diff --git a/raw/aaer/2002/AAER-1484.txt b/raw/aaer/2002/AAER-1484.txt
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+ Litigation Release No.  17292 / January 2, 2002
+  Accounting and Auditing Enforcement Release No. 1484 
+
+   Securities and Exchange Commission v. R. Bruce Acacio, Civil Action No. 2:01CV-1010ST 
+
+    The Commission filed a civil Complaint against R. Bruce Acacio, the Chairman and Chief Executive Officer of California Software Corp. alleging violations of certain provisions of the federal securities laws and seeking penalties.  The Complaint alleges that Acacio:  (1) violated the provisions of the federal securities laws which prohibit providing false and misleading information in the offer and sale of securities, falsifying the books and records of an issuer of securities and providing false information to auditors in connection with the audit of financial statements; and (2) aided and abetted California Software's violations of the provisions of the federal securities laws which require issuers to file accurate annual and quarterly reports, maintain manually signed signature pages for reports filed with the Commission, and maintain books and records that accurately reflect a company's financial condition.  Simultaneously with the filing of the complaint, Acacio consented to the entry of an injunction enjoining him from future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 and Rules 13b2-1 and 13b2-2 under the Securities Exchange Act of 1934, and from aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Securities Exchange Act of 1934 and Rules 12b-11, 12b-20, 13a-1 and 13a-13 thereunder.  Acacio also agreed to pay $30,000 in penalties in the action.
+
+    The Complaint alleges that from September 1999 through May 2000, California Software filed periodic reports containing audited and unaudited financial statements overstating the company's revenues, earnings, assets and shareholders equity, primarily as a result of an improper revenue recognition practice utilized by the company.  It is further alleged that the overstatements of revenues and earnings were included in a private placement memorandum used in an offering of California Software stock that raised over $8.7 million.  It is further alleged that Acacio failed to sign and caused California Software to fail to maintain manually-signed signature pages, with respect to its filings with the Commission.
+
+    It is alleged that until September 2000, California Software had recognized revenue upon shipment of the software to potential customers, whether or not persuasive evidence existed of an arrangement to purchase the software by the potential customer.  Finally it is alleged that in October 2000, California Software restated its financial statements for the year ended December 31, 1999 and for the quarter ended March 31, 2000, upon learning from newly-retained auditors that its revenue recognition practice did not comply with generally accepted accounting procedures. 
+  
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diff --git a/raw/aaer/2002/AAER-1485.txt b/raw/aaer/2002/AAER-1485.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fd8aa574f45559a2d59fbd985dd01d9d7d177d5f
--- /dev/null
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+              Financial Asset Management, Inc., James B. Rader and Debra L. Kennedy
+           
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+        Financial Asset Management, Inc., James B. Rader and Debra L. Kennedy
+       
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+
+ SECURITIES ACT OF 1933
+ Release No.  8052 / January 3, 2002
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No.   45224 / January 3, 2002   
+  INVESTMENT ADVISERS ACT OF 1940
+ Release No.  2007 /January 3, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+ Release No.  1485 / January 3, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10670
+
+        In the Matter of   
+  Financial Asset Management, Inc., 
+  James B. Rader and Debra L.   
+  Kennedy,   
+  Respondents. 
+    
+  : : : : : : : : :   
+  ORDER INSTITUTING PROCEEDINGS,
+ MAKING FINDINGS, AND IMPOSING 
+  A CEASE-AND-DESIST ORDER      I.
+
+  The Commission deems it appropriate to institute public administrative proceedings pursuant to  Section 8A of the Securities Act of 1933 ("Securities Act"), Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and Section 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") against Financial Asset Management, Inc., James B. Rader and Debra L. Kennedy (collectively, "Respondents"), and such proceedings are hereby instituted.
+
+  In anticipation of the institution of these proceedings, each of the Respondents has submitted an Offer of Settlement that the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R.§201.100  et seq ., each of the Respondents, without admitting or denying the findings contained herein, except that each of the Respondents admits to the jurisdiction of the Commission over it or him/her and over the subject matter of these proceedings, consents to the issuance of this Order.
+
+  II.
+
+  FACTS
+
+  The Commission makes the following findings:    A.  Respondents 
+
+  Financial Asset Management, Inc. ("FAM") is registered with the Commission as a broker-
+dealer pursuant to Section 15(b) of the Exchange Act.  FAM has its principal office in Columbus, Ohio. 
+
+  James B. Rader, age 56, resides in Columbus, Ohio and is the owner and President of FAM.    Mr. Rader holds Series 7 and Series 24 securities licenses.
+
+  Debra L. Kennedy ,  age 49, resides in Columbus, Ohio and is the Vice President,
+Treasurer and Secretary of FAM.  Ms. Kennedy holds Series 7 and Series 53 securities licenses.   
