aaer/2007/AAER-2743.txt
@@ -0,0 +1,147 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56673 / October 18, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2743 / October 18, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12869 
+In the Matter of 
+Thomas C. Gentry, C.P.A. 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Exchange Act”), against Thomas C. Gentry (“Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject matter of 
+these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
+Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+Respondent 
+Thomas C. Gentry, age 53, served as MQ Associates Inc.’s Chief Financial Officer at all 
+relevant times.  Gentry was certified as a CPA in Georgia until his license lapsed in 2001.  
+Related Party 
+MQ Associates is a Delaware corporation with its headquarters in Alpharetta, Georgia.  
+MQ Associates is a holding company which owns 100% of the shares of MedQuest, Inc.  
+MedQuest is a health care company that provides diagnostic services like CT scans and MRI’s.  
+MQ Associates’ debt is registered with the Commission and is lightly traded.  Its equity is 
+privately held. MQ Associates’ fiscal year ends on December 31.    
+Discussion 
+This matter relates to reporting violations by MQ Associates and its failure to keep 
+accurate books and records and to maintain an adequate system of internal accounting controls.  
+At all relevant times, Gentry was MQ Associates’ Chief Financial Officer (“CFO”) and had 
+primary responsibility for ensuring that its financial statements and books and records were 
+accurate and that its internal accounting controls were adequate.  MQ Associates’ failures in this 
+regard resulted in a restatement of its financial statements for fiscal years ended December 31, 
+2002 and 2003, for all quarters during both of those years, and for the first three quarters of 
+2004. In the aggregate, the restatement resulted in a cumulative reduction of net income by 
+$34.7 million.  This restatement had a material impact on net income, reducing it by more than 
+300% from a profit of $4.6 million to a loss of $11 million during the first 9 months of 2004, by 
+more than 150% from a profit of $5.2 million to a loss of $2.8 million in 2003, and by more than 
+400% from a profit of $1.2 million to a loss of $3.7 million in 2002.  In connection with the 
+accounting errors underlying the restatement, MQ Associates violated 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.  
+Gentry was a cause of these violations. 
+MQ Associates’ restatement largely resulted from an understatement of its allowance for 
+contractual adjustments for accounts receivable.  When services were rendered, MQ Associates 
+booked the transaction by recording revenue and accounts receivable at equal gross amounts.  
+However, MQ Associates was seldom compensated for the gross billable amount because its 
+contractual arrangements with insurance carriers and governmental reimbursement rates often 
+stipulated payment at rates significantly lower than the gross rate.  Due to the difference between 
+the gross billable rate and the net billable rate for the procedure, MQ Associates established an 
+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
+
+ 
+ 
+allowance for contractual adjustments which was deducted from the gross accounts receivable 
+amount to calculate net, reportable accounts receivable.  This allowance was materially 
+understated, which resulted in MQ Associates’ overstatement of accounts receivable and 
+revenue. 
+To monitor the size of the allowance for contractual adjustments, MQ Associates chiefly 
+relied on what it called a cash trend analysis.  It compared net accounts receivable (gross 
+accounts receivable minus the allowance) to the actual cash subsequently collected at the end of 
+the average collection period. Beginning in 2002, MQ Associates’ auditors advised the company 
+and Gentry that there were inadequacies with the methodology it was using to calculate the 
+allowance for contractual adjustment, and suggested that they be corrected by acquiring a billing 
+system capable of an automated liquidation analysis.  A liquidation analysis matches the 
+revenue booked for each transaction with the actual amount collected for that transaction.  
+Despite these warnings, MQ Associates did not acquire and fully implement a billing system 
+with this capability until the third quarter of 2004.  As CFO, Gentry signed MQ Associates’ 
+annual and quarterly reports (Forms 10-K and 10-Q, respectively) and had an obligation to 
+ensure they were accurate.  He also had primary responsibility for ensuring that MQ Associates 
+dedicated the attention and resources necessary to accurately determine its allowance for 
+contractual adjustments.  He knew that this account was important to MQ Associates’ financial 
+statements and that it was difficult to estimate correctly.  Gentry received information suggesting 
+that the allowance might be understated.  However, he failed to take sufficient corrective action 
+until mid-2004, after MQ Associates had made several materially false filings with the 
+Commission.   
