Datasets:

codewithdark
/

SEC-RPT-Panel

@@ -1,1406 +1,780 @@
-     SEC.gov | MBIA Inc.
-         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}();
-     {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/500476","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. The link you have selected is located on another server. Please click on the OK button below to proceed to the selected site. The SEC does not endorse this web site, its sponsor, or any of the policies, activities, products, or services offered on the site or by any advertiser on the site.","extHideIcons":false,"mailtoClass":"0","telClass":"","mailtoLabel":"(link sends email)","telLabel":"(link is a phone number)","extUseFontAwesome":false,"extIconPlacement":"append","extPreventOrphan":false,"extFaLinkClasses":"fa fa-external-link","extFaMailtoClasses":"fa fa-envelope-o","extAdditionalLinkClasses":"","extAdditionalMailtoClasses":"","extAdditionalTelClasses":"","extFaTelClasses":"fa fa-phone","allowedDomains":null,"extExcludeNoreferrer":""}},"field_group":{"html_element":{"mode":"default","context":"view","settings":{"classes":"rightrail-list","show_empty_fields":false,"id":"","element":"div","show_label":true,"label_element":"h2","label_element_classes":"","attributes":"","effect":"none","speed":"fast"}}},"user":{"uid":0,"permissionsHash":"e506dfd1572f94bd1f339f1a7483bfbded31d4a9d2bdfdca3fdbc235153380ee"}}
-      Skip to search field
-      Skip to main content
-           An official website of the United States government
-           Here’s how you know
-           Here’s how you know
-                Official websites use .gov
-                              A  .gov  website belongs to an official government organization in the United States.
-                Secure .gov websites use HTTPS
-              A  lock
-              (   Lock  A locked padlock    )
-              or  https://  means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.
-                     SEC homepage
-        Menu
-          Close
-     Search SEC.gov &amp; EDGAR
-       Search
-             Search Filings
-           Search Filings
-                             Full Text Search
-                             Latest Filings
-                             Mutual Fund Search
-                             Variable Insurance Products Search
-                             SIC Codes
-                             CIK Lookup
-                             Public Dissemination Service (PDS)
-                             Search Assistance
-             Submit Filings
-           Submit Filings
-                             EDGAR Filer Management Portal
-                             EDGAR Filing Portal
-                             Online Forms Management Portal
-                             EDGAR Next
-                             Forms Index
-                             Filer Support &amp; Resources
-             Data &amp; Research
-           Data &amp; Research
-                             Data Library
-                             Statistics &amp; Data Visualizations
-                             Structured Data
-                             Investment Management Data
-                             Open Data at the SEC
-             Rules, Enforcement, &amp; Compliance
-           Rules &amp; Regulations
-                             Rulemaking Activity
-                             Submit Public Comments
-                             Staff Guidance
-                             No-Action, Interpretive, and Exemptive Letters
-                             Self-Regulatory Organization Rulemaking
-                             Public Petitions for Rulemaking
-           Enforcement &amp; Litigation
-                             Litigation Releases
-                             Administrative Proceedings
-                             Administrative Law Judge Orders and Initial Decisions
-                             Trading Suspensions
-                             Distributions to Harmed Investors
-                             Receiverships
-           Compliance
-                             Examination Priorities
-                             Risk Alerts
-                             Compliance Outreach Program
-                             Proposed Rules
-                             What&#039;s New
-                             Whistleblower Program
-             Featured Topics
-           Featured Topics
-                             Crypto Task Force
-                             Cybersecurity
-                             Market Structure Analytics
-                             Saving and Investing for Military Personnel
-                             Saving and Investing for Teachers
-                             SEC-CFTC Harmonization Initiative
-                             Treasury Clearing Implementation
-             About
-           About
-                             Mission
-                             Commissioners
-                             Divisions &amp; Offices
-                             Division &amp; Office Directors
-                             Advisory Committees
-                             Budget &amp; Performance
-                             Reports &amp; Publications
-                             Commission Votes
-                             Contact the SEC
-                             Careers
-                             Submit a Tip or Complaint
-                           Newsroom
-                           |
-                           Investors
-                           Small Businesses
-                           Whistleblowers
-                           Newsroom
-                           |
-                           Investors
-                           Small Businesses
-                           Whistleblowers
-     Search SEC.gov &amp; EDGAR
-       Search
-        More in this Section
-                 Enforcement &amp; Litigation
-           Litigation Releases
-           Administrative Proceedings
-           Administrative Law Judge Orders and Initial Decisions
-           Trading Suspensions
-           Distributions to Harmed Investors
-           Receiverships
-           Electronic Filings in Administrative Proceedings (eFAP)
-           Rules of Practice
-           Applications for Reentry
-           Reports of Investigations
-           Whistleblower Program
-           Public Alert: Unregistered Soliciting Entities (PAUSE)
-           SEC Action Lookup - Individuals (SALI)
-           Enforcement Data Delivery Standards
-           Small Businesses
-           Appellate Briefs
-           Amicus / Friend of the Court Briefs
-                 Enforcement &amp; Litigation
-           Litigation Releases
-           Administrative Proceedings
-           Administrative Law Judge Orders and Initial Decisions
-           Trading Suspensions
-           Distributions to Harmed Investors
-           Receiverships
-           Electronic Filings in Administrative Proceedings (eFAP)
-           Rules of Practice
-           Applications for Reentry
-           Reports of Investigations
-           Whistleblower Program
-           Public Alert: Unregistered Soliciting Entities (PAUSE)
-           SEC Action Lookup - Individuals (SALI)
-           Enforcement Data Delivery Standards
-           Small Businesses
-           Appellate Briefs
-           Amicus / Friend of the Court Briefs
-               Home
-               Enforcement and Litigation
-               Litigation Releases
-              MBIA Inc.