+
+    B.  The Commission's Related Securities Fraud Case 
+
+  On January 18, 2000, the Commission filed a securities fraud lawsuit in the United States District Court for the Southern District of New York against Manhattan Investment Fund Ltd. ("the Fund"), Manhattan Capital Management, Inc. ("MCM"), and Michael W. Berger. 1   The Fund, based in the British Virgin Islands, was an unregistered hedge fund that began operations in 1996.  MCM, based in New York City, was the Fund's investment adviser.  Berger, an Austrian citizen living in New York City, owned and operated MCM.  
+
+    The Commission's lawsuit charged Berger, MCM, and the Fund (collectively referred to hereinafter as "the Defendants") with fraud in violation of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 thereunder.  It also charged Berger and MCM with fraud in violation of Advisers Act Section 206(1) and (2).  As alleged in the Commission's complaint, between 1996 and January 2000, the Defendants raised over $593 million from approximately 280 investors by grossly overstating the investment performance and market value of the Fund's holdings.  Among other things,Berger created phony account statements that portrayed the Fund as profitable, with hundreds of millions of dollars in assets in an account at FAM, the Fund's executing broker.  In reality, the Fund held no assets at FAM, and had lost in excess of $394 million of investors' money during the late 1990s through an investment strategy centered on the short-selling of Internet stocks.
+
+      C.  FAM's Relationship With the Fund 
+
+      Throughout the relevant period, Berger had a close professional and personal relationship with Respondent James Rader, and the Fund maintained a brokerage account at FAM.  By virtue of its role as an executing broker for the Fund, FAM collected substantial commission income from the Fund's trades. In fact, between 1996 and 1999, the commissions generated by the Fund's trades accounted for at least 10-33% of FAM's annual revenues.
+
+      As an executing broker, FAM never held any of the Fund's securities or other assets, nor did it generate any account statements for the Fund.  During the relevant period, all the transactions of the Fund were cleared through Bear Stearns Securities Corporation in New York City.  Bear Stearns held the vast majority of the Fund's cash and securities, and generated the only genuine monthly account statements and daily trading summaries for the Fund.     
+
+      As part of his ongoing fraud, Berger falsely represented to the Fund's administrator, the Fund's auditor, and the Fund's investors that FAM held the vast majority of the Fund's cash and securities.  Berger also fabricated phony account statements purportedly from FAM, which detailed the fictitious trading the Fund was supposedly conducting through FAM.   
+
+       D.   The Respondents' Unlawful Conduct 
+
+      1.  Contributing to Berger's Scheme to Mislead the Fund's Auditors
+
+      The Fund engaged Deloitte and Touche (Bermuda) ("Deloitte") to audit its financial statements for the years ended December 31, 1996, 1997 and 1998.  Each year, as part of its audit process, Deloitte, through the Fund's administrator, Fund Administration Services (Bermuda) Limited (the "Fund administrator"), 2  sent audit confirmation requests to FAM.  Debra Kennedy responded to these requests on behalf of FAM.  Each request sought a list of any investments that the Fund held at FAM, and requested FAM to furnish its response to Deloitte. 
+
+      In each of the three years in question, just before the audit confirmation letters were sent out, Berger requested that Kennedy send FAM's responsive information directly to him, rather than to Deloitte, because he was purportedly "collecting responses" for the auditors.  Notwithstanding the unusual nature of Berger's request, and without consulting Deloitte about its propriety, Kennedy complied with  Berger'srequest.  Thus, each year Kennedy, with Rader's approval, prepared cover letters on FAM letterhead addressed to Deloitte, attached copies of the requested Fund account statements that FAM had received from Bear Stearns, and forwarded the package to Berger without any notification to Deloitte.
+
+      This circumvention of the audit confirmation process, in addition to the acts discussed below ,  made it possible for Berger to perpetrate his fraudulent scheme.  Each year, upon receipt of FAM's audit response package, Berger removed the attached Bear Stearns account statements, substituted fictitious year-end account statements designed to appear as if generated by FAM, and sent them (sometimes via facsimile from a fax machine reprogrammed to appear to be from FAM) to Deloitte.  In two of the three years in question, the fictitious year-end account statements were sent along with a forged cover letter purportedly coming from Kennedy.  One year, a FAM employee provided Berger with an Airborne Express envelope addressed to Deloitte (which Berger used to send the fictitious FAM statements) that inaccurately showed FAM in Ohio as the sender/return addressee of the envelope.
+
+      The fabricated FAM account statements materially overstated the assets and investment performance of the Fund.  In reliance on these statements, Deloitte issued unqualified audit reports on the Fund's financial statements for its 1996, 1997 and 1998 fiscal years.  These audited financial statements were erroneous and misleading and were sent to investors in the Fund.  Had the Respondents sent FAM's audit confirmation responses directly to Deloitte in any of the three years in question, Berger's fraudulent scheme would likely have been instantly exposed.  