+From time to time beginning in late 2002, when MQ Associates registered its debt with 
+the Commission, the allowance for contractual adjustment declined in terms of its percentage of 
+gross accounts receivable.  The percentage remained relatively flat throughout 2003, however, it 
+began to steadily decline in 2004. By late 2004, certain employees grew concerned that the 
+allowance for contractual adjustment was not correctly stated.  The finance department began 
+conducting additional analyses, including using the new billing system which permitted a 
+liquidation analysis on part of the company’s accounts receivable.  In light of what was 
+discovered, in January 2005 company management informed the Audit Committee of a potential 
+overstatement in accounts receivable.  On March 30, 2005, the company announced in a Form 8-
+K filed with the Commission that it determined that its historical financial statements for the 
+years ended December 31, 2002 and 2003, all quarters during those years, and the first three 
+quarters of 2004 could not be relied upon. Eventually, on September 22, 2005, the company 
+filed a Form 10-K for fiscal year ending December 31, 2004 which included the $34.7 million 
+restatement.     
+Legal Analysis 
+Section 15(d) of the Exchange Act requires each issuer which has filed a registration 
+statement that has become effective to file periodic reports with the Commission containing 
+information prescribed by specific Commission rules.  Rules 15d-1 and 15d-13 require, 
+respectively, the filing of Forms 10-K and 10-Q.  Rule 12b-20 requires, in addition to 
+information required in periodic reports by Commission rules, such further information as may 
+3
+
+be necessary to make the required statements not misleading.  The obligation to file such reports 
+embodies the requirement that they be true and correct.  MQ Associates failed to do so by 
+incorrectly setting its allowance for contractual adjustment, which caused it to materially 
+overstate its accounts receivable and revenue as described above.  It therefore violated Section 
+15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder.  As CFO, Gentry 
+had primary responsibility for ensuring that MQ Associates correctly determined its allowance 
+for contractual adjustments and he knew or should have known that the allowances were 
+understated. Gentry therefore was a cause of MQ Associates’ violations. 
+Section 13(b)(2)(A) of the Exchange Act requires issuers to “make and keep books, 
+records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions 
+and dispositions of the assets of the issuer.”  Section 13(b)(2)(B) of the Exchange Act requires 
+issuers to devise and maintain a system of internal accounting controls sufficient to provide 
+reasonable assurances that transactions are recorded as necessary to permit the preparation of 
+financial statements in conformity with GAAP and to maintain the accountability of assets.  MQ 
+Associates violated Section 13(b)(2)(A) by failing to make and keep accurate books and records 
+and Section13(b)(2)(B) by failing to maintain sufficient internal accounting controls, as 
+described above. As CFO, Gentry was responsible for ensuring that MQ Associates’ books and 
+records were accurate and its internal controls were adequate.  Gentry knew or should have 
+known that MQ Associates did not make and keep accurate books and records and maintain 
+sufficient internal accounting controls.  Consequently, he was a cause of those violations. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, pursuant to Section 21C of the Exchange Act it is hereby ORDERED that: 
+Respondent Thomas C. Gentry cease and desist from causing any violations and any 
+future 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. 
+By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+4
diff --git a/raw/aaer/2007/AAER-2744.txt b/raw/aaer/2007/AAER-2744.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d768590ef931595c01d6ac6bcf147436de05708e
--- /dev/null
+++ b/raw/aaer/2007/AAER-2744.txt
@@ -0,0 +1,131 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 56674 / October 18, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2744 / October 18, 2007 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12870 
+ORDER INSTITUTING CEASE-AND-
+In the Matter of 
+MQ Associates, 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 MQ Associates, Inc. (“MQ 
+Associates” or “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
+Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+Summary 
+This matter relates to reporting violations by MQ Associates and its failure to keep 
+accurate books and records and to maintain an adequate system of internal accounting control. 
+This failure resulted in a restatement of its financial statements for fiscal years ended December 
+31, 2002 and 2003, for all quarters during both of those years, and for the first three quarters of 
+2004. In the aggregate, the restatement resulted in a cumulative reduction of net income by 
+$34.7 million.  This restatement had a material impact on net income, reducing it by more than 
+300% from a profit of $4.6 million to a loss of $11 million during the first 9 months of 2004, by 
+more than 150% from a profit of $5.2 million to a loss of $2.8 million in 2003, and by more than 
+400% from a profit of $1.2 million to a loss of $3.7 million in 2002.  In connection with the 
+accounting errors underlying the restatement, MQ Associates violated 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.   
+Respondent 
+MQ Associates is a Delaware corporation with its headquarters in Alpharetta, Georgia.  
+MQ Associates is a holding company which owns 100% of the shares of MedQuest, Inc.  
+MedQuest is a health care company that provides diagnostic services like CT scans and MRI’s.  
+MQ Associates’ debt is registered with the Commission and is lightly traded.  Its equity is 
+privately held. MQ Associates’ fiscal year ends on December 31.    
+Discussion 
+MQ Associates’ restatement largely resulted from an understatement of its allowance for 
+contractual adjustments for accounts receivable.  When services were rendered, MQ Associates 
+booked the transaction by recording revenue and accounts receivable at equal gross amounts.  