-        MBIA Inc.
-                   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.
-   SEC Complaint in this matter ;  Administrative Proceeding No. 33-8776
-&nbsp;
-   Resources
-      Complaint in this matter
-     Administrative Proceedings Release
-           Return to top
-                 SEC homepage
-                                                     About the SEC
-           Budget &amp; Performance
-           Careers
-           Commission Votes
-           Contact
-           Contracts
-                                                     Transparency
-           Accessibility &amp; Disability
-           Super Intelligence
-           FOIA
-           Inspector General
-           No FEAR Act Data
-           Ombuds
-           SEC Excess Personal Property Guidance
-                                                     Websites
-           Investor.gov
-           Related Sites
-           USA.gov
-                                                     Site Information
-           Plain Writing
-           Privacy &amp; Security
-           Site Map
-               Stay connected. Sign up for email updates.
-   Your email address
-   Sign Up
-                 X
-                 Facebook
-               Instagram
-                 RSS
-                 YouTube
-               Email Updates

+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

raw/aaer/2007/AAER-2604.pdf ADDED Viewed

Binary file (33 kB). View file

raw/aaer/2007/AAER-2641.txt CHANGED Viewed

@@ -1,1445 +1,328 @@
-     SEC.gov | Lorine Sweeney and Gary Scherping; Ilona Kay Collin; David Eric Nesvisky; Robert Allen Diehl; Madhavan Sivathanu Pillai
-         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}();
-     {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/501546","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. The link you have selected is located on another server. Please click on the OK button below to proceed to the selected site. The SEC does not endorse this web site, its sponsor, or any of the policies, activities, products, or services offered on the site or by any advertiser on the site.","extHideIcons":false,"mailtoClass":"0","telClass":"","mailtoLabel":"(link sends email)","telLabel":"(link is a phone number)","extUseFontAwesome":false,"extIconPlacement":"append","extPreventOrphan":false,"extFaLinkClasses":"fa fa-external-link","extFaMailtoClasses":"fa fa-envelope-o","extAdditionalLinkClasses":"","extAdditionalMailtoClasses":"","extAdditionalTelClasses":"","extFaTelClasses":"fa fa-phone","allowedDomains":null,"extExcludeNoreferrer":""}},"field_group":{"html_element":{"mode":"default","context":"view","settings":{"classes":"rightrail-list","show_empty_fields":false,"id":"","element":"div","show_label":true,"label_element":"h2","label_element_classes":"","attributes":"","effect":"none","speed":"fast"}}},"user":{"uid":0,"permissionsHash":"e506dfd1572f94bd1f339f1a7483bfbded31d4a9d2bdfdca3fdbc235153380ee"}}
-      Skip to search field
-      Skip to main content
-           An official website of the United States government
-           Here’s how you know
-           Here’s how you know
-                Official websites use .gov
-                              A  .gov  website belongs to an official government organization in the United States.
-                Secure .gov websites use HTTPS
-              A  lock
-              (   Lock  A locked padlock    )
-              or  https://  means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.