+
+      2.  Contributing to Berger's Scheme to Mislead the Fund's Administrator
+
+      In addition to undermining the audit process for the Fund, FAM's propinquity to Berger made it possible for Berger to mislead the Fund administrator.  In May 1999, an employee of the Fund administrator requested that Kennedy provide him with a copy of the Fund's "portfolio valuation" as of April 30, 1999.  Kennedy knew that FAM, as the Fund's executing broker, did not prepare or maintain any such documents, which would ordinarily be generated by the Fund's clearing broker, Bear Stearns. Nevertheless, without inquiring why the employee of the Fund administrator would direct such a request to FAM rather than to Bear Stearns, or telling the employee that FAM did not prepare portfolio valuations for the Fund, Kennedy simply assured the employee that she would "take care of it."  Kennedy then forwarded the request to Berger, making it possible for Berger to continue his fraud.
+
+      After Kennedy forwarded the Fund administrator's request to Berger, Berger prepared a fictitious portfolio valuation, designed to appear as if generated by FAM, and faxed it to the Fund administrator. In doing so, moreover, Berger reprogrammed his fax machine to make it appear as if the fabricated portfolio valuation was being sent directly from FAM.  Berger's fictitious portfolio valuation materially overstated the assets and performance of the Fund.  
+
+      Later the same month, Kennedy received a fax from the same employee of the Fund administrator, thanking  her  for providing the portfolio valuation and requesting her to arrange to have a schedule of the Fund's purchases and sales of securities (for the period from January 1, 1999 through April 30, 1999) forwarded to the Fund administrator.  Again, Kennedy knew that FAM did not prepare or maintain such schedules, and she knew that she had not previously sent the Fund administrator any portfolio valuations for the Fund.  Nevertheless, without disclosing to the Fund administrator that the portfolio valuation hadin fact come from some source other than FAM, and without suggesting that the Fund administrator direct its requests to Bear Stearns as clearing broker, Kennedy, with Rader's knowledge and approval, forwarded the Fund administrator's request to Berger, making it possible for Berger to again mislead the Fund administrator.
+
+      After Kennedy forwarded to Berger this request from the Fund administrator, Berger created a fictitious schedule of the requested information, again designed to appear as if generated by FAM, and faxed it from his reprogrammed fax machine so that it appeared as if sent directly from FAM.  This fictitious schedule of the Fund's purchases and sales materially overstated the Fund's assets and performance.   
+
+      By simply forwarding the Fund administrator's requests to Berger, without any further inquiry and without any disclosure to the Fund administrator that FAM itself did not prepare or maintain the types of documents being requested, the Respondents made it possible for Berger to perpetrate his fraudulent scheme.  Had Kennedy and Rader disclosed to the Fund administrator that FAM was merely the firm's executing broker, and suggested that the Fund administrator contact Bear Stearns for the requested information, Berger's fraud would likely have become apparent to the Fund administrator. 
+
+                 3.  Misrepresentations About Custodial Services 
+
+      On January 4, 2000, as Berger's scheme was unraveling, Berger drafted a facsimile for FAM to send to the Fund administrator.  The facsimile included language stating: "FAM provides custodial services to Manhattan Investment Fund, Limited."  The facsimile also stated that FAM provides "Monthly statements showing position details and schedules of Realized Gains and Losses [to the Fund administrator]."  That same day, at Berger's request, Rader signed the facsimile and sent it to the Fund administrator.   
+
+      Berger's irregular request was another indication that Berger was perpetrating a fraudulent scheme. Rader knew that FAM was not the Fund's custodial broker and never directly provided "monthly statements showing position details and schedules of realized gains and losses" to the Fund administrator, yet he sent the facsimile anyway.  Prior to sending the facsimile, Rader never questioned Berger as to the basis of the facsimile, nor did he ask Berger why he shouldn't represent that Bear Stearns, the Fund's actual custodial broker, provided custodial services to the Fund.  Rader also never inquired with Bear Stearns as to whether he could make these "custodial services" representations to the Fund administrator. Moreover, Rader sent the facsimile despite the fact that he had engaged in previous conversations with individuals at Bear Stearns and Deloitte as recently as late December 1999 concerning questions those firms had about Berger and the Fund's practices. 
+
+      Rader's facsimile contributed to the deception created by Berger that FAM was the Fund's custodial broker, and that FAM provided monthly statements showing realized gains and losses to the Fund administrator.  The facsimile enabled Berger to continue to misrepresent to the Fund administrator and the Fund's investors that the FAM statements accurately reflected the assets and investment performance ofthe Fund. 3 
+
+    E.   Legal Analysis 
+
+  Securities Act Section 8A, Exchange Act Section 21C and Advisers Act Section 203(k) authorize the Commission to issue cease-and-desist orders against those who "cause" others to violate the federal securities laws.  A person is a "cause" of another's violation if the person "knew or should have known" that his or her act or omission would contribute to such a violation.   See  Securities Act Section 8A; Exchange Act Section 21C; Advisers Act Section 203(k).