+However, MQ Associates was seldom compensated for the gross billable amount because its 
+contractual arrangements with insurance carriers and governmental reimbursement rates often 
+stipulated payment at rates significantly lower than the gross rate.  Due to the difference between 
+the gross billable rate and the net billable rate for the procedure, MQ Associates established an 
+allowance for contractual adjustments which was deducted from the gross accounts receivable 
+amount to calculate net, reportable accounts receivable.  This allowance was materially 
+understated, which resulted in MQ Associates’ overstatement of accounts receivable and 
+revenues. 
+To monitor the size of the allowance for contractual adjustments, MQ Associates chiefly 
+relied on what it called a cash trend analysis.  It compared net accounts receivable (gross 
+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
+
+ 
+ 
+accounts receivable minus the allowance) to the actual cash subsequently collected at the end of 
+the average collection period. Beginning in 2002, MQ Associates’ auditors advised the company 
+that there were inadequacies with the methodology it was using to calculate the allowance for 
+contractual adjustment, and suggested that they be corrected by acquiring a billing system 
+capable of an automated liquidation analysis.   A liquidation analysis matches the revenue 
+booked for each transaction with the actual amount collected for that transaction.  Despite these 
+warnings, MQ Associates did not acquire and fully implement a billing system with this 
+capability until the third quarter of 2004.   
+From time to time beginning in late 2002, when MQ Associates registered its debt with 
+the Commission, the allowance for contractual adjustment declined in terms of its percentage of 
+gross accounts receivable.  The percentage remained relatively flat throughout 2003, however, it 
+began to steadily decline in 2004. By late 2004, certain employees grew concerned that the 
+allowance for contractual adjustment was not correctly stated.  The finance department began 
+conducting additional analyses, including using the new billing system which permitted a 
+liquidation analysis on part of the company’s accounts receivable.  In light of what was 
+discovered, in January 2005 company management informed the Audit Committee of a potential 
+overstatement in accounts receivable.  In February 2005, the Audit Committee retained outside 
+counsel and accountants to assist in an investigation of this shortfall.  On March 30, 2005, the 
+company announced in a Form 8-K filed with the Commission that it determined that its 
+historical financial statements for the years ended December 31, 2002 and 2003, all quarters 
+during those years, and the first three quarters of 2004 could not be relied upon.  Eventually, on 
+September 22, 2005, the company filed a Form 10-K for fiscal year ending December 31, 2004 
+which included the $34.7 million restatement.     
+Legal Analysis 
+Section 15(d) of the Exchange Act requires each issuer which has filed a registration 
+statement that has become effective to file periodic reports with the Commission containing 
+information prescribed by specific Commission rules.  Rules 15d-1 and 15d-13 require, 
+respectively, the filing of Forms 10-K and 10-Q.  Rule 12b-20 requires, in addition to 
+information required in periodic reports by Commission rules, such further information as may 
+be necessary to make the required statements not misleading.  The obligation to file such reports 
+embodies the requirement that they be true and correct.  MQ Associates failed to do so by 
+incorrectly setting its allowance for contractual adjustment, which caused it to materially 
+overstate its accounts receivable and revenue as described above.  It therefore violated Section 
+15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder. 
+Section 13(b)(2)(A) of the Exchange Act requires issuers to “make and keep books, 
+records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions 
+and dispositions of the assets of the issuer.”  Section 13(b)(2)(B) of the Exchange Act requires 
+issuers to devise and maintain a system of internal accounting controls sufficient to provide 
+reasonable assurances that transactions are recorded as necessary to permit the preparation of 
+financial statements in conformity with GAAP and to maintain the accountability of assets.  MQ 
+Associates violated Section 13(b)(2)(A) by failing to make and keep accurate books and records 
+3
+
+and Section 13(b)(2)(B) by failing to maintain sufficient internal accounting controls, as 
+described above. 
+MQ Associates’ Remedial Efforts 
+In determining to accept the Offer, the Commission considered remedial acts promptly 
+undertaken by MQ Associates and cooperation afforded the Commission staff. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in MQ Associates’ Offer. 
+Accordingly, pursuant to Section 21C of the Exchange Act it is hereby ORDERED that: 
+Respondent MQ Associates cease and desist from committing or causing any violations 
+and any future 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. 
+By the Commission. 
+       N ancy M. Morris
+       S ecretary 
+4
diff --git a/raw/aaer/2007/AAER-2747.txt b/raw/aaer/2007/AAER-2747.txt
new file mode 100644
index 0000000000000000000000000000000000000000..268cffd6d0b7a66f54a5f044f47924078ac0b244
--- /dev/null
+++ b/raw/aaer/2007/AAER-2747.txt
@@ -0,0 +1,127 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  56705 / October 25, 2007 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2747 / October 25, 2007 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12880 
+       
+      :  
+ :  
+ :  
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+     : PROCEEDINGS PURSUANT TO RULE 
+FRED GOLD, CPA     :  102(e) OF THE COMMISSION’S RULES OF 
+      : 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 Fred 
+Gold, CPA (“Gold” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+ 
+ 
+                                                 
+1  Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without  preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them 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. Gold, age 61, is and has been a certified public accountant licensed to 
+practice in the State of New York.  He was a partner at Arthur Andersen LLP (“Andersen”) and was 
+the Andersen engagement partner responsible for the fiscal 2000 audit of American Tissue, Inc. 