-                     SEC homepage
-        Menu
-          Close
-     Search SEC.gov &amp; EDGAR
-       Search
-             Search Filings
-           Search Filings
-                             Full Text Search
-                             Latest Filings
-                             Mutual Fund Search
-                             Variable Insurance Products Search
-                             SIC Codes
-                             CIK Lookup
-                             Public Dissemination Service (PDS)
-                             Search Assistance
-             Submit Filings
-           Submit Filings
-                             EDGAR Filer Management Portal
-                             EDGAR Filing Portal
-                             Online Forms Management Portal
-                             EDGAR Next
-                             Forms Index
-                             Filer Support &amp; Resources
-             Data &amp; Research
-           Data &amp; Research
-                             Data Library
-                             Statistics &amp; Data Visualizations
-                             Structured Data
-                             Investment Management Data
-                             Open Data at the SEC
-             Rules, Enforcement, &amp; Compliance
-           Rules &amp; Regulations
-                             Rulemaking Activity
-                             Submit Public Comments
-                             Staff Guidance
-                             No-Action, Interpretive, and Exemptive Letters
-                             Self-Regulatory Organization Rulemaking
-                             Public Petitions for Rulemaking
-           Enforcement &amp; Litigation
-                             Litigation Releases
-                             Administrative Proceedings
-                             Administrative Law Judge Orders and Initial Decisions
-                             Trading Suspensions
-                             Distributions to Harmed Investors
-                             Receiverships
-           Compliance
-                             Examination Priorities
-                             Risk Alerts
-                             Compliance Outreach Program
-                             Proposed Rules
-                             What&#039;s New
-                             Whistleblower Program
-             Featured Topics
-           Featured Topics
-                             Crypto Task Force
-                             Cybersecurity
-                             Market Structure Analytics
-                             Saving and Investing for Military Personnel
-                             Saving and Investing for Teachers
-                             SEC-CFTC Harmonization Initiative
-                             Treasury Clearing Implementation
-             About
-           About
-                             Mission
-                             Commissioners
-                             Divisions &amp; Offices
-                             Division &amp; Office Directors
-                             Advisory Committees
-                             Budget &amp; Performance
-                             Reports &amp; Publications
-                             Commission Votes
-                             Contact the SEC
-                             Careers
-                             Submit a Tip or Complaint
-                           Newsroom
-                           |
-                           Investors
-                           Small Businesses
-                           Whistleblowers
-                           Newsroom
-                           |
-                           Investors
-                           Small Businesses
-                           Whistleblowers
-     Search SEC.gov &amp; EDGAR
-       Search
-        More in this Section
-                 Enforcement &amp; Litigation
-           Litigation Releases
-           Administrative Proceedings
-           Administrative Law Judge Orders and Initial Decisions
-           Trading Suspensions
-           Distributions to Harmed Investors
-           Receiverships
-           Electronic Filings in Administrative Proceedings (eFAP)
-           Rules of Practice
-           Applications for Reentry
-           Reports of Investigations
-           Whistleblower Program
-           Public Alert: Unregistered Soliciting Entities (PAUSE)
-           SEC Action Lookup - Individuals (SALI)
-           Enforcement Data Delivery Standards
-           Small Businesses
-           Appellate Briefs
-           Amicus / Friend of the Court Briefs
-                 Enforcement &amp; Litigation
-           Litigation Releases
-           Administrative Proceedings
-           Administrative Law Judge Orders and Initial Decisions
-           Trading Suspensions
-           Distributions to Harmed Investors
-           Receiverships
-           Electronic Filings in Administrative Proceedings (eFAP)
-           Rules of Practice
-           Applications for Reentry
-           Reports of Investigations
-           Whistleblower Program
-           Public Alert: Unregistered Soliciting Entities (PAUSE)
-           SEC Action Lookup - Individuals (SALI)
-           Enforcement Data Delivery Standards
-           Small Businesses
-           Appellate Briefs
-           Amicus / Friend of the Court Briefs
-               Home
-               Enforcement and Litigation
-               Litigation Releases
-              Lorine Sweeney and Gary Scherping; Ilona Kay Collin; David Eric Nesvisky; Robert Allen Diehl; Madhavan Sivathanu Pillai
-        Lorine Sweeney and Gary Scherping; Ilona Kay Collin; David Eric Nesvisky; Robert Allen Diehl; Madhavan Sivathanu Pillai
-                   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. &nbsp;
- 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%. &nbsp;
- 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%. &nbsp;
- 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. &nbsp;
- 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. &nbsp;
- 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)
- &nbsp;
-   Resources
-      Complaints in this matter Sweeney and Scherping
-     Collins
-     Nesvisky
-     Diehl
-     Pillai
-     Administrative Proceedings Release
-     Administrative Proceedings Release
-     Administrative Proceedings Release
-           Return to top
-                 SEC homepage
-                                                     About the SEC
-           Budget &amp; Performance
-           Careers
-           Commission Votes
-           Contact
-           Contracts
-                                                     Transparency
-           Accessibility &amp; Disability
-           Super Intelligence
-           FOIA
-           Inspector General
-           No FEAR Act Data
-           Ombuds
-           SEC Excess Personal Property Guidance
-                                                     Websites
-           Investor.gov
-           Related Sites
-           USA.gov
-                                                     Site Information
-           Plain Writing
-           Privacy &amp; Security
-           Site Map
-               Stay connected. Sign up for email updates.
-   Your email address
-   Sign Up
-                 X
-                 Facebook
-               Instagram
-                 RSS
-                 YouTube
-               Email Updates

+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-

raw/aaer/2007/AAER-2657.txt CHANGED Viewed

@@ -1,1394 +1,278 @@
-     SEC.gov | Delta &amp; Pine Land Company and Turk Deltapine, Inc.