+
+  Here, as described in detail above, FAM, Kennedy and Rader repeatedly took steps that contributed to the fraudulent scheme perpetrated by Berger.  For example, they failed to comply with unambiguous requests to transmit FAM's audit confirmation responses to Deloitte in Bermuda.  Instead, Kennedy and Rader, per Berger's request, followed the unusual procedure of forwarding FAM's responses to Berger.  The Commission has stated that "the confirmation procedure is an integral and vital part of the auditing process.  Subversion of the process corrupts the integrity of the audit and can injure investors by facilitating the injection of false financial information into the marketplace."   In the Matter of Troy Lee Wood , 1996 SEC LEXIS 3050, **9-10, Exchange Act. Rel. No. 37905 (Oct. 31, 1996) (internal citations omitted).  By forwarding FAM's audit confirmation responses to Berger, Kennedy and Rader undermined the audit process and made it possible for Berger to perpetrate his fraudulent scheme. 
+
+    Kennedy and Rader also helped Berger perpetrate the mistaken impression, held by the Fund administrator, that FAM generated portfolio valuations, purchase and sale schedules and other financial documents for the Fund.  Kennedy's and Rader's delegation of the Fund administrator's document requests to Berger, and corresponding failure to inquire further with the Fund administrator concerning the basis of its requests for Fund account documents, made it possible for Berger to perpetrate his fraudulent scheme.
+
+  Lastly, Rader's facsimile of January 4, 2000 to the Fund administrator perpetuated the false impression that FAM was the Fund's custodial broker, and that FAM provided monthly statements showing realized gains and losses to the Fund administrator.  The facsimile made it possible for Berger to continue to misrepresent to the Fund administrator, Deloitte, and the Fund's investors that the forged FAM statements that he created accurately reflected the assets and investment performance of the Fund.
+
+  As principal officers of FAM, Rader and Kennedy at all times acted within the scope of their employment.  Consequently, their acts are attributable to FAM.  Therefore, for the reasons stated above, the Respondents should be deemed a "cause" of the Defendants' fraud violations, within the meaning of Securities Act Section 8A, Exchange Act Section 21C and Advisers Act Section 203(k). 
+
+  In any cease-and-desist proceeding, the Commission is authorized to order a respondent to disgorge any unlawful gains, with interest.   See  Securities Act Section 8A(e); Exchange Act Section21C(e); Advisers Act Section 203(k)(5).  As a result of its conduct, FAM received approximately $641,877 in commissions from the Fund's trades, and it should be ordered to disgorge those commissions in order to deprive it of its unjust enrichment.
+
+  III.
+
+  FINDINGS
+
+      Based upon the foregoing, the Commission finds that:
+
+  A.     FAM, Rader and Kennedy were causes, within the meaning of Securities Act Section 8A, Exchange Act Section 21C and Advisers Act Section 203(k), of violations by Berger, MCM and the Fund, of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 thereunder, and Advisers Act Section 206(1) and 206(2); and
+
+  B.  FAM has submitted a sworn Statement of Financial Condition dated June 18, 2001 and other evidence and has asserted its financial inability to pay disgorgement plus prejudgment interest.  The Commission has reviewed the sworn financial statement and other evidence presented by FAM, and has determined that  FAM does not have the financial ability to pay disgorgement in excess of $25,000.
+
+  IV. 
+
+  ORDER
+
+  In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offers of Settlement submitted by FAM, Rader and Kennedy.
+
+  Accordingly, IT IS HEREBY ORDERED, pursuant to Securities Act Section 8A, Exchange Act Section 21C and Advisers Act Section 203(k):
+
+  A. That FAM, Rader and Kennedy cease and desist from causing any violations of, and any future violations of, Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 thereunder, and Advisers Act Section 206(1) and (2), by another person or entity; 
+
+  B. That within 10 days of the entry of this Order, FAM shall pay disgorgement in the amount of $641,877 plus prejudgment interest, but that payment of all amounts in excess of $25,000 be waived based upon FAM's sworn representations in its Statement of Financial Condition dated June 18, 2001 and other documents submitted to the Commission.  Such payment shall be (a) made by United States postal money order, certified check, bank cashier's check or bank money order; (b) made payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (d) submitted under cover letter that identifies FAM as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Russell G. Ryan, Assistant Director, Division of Enforcement, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.20549-0806; and
+
+  C.   That the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether FAM provided accurate and complete financial information at the time such representations were made; and (2) seek an order directing payment of disgorgement and prejudgment interest. No other issue shall be considered in connection with this petition other than whether the financial information provided by FAM was fraudulent, misleading, inaccurate or incomplete in any material respect.  FAM may not, by way of defense to any such petition: (1) contest the findings in this Order; (2) assert that payment of disgorgement and interest should not be ordered; (3) contest the amount of disgorgement and interest to be ordered; or (4) assert any defense to liability or remedy, including, but not limited to, statute of limitations defense.
+
+  By the Commission.
+
+            Jonathan G. Katz
+		    Secretary
+  
+
+ 
+ Footnotes 
+     1        SEC v. Michael Berger, Manhattan Investment Fund Ltd., and Manhattan Capital Management, Inc. , No. 00 Civ. 0333 (DLC) (HP) (S.D.N.Y.).  Upon filing its case, the Commission sought and obtained a temporary restraining order, an asset freeze, and the appointment of a receiver to take control of the Fund and its remaining assets.   See  Litigation Release Nos. 16412 (Jan. 19, 2000) and 16414 (Jan. 20, 2000). The case is still pending.