+(“ATI”).  He signed the auditor’s report contained in American Tissue’s 2000 annual report in its 
+Form 10-K, which was filed with the Commission on December 29, 2000. 
+ 
+ 2. ATI was a manufacturer of tissue an d paper products with paper mills and 
+converting facilities located throughout the United States and Mexico.  It became a reporting 
+company in February 2000, after conducting an offering of secured notes to institutional investors.  
+ATI never sold equity securities to the public, but a limited secondary market for its secured notes 
+developed. 
+ 
+ 3. On  October 16, 2007, a final j udgment was entered against Gold, 
+permanently enjoining him, by consent, from future violations of Section 10(b) of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and from aiding and abetting 
+violations of Section 15(d) of the Exchange Act and Exchange Act Rules 12b-20 and 15d-1, in the 
+civil action entitled Securities and Exchange Commission v. Fred Gold, et al., Civil Action 
+Number 05-CV-4713 (JS), in the United States District Court for the Eastern District of New York.  
+Gold was also ordered to pay civil money penalties of $100,000. 
+ 
+4. The Commission’s complaint alleged, among other things, that ATI 
+materially overstated its assets, shareholders’ equity, revenue, and net income in periodic reports 
+filed with the Commission during 2000 and 2001 by capitalizing previously recorded expenses as 
+inventory and overvaluing finished goods inventory in amounts well in excess of the selling price.  
+As a result, ATI’s $24.5 million reported net income for its fiscal year ended September 30, 2000 
+was overstated by at least $28.1 million and its $15.5 million reported net income for the nine 
+months ended June 30, 2001 was overstated by at least $21.8 million.  Andersen was ATI’s 
+auditor during the relevant period.  Andersen issued an unqualified audit report on ATI’s financial 
+statements for its fiscal year ended September 30, 2000 though its audit was not conducted in 
+ 3
+accordance with generally accepted auditing standards and ATI’s financial statements were not 
+fairly presented in conformity with generally accepted accounting principles.  Gold, the audit 
+engagement partner on ATI’s 2000 audit, was responsible for the audit failure. 
+ 
+5. The Commission’s complaint alleged further that subsequent to the 
+completion of the audit, Gold directed an audit manager and a senior accountant to alter audit 
+workpapers in preparation for a peer review conducted by Deloitte & Touche.  On September 3, 
+2001, Gold instructed them to arrange for the immediate, unscheduled destruction and shredding 
+of all Andersen documents and emails that were not part of the “official” ATI work paper files.  In 
+response, the senior accountant gave two instructions to members of Andersen’s ATI audit staff 
+on September 3, 2001.  Initially, the audit staff was instructed to save everything from the hard 
+drives on their laptop computers to a disk and send the disk to the senior manager’s house.  
+Shortly thereafter, the staff was instructed to delete everything related to ATI from the hard drives 
+on their laptop computers.  On or about September 4, 2001, at Gold’s direction, the senior 
+accountant instructed Andersen’s ATI audit staff to gather all ATI related documents for 
+shredding, other than the “official” work paper file.  Thereafter, at the request of Andersen, an 
+outside shredding company made an unscheduled visit to pick up and shred ATI audit documents 
+and e-mails that were not part of the “official” ATI work paper files.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+Gold is suspended from appearing or practicing before the Commission as an accountant. 
+ 
+ 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/2007/AAER-2749.txt b/raw/aaer/2007/AAER-2749.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b97bbb03eaec5be0d031a51f2a56a2a729f49839
--- /dev/null
+++ b/raw/aaer/2007/AAER-2749.txt
@@ -0,0 +1,70 @@
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 56755 / November 6, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2749 / November 6, 2007 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11211 
+: ORDER GRANTING APPLICATION FOR 
+: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: RESPONSIBLE FOR THE PREPARATION OR Warren Martin, CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+: TO BE FILED WITH THE COMMISSION 
+On August 8, 2003, Warren Martin, CPA (“Martin”) 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  Martin consented to the entry of the order without 
+admitting or denying the findings therein.  This order is issued in response to Martin’s 
+application for reinstatement to appear and practice before the Commission as an accountant 
+responsible for the preparation or review of financial statements required to be filed with the 
+Commission. 