-         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}();
-     {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/501631","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. The link you have selected is located on another server. Please click on the OK button below to proceed to the selected site. The SEC does not endorse this web site, its sponsor, or any of the policies, activities, products, or services offered on the site or by any advertiser on the site.","extHideIcons":false,"mailtoClass":"0","telClass":"","mailtoLabel":"(link sends email)","telLabel":"(link is a phone number)","extUseFontAwesome":false,"extIconPlacement":"append","extPreventOrphan":false,"extFaLinkClasses":"fa fa-external-link","extFaMailtoClasses":"fa fa-envelope-o","extAdditionalLinkClasses":"","extAdditionalMailtoClasses":"","extAdditionalTelClasses":"","extFaTelClasses":"fa fa-phone","allowedDomains":null,"extExcludeNoreferrer":""}},"field_group":{"html_element":{"mode":"default","context":"view","settings":{"classes":"rightrail-list","show_empty_fields":false,"id":"","element":"div","show_label":true,"label_element":"h2","label_element_classes":"","attributes":"","effect":"none","speed":"fast"}}},"user":{"uid":0,"permissionsHash":"e506dfd1572f94bd1f339f1a7483bfbded31d4a9d2bdfdca3fdbc235153380ee"}}
-      Skip to search field
-      Skip to main content
-           An official website of the United States government
-           Here’s how you know
-           Here’s how you know
-                Official websites use .gov
-                              A  .gov  website belongs to an official government organization in the United States.
-                Secure .gov websites use HTTPS
-              A  lock
-              (   Lock  A locked padlock    )
-              or  https://  means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.
-                     SEC homepage
-        Menu
-          Close
-     Search SEC.gov &amp; EDGAR
-       Search
-             Search Filings
-           Search Filings
-                             Full Text Search
-                             Latest Filings
-                             Mutual Fund Search
-                             Variable Insurance Products Search
-                             SIC Codes
-                             CIK Lookup
-                             Public Dissemination Service (PDS)
-                             Search Assistance
-             Submit Filings
-           Submit Filings
-                             EDGAR Filer Management Portal
-                             EDGAR Filing Portal
-                             Online Forms Management Portal
-                             EDGAR Next
-                             Forms Index
-                             Filer Support &amp; Resources
-             Data &amp; Research
-           Data &amp; Research
-                             Data Library
-                             Statistics &amp; Data Visualizations
-                             Structured Data
-                             Investment Management Data
-                             Open Data at the SEC
-             Rules, Enforcement, &amp; Compliance
-           Rules &amp; Regulations
-                             Rulemaking Activity
-                             Submit Public Comments
-                             Staff Guidance
-                             No-Action, Interpretive, and Exemptive Letters
-                             Self-Regulatory Organization Rulemaking
-                             Public Petitions for Rulemaking
-           Enforcement &amp; Litigation
-                             Litigation Releases
-                             Administrative Proceedings
-                             Administrative Law Judge Orders and Initial Decisions
-                             Trading Suspensions
-                             Distributions to Harmed Investors
-                             Receiverships
-           Compliance
-                             Examination Priorities
-                             Risk Alerts
-                             Compliance Outreach Program
-                             Proposed Rules
-                             What&#039;s New
-                             Whistleblower Program
-             Featured Topics
-           Featured Topics
-                             Crypto Task Force
-                             Cybersecurity
-                             Market Structure Analytics
-                             Saving and Investing for Military Personnel
-                             Saving and Investing for Teachers
-                             SEC-CFTC Harmonization Initiative
-                             Treasury Clearing Implementation
-             About
-           About
-                             Mission
-                             Commissioners
-                             Divisions &amp; Offices
-                             Division &amp; Office Directors
-                             Advisory Committees
-                             Budget &amp; Performance
-                             Reports &amp; Publications
-                             Commission Votes
-                             Contact the SEC
-                             Careers
-                             Submit a Tip or Complaint
-                           Newsroom
-                           |
-                           Investors
-                           Small Businesses
-                           Whistleblowers
-                           Newsroom
-                           |
-                           Investors
-                           Small Businesses
-                           Whistleblowers
-     Search SEC.gov &amp; EDGAR
-       Search
-        More in this Section
-                 Enforcement &amp; Litigation
-           Litigation Releases
-           Administrative Proceedings
-           Administrative Law Judge Orders and Initial Decisions
-           Trading Suspensions
-           Distributions to Harmed Investors
-           Receiverships
-           Electronic Filings in Administrative Proceedings (eFAP)
-           Rules of Practice
-           Applications for Reentry
-           Reports of Investigations
-           Whistleblower Program
-           Public Alert: Unregistered Soliciting Entities (PAUSE)
-           SEC Action Lookup - Individuals (SALI)
-           Enforcement Data Delivery Standards
-           Small Businesses
-           Appellate Briefs
-           Amicus / Friend of the Court Briefs
-                 Enforcement &amp; Litigation
-           Litigation Releases
-           Administrative Proceedings
-           Administrative Law Judge Orders and Initial Decisions
-           Trading Suspensions
-           Distributions to Harmed Investors
-           Receiverships
-           Electronic Filings in Administrative Proceedings (eFAP)
-           Rules of Practice
-           Applications for Reentry
-           Reports of Investigations
-           Whistleblower Program
-           Public Alert: Unregistered Soliciting Entities (PAUSE)
-           SEC Action Lookup - Individuals (SALI)
-           Enforcement Data Delivery Standards
-           Small Businesses
-           Appellate Briefs
-           Amicus / Friend of the Court Briefs
-               Home
-               Enforcement and Litigation
-               Litigation Releases
-              Delta &amp; Pine Land Company and Turk Deltapine, Inc.