+
+      2      The Fund administrator performed various administrative functions for the Fund, including calculating the net asset value ("NAV") of the Fund, reporting the NAV directly to investors on a monthly basis, and providing information to the Fund's auditors in connection with its audits of the Fund's annual financial statements.
+
+      3       In fact, between January 4, 2000 and January 18, 2000 (the day the Commission filed its action against the Defendants), the Fund received an additional $1.35 million from investors.    
+
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diff --git a/raw/aaer/2002/AAER-1486.txt b/raw/aaer/2002/AAER-1486.txt
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+        California Software Corporation
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+ Securities Act of 1933
+ Release No. 8053 / January 7, 2002  
+  Securities Exchange Act of 1934
+ Release No. 45242 / January 7, 2002
+  Accounting and Auditing Enforcement
+ Release No. 1486 / January 7, 2002
+  Administrative Proceeding 
+ File No. 3-10672
+
+        In the Matter of   
+  CALIFORNIA SOFTWARE  
+ CORPORATION   
+    Respondent   
+      
+      : : : : : : : :   
+  ORDER INSTITUTING CEASE-AND-DESIST
+ PROCEEDINGS PURSUANT TO SECTION 8A
+    OF THE SECURITIES ACT OF 1933 AND 
+  SECTION 21C OF THE SECURITIES 
+  EXCHANGE ACT OF 1934, MAKING 
+     FINDINGS AND IMPOSING CEASE-AND-
+ DESIST ORDER    I.
+
+    The Commission deems it appropriate that cease-and-desist proceedings be 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"), with respect to California Software Corporation ("California Software").
+
+    II.
+
+    In anticipation of these proceedings, California Software 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 contained herein, except that California Software admits the jurisdiction of the Commission over it and the subject matter of this proceeding and the matters described in paragraphs III.A. through III.C. of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"), California Software has consented to the findings  1   and sanctions set forth below.
+
+    Accordingly, IT IS ORDERED that proceedings pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act be, and they hereby are, instituted.
+
+  III.
+
+    On the basis of this Order and the Offer submitted by California Software, the Commission finds that:
+
+    A. Respondent California Software is a Nevada corporation with headquarters in Irvine, California, whose common stock is traded on the Over the Counter Bulletin Board;
+
+    B. In August 1999 California Software began filing periodic reports with the Commission and in September 1999 California Software registered its common stock under Section 12(g) of the Exchange Act;
+
+    C. From September 1999 through May 2000, California Software filed a Form 10-SB, two Forms 10-Q, one Form 10-QSB and a Form 10-KSB with the Commission (the "filings"), which filings contained audited and unaudited financial statements of California Software and California Software Products, Inc. ("CSPI"), a predecessor corporation to California Software;
+
+  D. During the first and second quarters of 2000, California Software effected a private placement of its securities, raising an aggregate of $8,779,898 from investors;
+
+    E The financial statements and information included in the private placement and the filings contained materially false information in that they materially overstated the revenue, earnings, assets and shareholders equity of California Software and CSPI, primarily as a result of a revenue recognition practice utilized by those companies;
+
+    F. Since at least 1996, as part of their marketing practice, California Software and CSPI offered to provide potential customers copies of its software for evaluation for a stated period of time, usually 30 days, after which evaluation the potential customer could decide whether to purchase the software or return it to the company;
+
+  G. Until California Software restated its financial statements in September 2000, California Software and CSPI recognized revenue upon shipment of the software to potential customers, whether or not persuasive evidence existed of an arrangement to purchase the software by the potential customer;
+
+    H. California Software recognized as revenue and booked as accounts receivable, shipments of software to potential customers for whom persuasive evidence did not exist of an arrangement to purchase the software, or to potential customers who had never agreed to take the software for evaluation;
+
+    I. California Software took into account anticipated returns of its software from some of the potential customers by establishing a "return product reserve" account which was used to offset accounts reflecting a recognition of its revenue;
+
+  J. Generally Accepted Accounting Principles ("GAAP") require that revenue from the sale of software be recognized consistent with Statement of Position 97-2 which requires, in general, that four criteria must be met prior to recognizing revenue for the sale of software: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the vendor's fee is fixed or determinable, and (iv) collectibility on the sale is probable;
+
+    K. Thus, under the revenue recognition method utilized by California Software and CSPI, revenue was recognized before persuasive evidence of an arrangement to purchase the software existed and prior to a determination that collectibility on the sale was probable;
+
+    L. In October 2000, California Software restated its financial statements for the year ended December 31, 1999 and for the quarter ended March 31, 2000, upon learning from new auditors that its revenue recognition practice did not comply with GAAP;
+
+    M. As a result of the restatement of its financial statements for the year ended December 31, 1999, California Software reduced gross revenues from $12,009,337 to $2,571,164 and net income for that year was reduced from a profit of $2,829,996 to a net loss of $419,737.  California Software also reduced total assets from $6,070,652 to $954,301 and shareholders equity was reduced from $2,881,459 to $296,498;
+
+  N. As a result of the restatement of its financial statements for the quarter ended March 31, 2000, revenues were reduced from $3,066,232 to $404,411, and California Software reported a loss of $586,080 for the quarter instead of net income of $168,631.  California Software also reduced its total assets from $8,795,823 to $2,989,898 and shareholders equity was reduced from $7,743,339 to $2,363,686;
+
+  O. California Software did not restate the financial statements included in its Form 10-SB and two Forms 10Q;
+
+  P. From the time it became a reporting company, California Software failed to maintain books and records in a manner that accurately and fairly reflected the transactions and dispositions of its assets, and failed to establish internal accounting controls that are sufficient to provide reasonable assurances that, among other things, the company's financial statements are prepared in conformity with GAAP and to maintain accountability of assets;
+
+    Q. As a result of the revenue recognition practice implemented by California Software, among other things, California Software's books and records contained false information concerning the transactions and dispositions of its assets;
+
+  R. From the time it began to submit its filings with the Commission, California Software has electronically filed its filings with the Commission.  With respect to its filings, California Software failed to maintain manually signed signature pages and to cause its chief executive officer, R. Bruce Acacio, to manually sign signature pages with respect to those filings, despite indications to the contrary in California Software's electronic filings; 
+
+    S. By the conduct described in paragraphs III.A. through III.R. above, California Software has violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-11, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.