+The Commission found that Martin, in his role as the engagement partner of the audits 
+of MicroStrategy, Inc. (“MicroStrategy”), caused PricewaterhouseCoopers to issue audit reports 
+containing unqualified opinions filed with the Company’s inaccurate financial statements for the 
+fiscal years 1998 and 1999. Prior to the issuance of the audit reports, Martin did not develop 
+sufficient competent evidentiary support for certain revenue recognition issues and failed to 
+consider properly language in certain MicroStrategy contracts that conflicted with the 
+Company’s recognition of revenue.  He also failed to consider properly concerns raised by his 
+own accounting firm that should have alerted him to the audit failures. 
+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, Martin 
+1 See Accounting and Auditing Enforcement Release No. 1835 dated August 8, 2003.  Martin was permitted, 
+pursuant to the order, to apply for reinstatement after two years upon making certain showings. 
+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. Martin 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, Martin’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Martin, it appears that he has complied with the terms of the August 8, 2003 order suspending 
+him from appearing or practicing before the Commission as an accountant, that no information 
+has come to the attention of the Commission relating to his character, integrity, professional 
+conduct or qualifications to practice before the Commission that would be a basis for adverse 
+action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that 
+Martin, 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 
+Warren Martin, 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). 
+2
diff --git a/raw/aaer/2007/AAER-2751.txt b/raw/aaer/2007/AAER-2751.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9a79dc5baa514fce62ea4a865408fda569c8845e
--- /dev/null
+++ b/raw/aaer/2007/AAER-2751.txt
@@ -0,0 +1,1392 @@
+
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+        Michael J. Pietrzak and Maurice W. Furlong
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20369 / November 26, 2007 
+
+ Accounting and Auditing Enforcement No. 2751 / November 26, 2007 
+
+  Securities and Exchange Commission v. Michael J. Pietrzak and Maurice W. Furlong , Civil Action File No. 1:03-CV-1507-Judge Grady (N.D. Il.) 
+
+ Federal Court Enters Final Judgment Against Michael J. Pietrzak and Maurice W. Furlong, Officers and Directors of Hexagon Consolidated Companies Of America, Inc. 
+
+ The Securities and Exchange Commission ("Commission") announced today that on November 19, 2007, the Honorable John F. Grady, United States District Judge for the Northern District of Illinois, entered Final Judgment against Michael J. Pietrzak and Maurice W. Furlong, for their role in defrauding the shareholders of Hexagon Consolidated Companies of America, Inc. ("HCCA"), by fraudulently inflating the value of claimed company assets, while at the same time selling their own HCCA stock into the marketplace.  The final judgment against Pietrzak and Furlong includes permanent injunctions, disgorgement, prejudgment interest, civil penalties, officer and director bars and penny stock bars.  Pietrzak is the former CFO and general counsel to HCCA.  Furlong is the former CEO and President of the company.  The final judgment follows a lengthy jury trial which resulted in an August 3, 2007 verdict against the defendants, and in favor of the Commission on every count in the Commission's complaint. 
+
+ The final judgment permanently enjoins Pietrzak and Furlong from: (i) future violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (ii) future violations of aiding and abetting in the filing of false periodic reports with the Commission in violation of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 thereunder;  (iii) future aiding and abetting violations involving internal accounting controls and books and records in violation of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; and (iv) future violations involving failure to implement internal accounting controls in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder.  The final judgment also permanently enjoins Furlong from future violations of stock ownership reporting provisions of Sections 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 thereunder.   
+
+ As to other relief, the final judgment also orders Pietrzak to pay disgorgement in the amount of $1,282,205, representing gross proceeds he received from sales of his HCCA stock, during the period that the accounting fraud was ongoing, along with pre-judgment interest thereon in the amount of $884,317 for a total of $2,166,522.  The judgment orders Furlong to pay disgorgement in the amount of $3,375,662, representing gross proceeds he received from sales of his HCCA stock, during the period that the accounting fraud was ongoing, along with pre-judgment interest thereon in the amount of $2,612,888 for a total of $5,988,550.  Civil penalties were imposed against the defendants in the amounts of the respective ordered disgorgement against them, however the judgment provides that the civil penalties shall be deemed paid to the extent that disgorgement is paid.  All payments in the final judgment are due within 30 days of the entry of the judgment.  Finally the judgment bars Pietrzak and Furlong from ever again serving as an officer or director of a public company, and bars them from offering or selling penny stocks. 