-        Delta &amp; Pine Land Company and Turk Deltapine, Inc.
-                   U.S. SECURITIES AND EXCHANGE COMMISSION
- Litigation Release No. 20214 / July 26, 2007
- CORRECTED
- Accounting and Auditing Enforcement Release No. 2657 / July 26, 2007
-  Securities and Exchange Commission v. Delta &amp; Pine Land Company and Turk Deltapine, Inc. , Case No. 1:07-CV-01352 (RWR) (U.S.D.C., D.D.C) (filed July 25, 2007)
- Delta &amp; Pine and Turk Deltapine Agree to Pay a $300,000 Penalty to Settle FCPA Charges
- On July 25 and 26, 2007, the Commission filed two settled enforcement proceedings charging Delta &amp; Pine Land Company, a Scott, Mississippi-based company engaged in the production and marketing of cottonseed, and its subsidiary, Turk Deltapine, Inc., with violations of the Foreign Corrupt Practices Act ("FCPA").  First, on July 25, the Commission filed a lawsuit in the United States District Court for the District of Columbia charging Delta &amp; Pine and Turk Deltapine with violating the FCPA and seeking a civil penalty.  Second, on July 26, the Commission issued an administrative order finding that Delta &amp; Pine violated the books-and-records and internal controls provisions of the FCPA and that Turk Deltapine violated the anti-bribery provisions of the FCPA.  In the administrative proceeding, the Commission ordered the respondents to cease and desist from such violations, and required Delta &amp; Pine to retain an independent consultant to review and make recommendations concerning the company's FCPA compliance policies and procedures.  In the federal lawsuit, Delta &amp; Pine and Turk Deltapine agreed to the entry of a final judgment requiring them to pay jointly and severally a $300,000 penalty.  Delta &amp; Pine was acquired on June 1, 2007 by Monsanto Company; the conduct charged by the Commission occurred prior to the acquisition.
- In both its federal court complaint and its administrative order, the Commission charged that, from 2001 through 2006, Turk Deltapine made payments of approximately $43,000 to officials of the Turkish Ministry of Agricultural and Rural Affairs in order to obtain governmental reports and certifications that were necessary for Turk Deltapine to obtain, retain, and operate its business in Turkey.  In addition, in connection with these improper payments, Delta &amp; Pine failed to keep accurate books and records, and failed to have effective internal controls.
- As a result of the conduct described above, the Commission charged that Turk Deltapine violated Section 30A of the Securities Exchange Act of 1934. The Commission also charged that Delta &amp; Pine, in connection with the payments by Turk Deltapine, violated Exchange Act Sections 13(b)(2)(A) and Section 13(b)(2)(B).  Delta &amp; Pine and Turk Deltapine consented to both actions on a neither admit nor deny basis.
-   SEC Complaint in this matter
-   Administrative Proceeding 34-56138
- &nbsp;
-   Resources
-      Complaint in this matter
-     Administrative Proceedings Release
-           Return to top
-                 SEC homepage
-                                                     About the SEC
-           Budget &amp; Performance
-           Careers
-           Commission Votes
-           Contact
-           Contracts
-                                                     Transparency
-           Accessibility &amp; Disability
-           Super Intelligence
-           FOIA
-           Inspector General
-           No FEAR Act Data
-           Ombuds
-           SEC Excess Personal Property Guidance
-                                                     Websites
-           Investor.gov
-           Related Sites
-           USA.gov
-                                                     Site Information
-           Plain Writing
-           Privacy &amp; Security
-           Site Map
-               Stay connected. Sign up for email updates.
-   Your email address
-   Sign Up
-                 X
-                 Facebook
-               Instagram
-                 RSS
-                 YouTube
-               Email Updates

+UNITED STATES OF AMERICA
+Before the
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES EXCHANGE ACT OF 1934
+Release No. 56138 / July 26, 2007
+ACCOUNTING AND AUDITING ENFORCEMENT
+Release No. 2658 / July 26, 2007
+ADMINISTRATIVE PROCEEDING
+File No. 3-12712
+________________________________
+:
+In the Matter of : ORDER INSTITUTING CEASE-AND-
+: DESIST PROCEEDINGS, MAKING
+DELTA & PINE LAND COMPANY : FINDINGS, AND IMPOSING A CEASE-
+: AND-DESIST ORDER PURSUANT TO
+and : SECTION 21C OF THE SECURITIES
+: EXCHANGE ACT OF 1934
+TURK DELTAPINE, INC., :
+:
+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 (the “Exchange Act”) against Delta & Pine Land Company
+(“Delta & Pine”) and Turk Deltapine, Inc. (“Turk Deltapine”) (collectively “Respondents”).
+II.