+
+    IV.
+
+    In view of the foregoing, it is appropriate to impose the sanctions agreed to in the Offer submitted by California Software.  Accordingly,
+
+    IT IS ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act that the Respondent, California Software Corporation cease and desist from committing or causing any violation and any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-11, 12b-20, 13a-1, 13a-13 and 13b2-1 promulgated thereunder.
+
+    By the Commission.
+
+                      Jonathan G. Katz
+                     Secretary
+  
+  Footnote 
+     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.    
+
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diff --git a/raw/aaer/2002/AAER-1487.txt b/raw/aaer/2002/AAER-1487.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fc16ee6b24a0a008740b9d4c7028eca60b6ea7f3
--- /dev/null
+++ b/raw/aaer/2002/AAER-1487.txt
@@ -0,0 +1,1477 @@
+
+
+ 
+ 
+   
+     
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+ 
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+     SEC.gov | Carol Conway Dewees 
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+              Carol Conway Dewees
+           
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+        Carol Conway Dewees
+       
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+ Securities Exchange Act of 1934
+ Release No. 45243 / January 7, 2002  
+  Accounting and Auditing Enforcement 
+ Release No. 1487 / January 7, 2002
+  Administrative Proceeding 
+ File No. 3-10673
+
+        In the Matter of   
+  CAROL CONWAY DEWEES, 
+    Respondent.   
+      
+    : : : : : : : :   
+  ORDER INSTITUTING CEASE-AND-DESIST
+ PROCEEDINGS PURSUANT TO SECTION 21C
+     OF THE SECURITIES EXCHANGE ACT OF
+ 1934, MAKING FINDINGS AND IMPOSING 
+     CEASE-AND-DESIST ORDER    I.
+
+    The Commission deems it appropriate that cease-and-desist proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), with respect to Carol Conway DeWees ("DeWees").
+
+    II.
+
+    In anticipation of these proceedings, DeWees 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 contained herein, except that DeWees admits the jurisdiction of the Commission over her and the subject matter of this proceeding and the matters described in paragraphs III.A. through III.C. of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"), DeWees has consented to the findings  1   and sanctions set forth below.
+
+    Accordingly, IT IS ORDERED that proceedings pursuant to Section 21C of the Exchange Act be, and they hereby are, instituted.
+
+    III.
+
+    On the basis of this Order and the Offer submitted by DeWees, the Commission finds that:
+
+  A. Respondent DeWees, age 58, is a resident of Laguna Niguel, California, is currently the president of California Software Corporation ("California Software"), and during the period relevant to this matter held the title of chief financial officer of California Software;
+
+  B. In August 1999 California Software began filing periodic reports with the Commission and in September 1999 California Software became a reporting company to the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934;
+
+  C. From September 1999 through May 2000, California Software filed a Form 10-SB, two Forms 10-Q, a Form 10-QSB and a Form 10-KSB with the Commission, which filings contained audited and unaudited financial statements of California Software and California Software Products, Inc., a predecessor corporation to California Software;
+
+  D. Respondent DeWees signed the Forms 10-SB, 10-Q, 10-QSB and 10-KSB filed with the Commission as California Software's chief financial officer, but did not review the filings prior to their being filed with the Commission;
+
+  E. Those filings contained materially false information in that the financial statements included in those filings materially overstated the revenue, earnings, assets and shareholders equity of California Software and California Software Products, Inc., primarily as a result of a revenue recognition practice in which the companies recognized revenue upon shipment of their software to potential customers prior to receiving persuasive evidence of an arrangement from the potential customers to purchase the software; and
+
+  F. By the conduct described in paragraphs III.A. through III.E. above, DeWees has caused California Software's violation of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+    IV.