+
+ The jury verdict, upon which the final judgment is based, included findings on a wide-range of securities law violations, including that material misrepresentations were made by HCCA in filings with the Commission, and that Pietrzak and Furlong engaged in protracted efforts to fraudulently increase the stock price and value of the company by, among other means, filing false and misleading registration statements and periodic and current reports, and by issuing false press releases and a letter to shareholders.  During the same time, Pietrzak and Furlong sold millions of their own shares of HCCA stock, fraudulently receiving the amounts that the judgment ordered them to disgorge.  The verdict also concluded that from 1996 through 2000, HCCA, through the efforts of Pietrzak and Furlong, reported to the public that it was an entity with substantial assets when, in fact, it was virtually worthless.  A former codefendant, assayer Donald E. Jordan passed away during the litigation, and has now been dismissed from the case. 
+
+ See also:   L.R. 20223  (August 3, 2007);  L.R. 18016  (March 6, 2003) 
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diff --git a/raw/aaer/2007/AAER-2755.txt b/raw/aaer/2007/AAER-2755.txt
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+              Thomas J. Saiz, and Calderon, Jaham & Osborn, An Accountancy Corporation
+           
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+        Thomas J. Saiz, and Calderon, Jaham & Osborn, An Accountancy Corporation
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20394 / December 11, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2755 / December 11, 2007 
+
+  SEC v. Thomas J. Saiz, and Calderon, Jaham & Osborn, An Accountancy Corporation , Civil Action No. 07 CV 2308 L (JMA) (S.D. Cal.) (filed December 10, 2007) 
+
+ SEC Charges San Diego's Independent Auditor for Fraud in Connection With City Municipal Securities Offerings 
+
+ Auditor Settles to Injunction and Penalty 
+
+ 
+
+ The Securities and Exchange Commission today announced a settled civil fraud action filed against San Diego's independent auditor in connection with the city's false and misleading financial statements in five 2002 and 2003 bond offerings. 
+
+ According to the Commission's complaint, the independent auditor issued unqualified audit reports on the bond offerings that raised $260 million from investors but contained materially false and misleading information about San Diego's pension and retiree health care obligations. 
+
+ The Commission charges against certified public accountant Thomas J. Saiz and his firm, Calderon, Jaham & Osborn (CJO), allege that they failed to comply with generally accepted accounting standards, were not knowledgeable about San Diego, and failed to obtain sufficient competent evidential matter. 
+
+ According to the Commission's complaint, San Diego was the seventh largest city in the United States in 2001 and 2002, with revenues exceeding $1 billion per year and assets in excess of $10 billion. San Diego's pension plan had net assets of $2.5 billion and total additions to the plan of more than $85 million. CJO was the independent auditor for San Diego and its pension plan in 2001 and 2002, and Saiz was sole shareholder of CJO, which had approximately 30 employees. 
+
+ The Commission's complaint alleges that Saiz and CJO drafted, subject to San Diego's review and approval, the disclosures in footnotes to the city's financial statements. The footnotes disclosed that San Diego was under-funding its annual pension contribution but also included positive statements about the city's method for funding its pension obligations. These statements included that the city's funding method contained a provision to ensure that the pension's funded level would not drop below a certain level to protect the pension plan's financial integrity; that the pension plan's actuary believed that the city's pension funding method was an excellent method for the city; and that the total amount that the city had under-funded its annual pension contribution, or net pension obligation, was funded in a reserve. 
+
+ The SEC's complaint alleges that these statements were false and misleading because the city's net pension obligation was not funded in a reserve and, in 2002, the pension plan had fallen below a funded level that the actuary deemed appropriate and the actuary no longer supported the city's funding method. The complaint further alleges that Saiz and CJO knew or were reckless in not knowing that the disclosure was false and misleading as a result of information Saiz received from his audits of the city and its pension plan and his review of the city's bond offering documents. 
+
+ CJO and Saiz also drafted footnotes that disclosed that the city provided health benefits to retirees at a cost of $7.2 million in 2001 and $8.9 million in 2002 and that the expenses for such benefits were recognized as they were paid. The complaint alleges that Saiz and CJO knew or were reckless in not knowing that this disclosure was misleading because it failed to disclose, as Saiz and CJO knew from auditing the city and its pension plan, that the retiree health care expense was being paid with earnings from the pension plan and that the city would soon have to begin paying this substantial expense out of its own budget. 
+
+ According to the SEC's complaint, Saiz and CJO also audited San Diego's financial statements and issued reports falsely stating that the financial statements were fairly presented in conformity with generally accepted accounting principles (GAAP) and the audits were performed in accordance with generally accepted auditing standards (GAAS). Saiz and CJO also consented to San Diego's including CJO's audit report in its 2002 and 2003 municipal securities offerings. As alleged in the complaint, the false and misleading statements regarding the city's pension obligations were not presented in conformity with GAAP. 
+
+ The Commission's complaint also alleges that at the time they consented to San Diego's including the audit report in the 2003 offering documents, Saiz and CJO also failed, as required by GAAS, to inquire into the recent substantial increase in the city's obligations to its pension to determine whether the financial statements or the audit report required revision. 