+In anticipation of the institution of these proceedings, Respondents have submitted
+Offers of Settlement (the “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 the subject matter
+of these proceedings, which are admitted, Respondents consent to the entry of this Order
+Instituting Cease-and-Desist, Making Findings, and Imposing a Cease-and-Desist Order
+Pursuant to Section 21C of the Securities and Exchange Act of 1934 ("Order"), as set forth
+below.1
+III.
+On the basis of this Order and Respondents’ Offers, the Commission finds2 that:
+A. 	Respondents
+1.	 Respondent Delta & Pine is a Delaware corporation with its headquarters in Scott,
+Mississippi. Delta & Pine is primarily engaged in the breeding, production,
+conditioning and marketing of proprietary varieties of cotton planting seed.  Delta &
+Pine conducts operations in a number of foreign jurisdictions, including Turkey.
+Delta & Pine’s common stock was registered with the Commission pursuant to
+Section 12(b) of the Exchange Act and was traded on the New York Stock Exchange
+during the relevant time.  Delta & Pine was acquired by Monsanto on June 1, 2007,
+subject to the terms of a settled Proposed Final Judgment that Monsanto and the
+Department of Justice filed on May 31, 2007, and, pursuant to the acquisition, its
+common stock was delisted and deregistered on June 5, 2007.
+2.	 Respondent Turk Deltapine is a Delaware corporation with its headquarters in Scott,
+Mississippi.  Turk Deltapine is a wholly-owned subsidiary of Delta & Pine and is
+engaged in the production and sale of cottonseed in Turkey, both for domestic
+consumption in Turkey and for export to other countries.
+B. Facts
+Summary
+1.	 From 2001-2006, Turk Deltapine made payments valued at approximately $43,000
+(including cash, payment of travel and hotel expenses, air conditioners, computers,
+office furniture and refrigerators) to multiple officials of the Turkish Ministry of
+Agricultural and Rural Affairs ("MOA").  Turk Deltapine made the payments in order
+to obtain governmental reports and certifications that were necessary for Turk
+Deltapine to operate its business in Turkey.  These payments, which assisted the
+Respondents in obtaining and retaining business, violated the anti-bribery provisions
+of the Foreign Corrupt Practices Act (“FCPA”).  In addition, in connection with these
+improper payments, Delta & Pine failed to keep accurate books and records, and
+1 In addition, the Commission has contemporaneously filed a complaint in the United States District
+Court for the District of Columbia charging Respondents with the violations set forth in this order and seeking a
+civil penalty.  Without admitting or denying the Commission’s allegations, Delta & Pine and Turk Deltapine
+have consented to the entry of a final judgment by the Court that would require Delta & Pine and Turk
+Deltapine to jointly and severally pay a $300,000 civil penalty.  See SEC v. Delta & Pine Land Co., No. 1:07-
+cv-01352 (RWR) (D.D.C) (July 25, 2007).
+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.
+2
+failed to have effective internal controls. Accordingly, Delta & Pine violated the
+books and records and internal controls provisions of the FCPA.
+Turk Deltapine’s Payments to Turkish Officials
+2.	 Turk Deltapine contracts annually with a number of Turkish farmers to grow seed on
+their farms for Turk Deltapine.  The Turkish farmers own the seed until it is sold to
+Turk Deltapine. Inspectors from provincial offices of MOA inspect the fields to
+determine the spacing and size of the fields, and to estimate their anticipated
+production. The inspections are time-sensitive, in that they must occur while the
+cotton crop is in the field and before more than one-third of the cotton bolls open.
+Upon completion of the inspection, MOA inspectors are required to complete
+inspection reports. The inspections and inspection reports must be completed before
+Turk Deltapine can purchase the cotton seeds from Turkish farmers.  In a number of
+cases, MOA inspectors receiving payments from Turk Deltapine did not actually
+inspect the fields prior to completing inspection reports, as they were required to do.
+3.	 Turk Deltapine also was required to obtain certifications from laboratories authorized
+by MOA to perform tests required by the Organisation for Economic Cooperation and
+Development (“OECD”) for quality and to confirm the absence of certain
+characteristics. Turk Deltapine also needed another certificate from MOA’s plant
+protection office to export seed for sale. In order to obtain these certifications,
+inspectors from MOA obtain samples of the seed from Turk Deltapine facilities.  The
+sampling officials collect samples from each lot of seed and seal the sample in an
+official envelope before sending the seed to laboratories for testing and certification.
+During the process of sampling and preparing the seed for transmission to
+laboratories, the sampling officials are required to certify that the seed samples have
+been properly chemically treated and bagged.  These MOA certifications must be
+completed before Turk Deltapine is permitted to sell its seeds in Turkey or export the
+seeds to other countries. In a number of cases, MOA officials providing the
+certifications, and who received payments from Turk Deltapine, did not comply with
+regulations concerning the chemical treatment and bagging of seed.
+4.	 Prior to May 2004, payments to MOA officials were made in part using revenue
+generated from the sale of Turk Deltapine waste products and products from waste
+allowance. These sales, and the payments to MOA officials made from the proceeds
+of those sales, were not recorded in Respondents’ books, records, and accounts.  In
+addition, some payments to MOA officials were recorded in Turk Deltapine’s books,
+records, and accounts as “Porter Fees” paid to non-existent persons.