+
+    In view of the foregoing, it is appropriate to impose the sanctions agreed to in the Offer submitted by DeWees.  Accordingly,
+
+    IT IS ORDERED, pursuant to Section 21C of the Exchange Act that the Respondent, Carol Conway DeWees, cease and desist from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder;
+
+    By the Commission.
+
+                      Jonathan G. Katz
+                     Secretary
+  
+  Footnote 
+     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.    
+
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diff --git a/raw/aaer/2002/AAER-1488.txt b/raw/aaer/2002/AAER-1488.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3b57b6d332429379e5ad4d149fc08ca15a0e9353
--- /dev/null
+++ b/raw/aaer/2002/AAER-1488.txt
@@ -0,0 +1,1442 @@
+
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+ Securities Exchange Act of 1934 
+ Release No. 45245 / January 7, 2002
+  Accounting and Auditing Enforcement
+ Release No. 1488 / January 7, 2002 
+  Administrative Proceeding No. 3-10674
+
+  IN THE MATTER OF JAMES E. SLAYTON 
+
+    Proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice have been instituted against James E. Slayton.  
+
+    The Division of Enforcement ("Division") and the Office of the Chief Account ("OCA") allege that Slayton willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and has willfully aided and abetted and caused violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, and has engaged in improper professional conduct.  
+
+  The Division and OCA allege that from late 1998 through early 2000, Slayton was engaged as the auditor for California Software Corporation, and that during that time, Slayton audited and issued reports on the financial statements of California Software and its predecessor company, California Software Products, Inc. ("CSPI").  
+
+  The Division and OCA further allege that Slayton issued false reports which claimed that California Software's and CSPI's financial statements complied with generally accepted accounting principles ("GAAP"), when, in fact, those financial statements were materially false.  Allegedly, over the course of his engagements with California Software, Slayton examined the books and records of California Software and CSPI and failed to determine that California Software and CSPI recognized revenue using a method that did not comply with GAAP.  It is alleged that as a result of this improper method of revenue recognition, California Software and CSPI materially overstated revenue, earnings, assets and shareholders equity.
+
+  Finally, the Division and OCA allege Slayton represented in his audit reports that his audits of California Software's financial statements were conducted in accordance with Generally Accepted Auditing Standards when they were not.  Slayton allegedly failed to comply with numerous auditing standards, including failing to properly plan and conduct audits, properly confirm accounts receivable, obtain management representation letters and supervise the audits.
+
+  A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide James E. Slayton an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate.
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diff --git a/raw/aaer/2002/AAER-1489.txt b/raw/aaer/2002/AAER-1489.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4787e5201fb52db3f66c21cf7557d1d77b13781a
--- /dev/null
+++ b/raw/aaer/2002/AAER-1489.txt
@@ -0,0 +1,1367 @@
+
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+              David C. Guenthner and Jay M. Samuelson
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+        David C. Guenthner and Jay M. Samuelson
+       
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+ Litigation Release No. 17297 / January 8, 2002
+
+  Accounting and Auditing Enforcement Release No. 1489 / January 8, 2002
+
+   SEC v. David C. Guenthner and Jay M. Samuelson , Civ. Action No. 8:02CV10 (District of Nebraska)
+
+    Today, the Securities and Exchange Commission filed suit in the United States District Court for the District of Nebraska against David C. Guenthner, of Omaha, Nebraska, the former chief financial officer of InaCom Corp., and Jay M. Samuelson, of Gretna, Nebraska, InaCom's assistant controller, for violations of the antifraud, periodic reporting, record keeping, internal controls, and lying to auditors provisions of the federal securities laws.  InaCom, a Delaware corporation headquartered in Omaha, Nebraska, was primarily a value-added computer reseller that filed for Chapter 11 bankruptcy protection on June 16, 2000.
+
+    According to the Complaint, Guenthner and Samuelson engaged in a scheme to manage earnings in InaCom's Form 10-Qs filed with the Commission on or about May 11, 1999, August 10, 1999, and November 9, 1999.  During the first three quarters of 1999, the Commission claims that Guenthner and Samuelson improperly accrued unallocated, general reserves, then reversed $7.1 million of these reserves into income in the third quarter of 1999.  The Complaint states these unjustified reversal of reserves in the third quarter of 1999 lacked any credible basis.  Also, according to the Complaint, in the third quarter of 1999, Guenthner and Samuelson knowingly posted $10.8 million of inventory cost reductions that related to prior quarters, thereby further artificially inflating income in the third quarter of 1999.  The Commission alleges that because of these inappropriate accounting practices in the third quarter of 1999, the company reported a profit when in reality the company had suffered a loss.  In addition, the Complaint states that throughout the first three quarters of 1999, that Guenthner caused InaCom to recognize manufacturer rebates to which it was not entitled, thereby understating its cost of goods sold and overstating net income.  According to the Complaint, this inclusion of improper manufacturer rebates overstated InaCom's income by more than $13 million in its 1999 Form 10-Qs.