+
+ Without admitting or denying the allegations in the complaint filed in federal district court in San Diego, Saiz and CJO have consented to the entry of final judgments permanently enjoining them from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Additionally, Saiz has agreed to pay a $15,000 civil penalty. 
+
+ The Commission previously entered an order sanctioning the City of San Diego for committing securities fraud by failing to disclose to the investing public important information about its pension and retiree health care obligations in the sale of its municipal bonds in 2002 and 2003. To settle the action, the city agreed to cease and desist from future securities fraud violations and to retain an independent consultant for three years to foster compliance with its disclosure obligations under the federal securities laws. 
+
+ The Commission's investigation is ongoing as to other individuals and entities that may have violated federal securities laws. 
+
+ 
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diff --git a/raw/aaer/2007/AAER-2756.pdf b/raw/aaer/2007/AAER-2756.pdf
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@@ -0,0 +1,84 @@
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 56942 / December 11, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2756 / December 11, 2007 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12244 
+: ORDER GRANTING APPLICATION FOR 
+In the Matter of : REINSTATEMENT TO APPEAR AND PRACTICE 
+: BEFORE THE COMMISSION AS AN ACCOUNTANT 
+Anthony P. Dolanski, : RESPONSIBLE FOR THE PREPARATION OR 
+CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+: TO BE FILED WITH THE COMMISSION 
+On March 21, 2006, Anthony P. Dolanski ("Dolanski") was suspended from appearing or 
+practicing as an accountant before the Commission as a result of settled public administrative 
+proceedings instituted by the Commission against Dolanski pursuant to Rule 102(e) of the 
+Commission's Rules of Practice.1  Dolanski consented to the entry of the order without admitting 
+or denying the findings therein but for the Commission’s finding that a final judgment and 
+permanent injunction had been previously entered against him.  This order is issued in response 
+to Dolanski’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. 
+Dolanski served as the lead engagement partner overseeing KPMG LLP’s (”KPMG”) 
+audits of Xerox Corporation (“Xerox”) from 1995 through 1997.  The Commission alleged that 
+in fiscal year 1997 approximately $405 million of Xerox’s $2.14 billion in pre-tax earnings was 
+generated through the use of improper accounting devices in violation of GAAP.  In the course 
+of serving as the engagement partner for Xerox, Dolanski signed on behalf of KPMG an audit 
+report that accompanied the 1997 Annual Report on Form 10-K filed by Xerox with the SEC.  
+That audit report stated that KPMG conducted an audit of Xerox’s financial statements in 
+accordance with GAAS, that KPMG planned and performed the audit to obtain reasonable 
+assurances that the financial statements were free of material misstatements, that KPMG 
+1 See Accounting and Auditing Enforcement Release No. 2397 dated March 21, 2006.  Dolanski was permitted, 
+pursuant to the order, to apply for reinstatement after one year upon making certain showings. 
+assessed the accounting principles used and significant estimates made by Xerox management 
+and that it evaluated the overall consolidated financial statement presentation.  The audit report 
+further represented that, as a result of KPMG’s audit, it was KPMG’s opinion that Xerox’s 
+financial condition and results of operation were fairly presented in the financial statements in 
+conformity with GAAP.  The Commission alleged that each of these representations was 
+materially false and misleading or omitted to disclose material information which would make 
+the statements not false and misleading.   
+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, Dolanski 
+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.  Dolanski 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, Dolanski’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Dolanski, it appears that he has complied with the terms of the March 21, 2006 order 
+suspending him from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, 
+and that Dolanski, 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 
+Anthony P. Dolanski, 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/2007/AAER-2759.pdf b/raw/aaer/2007/AAER-2759.pdf
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+++ b/raw/aaer/2007/AAER-2759.txt
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+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 57008 / December 20, 2007 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2759 / December 20, 2007 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11171 
+: ORDER GRANTING APPLICATION FOR 
+: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: RESPONSIBLE FOR THE PREPARATION OR Gregory B. Tayler, CA : REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+: TO BE FILED WITH THE COMMISSION 
+On July 7, 2003, Gregory B. Tayler ("Tayler") was suspended from appearing or 
+practicing as an accountant before the Commission as a result of settled public administrative 
+proceedings instituted by the Commission against Tayler pursuant to Rule 102(e) of the 
+Commission's Rules of Practice.1  Tayler consented to the entry of the order without admitting or 
+denying the findings therein but for the Commission’s finding that a Final Judgment and 
+Permanent Injunction and Other Equitable Relief had been previously entered against him.  This 
+order is issued in response to Tayler’s application for reinstatement to appear and practice before 
+the Commission as an accountant responsible for the preparation or review of financial 
+statements required to be filed with the Commission. 