+Delta & Pine Learns of Turk Deltapine’s Payments but the Payments Continue
+5.	 In May 2004, Delta & Pine officers in the United States learned that Turk Deltapine
+was making payments to MOA officials.  Delta & Pine reviewed the circumstances of
+the payments, but did not receive all facts concerning those payments from Turk
+Deltapine employees.
+3
+6.	 Instead of halting the payments, Delta & Pine permitted the payments to continue
+using the following procedure in consultation with Turk Deltapine employees.  Rather
+than Turk Deltapine making the payments directly to MOA employees, Turk
+Deltapine arranged to have the payments made by a chemical company supplier to
+Turk Deltapine. Turk Deltapine employees estimated the annual amount of payments
+that would be made to MOA employees, and arranged to have the chemical company
+pay those amounts to MOA employees.  The chemical company, in turn, would
+include those sums, plus a 10 percent fee for handling the transactions, in its invoices
+for chemicals supplied to Turk Deltapine.  The payments to MOA officials made after
+May 2004 therefore similarly were not recorded in the books, records, and accounts
+of Turk Deltapine or Delta & Pine. Moreover, in setting out this procedure, an
+internal Delta & Pine memorandum noted that there were “no effective controls to put
+in place to monitor this process.”
+7.	 Turk Deltapine’s payments to MOA officials did not cease until 2006, when the
+payments came to light in connection with due diligence being performed by a
+potential acquirer of Delta & Pine.
+C. 	Legal Analysis
+Section 30A of the Exchange Act prohibits issuers, and certain other persons
+including agents of issuers, from, among other things, making improper payments to foreign
+officials for the purpose of influencing their decisions in order to obtain or retain business.
+Exchange Act Section 13(b)(2)(A) requires public companies to make and keep books,
+records, and accounts, which, in reasonable detail, accurately and fairly reflect the
+transactions and dispositions of the assets of the issuer; and Exchange Act Section
+13(b)(2)(B) requires 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.  15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B).
+As detailed above, Turk Deltapine, as agent for Delta & Pine, made numerous
+improper payments to MOA inspectors, with the purpose and effect of influencing their
+decisions in order to obtain or retain business.  Throughout the relevant period, MOA
+inspectors were foreign officials within the meaning of the FCPA, and MOA was an
+instrumentality of a foreign government within the meaning of the FCPA.  Turk Deltapine
+therefore violated the anti-bribery provisions of Exchange Act Section 30A.  Moreover, in
+connection with these payments, Delta & Pine failed to make and keep accurate books,
+records, and accounts as required by Exchange Act Section 13(b)(2)(A).  Finally, and as
+evidenced by the extent and duration of the improper payments to foreign officials, and the
+improper recording of these payments in its subsidiary’s books and records, Delta & Pine
+failed to devise and maintain an effective system of internal controls to prevent these
+violations of the FCPA, as required by Exchange Act Section 13(b)(2)(B).
+4
+IV.
+As a result of the conduct described above, Delta & Pine violated Section 13(b)(2)(A)
+of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A), which requires issuers to make and keep
+books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the
+transactions and dispositions of the assets of the issuer; and Section 13(b)(2)(B) of the
+Exchange Act, 15 U.S.C. § 78m(b)(2)(B), which requires issuers to devise and maintain a
+system of internal accounting controls sufficient to provide the reasonable assurances set
+forth in that statute.
+As a result of the conduct described above, Turk Deltapine violated Section 30A of
+the Exchange Act, 15 U.S.C. § 78dd-1, which provides that it is unlawful for an agent of an
+issuer corruptly to give, promise to give, or authorize the giving of anything of value to any
+foreign official for purposes of (i) influencing any act or decision of such foreign official in
+his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation
+of the lawful duty of such official, or (iii) securing any improper advantage, in order to assist
+such issuer in obtaining or retaining business for or with, or directing business to, any person.
+Based on the foregoing, the Commission finds that Turk Deltapine violated Exchange
+Act Section 30A and Delta & Pine violated Exchange Act Sections 13(b)(2)(A) and
+13(b)(2)(B).
+V.