+The Commission’s complaint alleged that Tayler, along with other senior executives of 
+Xerox Corporation (“Xerox”), played a significant role in misleading investors about Xerox’s 
+earnings in order to polish the company’s reputation on Wall Street and to boost its stock price.  
+Through their conduct, Tayler and others were responsible for accelerating the recognition of 
+equipment revenues by approximately $3 billion and increasing pre-tax earnings by 
+approximately $1.4 billion in Xerox’s 1997-2000 financial results.  These overstatements were 
+achieved through the use of undisclosed manipulative accounting devices employed at the end of 
+each financial reporting period during the relevant time. 
+1 See Accounting and Auditing Enforcement Release No. 1812 dated July 7, 2003.  Tayler was permitted, pursuant 
+to the order, to apply for reinstatement after three years upon making certain showings. 
+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, Tayler 
+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. Tayler 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, Tayler’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Tayler, it appears that he has complied with the terms of the July 7, 2003 order suspending 
+him from appearing or practicing before the Commission as an accountant, that no information 
+has come to the attention of the Commission relating to his character, integrity, professional 
+conduct or qualifications to practice before the Commission that would be a basis for adverse 
+action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that 
+Tayler, 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 
+Gregory B. Tayler, C.A. 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). 
+2
diff --git a/raw/aaer/2007/AAER-2760.txt b/raw/aaer/2007/AAER-2760.txt
new file mode 100644
index 0000000000000000000000000000000000000000..881db8b94551d2a885c11d631f204834fde461a6
--- /dev/null
+++ b/raw/aaer/2007/AAER-2760.txt
@@ -0,0 +1,1391 @@
+
+
+ 
+ 
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+              Lucent Technologies Inc.
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+        Lucent Technologies Inc.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 20414 / December 21, 2007 
+
+ Accounting and Auditing Enforcement Release No. 2760 / December 21, 2007 
+
+  SEC v. Lucent Technologies Inc. , Civ. Act. No. 1:07-cv-02301 (D.D.C.) (RBW) (filed December 21, 2007) 
+
+ SEC Files Settled Action Against Lucent Technologies Inc. in Connection With Payments of Chinese Officials' Travel and Entertainment Expenses; Company Agrees to Pay $1.5 Million Civil Penalty 
+
+ 
+
+ The Securities and Exchange Commission today filed a settled complaint against Lucent Technologies Inc. ("Lucent") in the United States District Court for the District of Columbia alleging violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act. Lucent, a Delaware corporation that provides communications systems and services, is a wholly-owned subsidiary of Alcatel-Lucent, a French company. Lucent has agreed, without admitting or denying the allegations in the complaint, to the entry of a permanent injunction and to pay $1.5 million in civil penalties. 
+
+ The Commission's complaint alleges that, from at least 2000 to 2003, Lucent spent over $10,000,000 for approximately 1,000 Chinese foreign officials, who were employees of Chinese state-owned or state-controlled telecommunications enterprises, to travel to the United States and elsewhere. The Commission alleges that the majority of the trips were ostensibly designed to allow the Chinese foreign officials to inspect Lucent's factories and to train the officials in using Lucent equipment. In fact, according to the complaint, during many of these trips, the officials spent little or no time in the United States visiting Lucent's facilities. Instead, they visited tourist destinations throughout the United States, such as Hawaii, Las Vegas, the Grand Canyon, Niagara Falls, Disney World, Universal Studios, and New York City. As set forth in the complaint, the Chinese government enterprises for whom the officials worked were either entities to which Lucent was seeking to sell its equipment and services or existing Lucent customers. The Chinese foreign officials who traveled at Lucent's expense were often identified by Lucent in its internal documents as "decision makers" with respect to awarding new business. 
+
+ According to the Commission's complaint, Lucent improperly recorded many of the trips in its books and records. For example, over 160 trips were booked to Lucent's "Factory Inspection Account" even though the customers did not visit a Lucent factory at any time during the trip. The Commission also alleges that Lucent lacked the internal controls to detect and prevent trips intended for sightseeing, entertainment and leisure, rather than business purposes. Moreover, Lucent failed, for years, to properly train its officers and employees to understand and appreciate the nature and status of its customers in China in the context of the Foreign Corrupt Practices Act. The Commission alleges that, in authorizing and improperly recording the payments for approximately 315 trips for Chinese government officials that had a disproportionate amount of sightseeing, entertainment and leisure, Lucent violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act of 1977. 
+
+ In the settlement, Lucent, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining Lucent from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and ordering Lucent to pay a civil penalty of $1,500,000. Lucent has also entered into a non-prosecution agreement with the United States Department of Justice and has agreed to pay a $1,000,000 fine pursuant to that agreement. The Commission acknowledges the assistance of the United States Department of Justice in this matter. 
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