+Respondent Delta & Pine has undertaken to:
+1.	 Retain, through Delta & Pine’s Board of Directors, within 60 days after the entry of
+this order, an independent consultant ("Independent Consultant"), not unacceptable to
+the staff of the Commission, to review and evaluate Delta & Pine’s internal controls,
+record-keeping, and financial reporting policies and procedures as they relate to its
+compliance with the books and records, internal accounting controls, and anti-bribery
+provisions of the FCPA, codified at Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the
+Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) & (B) and 78dd-1].  Delta & Pine shall
+cooperate fully with the Independent Consultant and shall provide the Independent
+Consultant with access to its files, books, records, and personnel as reasonably
+requested for the review;
+2.	 Require that the Independent Consultant issue a report, within sixty (60) days after
+being retained, summarizing the review and recommending policies and procedures
+reasonably designed to ensure compliance with the federal securities laws as they
+relate to the FCPA.  Simultaneously with providing that report to Delta & Pine’s
+Board of Directors, Delta & Pine shall require that the Independent Consultant
+contemporaneously transmit a copy to Kenneth R. Lench, Assistant Director,
+Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E.,
+Washington, D.C. 20549-6041;
+5
+3.	 Adopt all recommendations in the report of the Independent Consultant; provided,
+however, that within sixty (60) days after the Independent Consultant serves that
+report, Delta & Pine shall in writing advise the Independent Consultant and the
+Commission of any recommendations that it considers to be unduly burdensome,
+impractical, or costly.  With respect to any recommendation that Delta & Pine
+considers unduly burdensome, impractical or costly, Delta & Pine need not adopt that
+recommendation at that time but shall propose in writing an alternative policy,
+procedure or system designed to achieve the same objective or purpose.  As to any
+recommendation on which Delta & Pine and the Independent Consultant do not
+agree, such parties shall attempt in good faith to reach an agreement within sixty (60)
+days after Delta & Pine serves the written advice.  In the event Delta & Pine and the
+Independent Consultant are unable to agree on an alternative proposal, Delta & Pine
+will abide by the determinations of the Independent Consultant;
+4.	 Require the Independent Consultant to undertake a review, which shall be completed
+within one year of the entry of this order, of Delta & Pine’s policies and procedures
+regarding compliance with the federal securities laws as they relate to the FCPA.
+During the review of Delta & Pine’s compliance program, the Independent
+Consultant shall (i) certify that Delta & Pine’s policies and procedures are
+appropriately designed to accomplish their goals, (ii) monitor Delta & Pine’s
+implementation and compliance with the policies and procedures, and (iii) report on
+the Independent Consultant’s findings as to the effectiveness of the policies and
+procedures to Delta & Pine’s Audit Committee.  Should the Independent Consultant,
+during this period, determine that there is a reasonable likelihood that corrupt
+payments have been offered, promised, paid, or authorized by any Delta & Pine
+entity, including agents, consultants, and joint ventures, shareholders acting on Delta
+& Pine’s behalf, and contractors and sub-contractors working directly or indirectly for
+Delta & Pine, the Consultant shall promptly report such payments to Delta & Pine’s
+Audit Committee, and Delta & Pine shall then be obligated to promptly report the
+same to the staff of the Commission at the address listed above.  Should Delta & Pine
+fail to make such disclosure, the Independent Consultant shall independently disclose
+its findings to the staff of the Commission, at the address listed above.  Further, the
+Independent Consultant shall disclose to the staff of the Commission in the event that
+Delta & Pine, or its officers, employees, consultants, agents, and joint ventures, or
+shareholders acting on Delta & Pine’s behalf, or contractors or sub-contractors
+working directly or indirectly for Delta & Pine refuse to provide information
+necessary for the performance of the Independent Consultant’s responsibilities.  Delta
+& Pine agrees that it will not take any action to retaliate against the Independent
+Consultant for such disclosures.  During the period, Delta & Pine shall immediately
+disclose to the staff of the Commission, at the address listed above, any information
+of which it learns that suggests there is a reasonable likelihood that corrupt payments
+were offered, promised, paid, or authorized by any Delta & Pine entity, including
+agents, consultants, and joint ventures, shareholders working on Delta & Pine’s
+behalf, and contractors or sub-contractors working directly or indirectly for Delta &
+Pine; and
+6
+5.	 Require the Independent Consultant to enter into an agreement with Delta & Pine 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 Delta & Pine, or any of its present or former affiliates, directors, officers,
+employees, or agents acting in their capacity.  The agreement will also provide that
+the Independent Consultant will require that any firm with which he/she is affiliated
+or of which he/she is a member, and any person engaged to assist the Independent
+Consultant in performance of his/her duties under this Order shall not, without prior
+written consent of the Securities and Exchange Commission’s Division of
+Enforcement, enter into any employment, consultant, attorney-client, auditing or
+other professional relationship with Delta & Pine, or any of its present or former
+affiliates, directors, officers, employees, or agents acting in their capacity as such for
+the period of the engagement and for a period of two years after the engagement.
+6.	 These undertakings shall be binding upon any acquirer or successor in interest to
+Delta & Pine or substantially all of Delta & Pine’s assets and liabilities or business.
+7.	 For good cause shown, the Commission's staff may extend any of the procedural
+dates set forth above.
+VI.
+Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act,
+that:
+(i)	 Respondent Delta & Pine cease and desist from committing or causing any
+violations and any future violations of Exchange Act Sections 13(b)(2)(A) and
+13(b)(2)(B);
+(ii) 	 Respondent Turk Deltapine cease and desist from committing or causing any
+violations and any future violations of Exchange Act Section 30A; and
+(ii) 	 Delta & Pine comply with the undertaking set forth in Section V above.
+By the Commission.
+Nancy Morris
+Secretary
+7