+
+    The complaint alleges that Guenthner and Samuelson violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted InaCom's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.
+  
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+          SEC Complaint  in this matter.    
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diff --git a/raw/aaer/2002/AAER-1491.txt b/raw/aaer/2002/AAER-1491.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c3207239891e6b704626402c1fac49499bfd043f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1491.txt
@@ -0,0 +1,1563 @@
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   45272 /  January 14, 2002
+  INVESTMENT COMPANY ACT OF 1940
+ Release No.  25360  /  January 14, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+ Release No.   1491  /  January 14, 2002
+  ADMINISTRATIVE PROCEEDING 
+ File No. 3-10676
+
+         In the Matter of    
+    KPMG LLP,   
+    Respondent.      
+      
+    : : : : : :   
+   ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+    AND OPINION AND ORDER
+  PURSUANT TO RULE 102(e) OF  THE 
+   COMMISSION'S RULES OF PRACTICE      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against KPMG LLP pursuant to Rule 102(e)  1   of the Commission's Rules of Practice.
+
+   II. 
+
+    In anticipation of the institution of these proceedings, KPMG has submitted an Offer of Settlement, 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 facts, findings, or conclusions herein, except that KPMG admits the Commission's jurisdiction over it and the subject matter of these proceedings, KPMG consents to the entry of this Order Instituting Public Administrative Proceedings and Opinion and Order Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").
+
+   III. 
+
+    The Commission finds that:  2     A. Respondent 
+
+    KPMG LLP is a limited liability partnership headquartered in New York, New York, with administrative offices in Montvale, New Jersey.  KPMG is engaged in the business of providing, among other things, accounting and auditing services.
+
+   B. Other Relevant Entities 
+
+    AIM Funds ("AIM")   is a family of mutual funds managed by AIM Management 
+
+  Group, Inc., which is headquartered in Houston, Texas, and its various subsidiaries.  AIM offers more than 50 different funds and portfolios to both retail and institutional clients, and has approximately $141 billion in assets under management.  
+
+    Short-Term Investments Trust ("STIT") is a money market fund within the AIM family of funds.  STIT is a business trust organized under the laws of Delaware, and is registered with the Commission pursuant to Section 8 of the Investment Company Act of 1940 as an open-end, diversified management investment company within the meaning of Sections 4 and 5 of the Act.  STIT is comprised of three different money market portfolios:  the Government & Agency Portfolio, the Treasury Portfolio, and the Government Tax Advantage Portfolio, each of which was separately audited by KPMG during the relevant period. 
+
+   C. Facts 
+
+     1. Background 
+
+  Until December 2000, KPMG had been AIM's principal outside auditor since the mutual fund company began its operations in 1976.  In recent years, KPMG audited the financial statements of between 45 and 50 different AIM funds and portfolios, many of which are comprised of several different "classes" that report separately to their shareholders and file reports and forms separately with the Commission.  
+
+  Among the many AIM funds and portfolios audited by KPMG was the Government & Agency Portfolio (GAP), one of the three constituent portfolios of STIT.  The GAP portfolio is a money market fund offered only to AIM's institutional clients.  Although such institutional clients can open accounts directly with AIM, some become shareholders through "subaccounts" opened with brokerage firms or other intermediaries.  One of the intermediaries authorized to solicit and open such subaccounts is SunTrust Equitable Securities Corporation ("SunTrust"), the broker-dealer subsidiary of SunTrust Bank.
+
+   2. KPMG's Investment With AIM 
+
+  In late April 2000, KPMG renewed its revolving credit facility with a consortium of lenders, one of which was SunTrust Bank.  In connection with that renewal, a SunTrust Bank representative approached KPMG's then-Treasurer  3   and requested that KPMG consider investing some of its excess operating cash with SunTrust.  The Treasurer, who oversaw KPMG's borrowing activities as well as its investments of surplus cash, told the SunTrust Bank representative that if SunTrust had an appropriate investment, the representative should contact KPMG's Cash Manager, who reported directly to the Treasurer. The Treasurer thereafter told his Cash Manager to expect a call from SunTrust seeking to open an account for the investment of surplus cash.  At the time, KPMG had eight other money market accounts at various institutions for the investment of its surplus cash.
+
+  Within a few days, in late April or early May 2000, a representative of SunTrust contacted KPMG's Cash Manager to discuss KPMG's potential investment in a government money market fund offered through SunTrust.  One of the options they discussed was an AIM government money market fund that offered a competitive rate of return and was consistent with KPMG's investment criteria.  After several discussions, the SunTrust representative faxed the Cash Manager a "subaccount" application to be completed and returned before an account could be opened.  The application prominently displayed the words "AIM Institutional Funds" in large letters beside the SunTrust logo at the top of the first page, and offered six investment options from which KPMG was to choose, prefaced by the words:  "We wish to establish an account(s) in the following AIM Institutional Funds (the `Fund')."  Other sections of the application, including a trading authorization section and an indemnification clause, likewise identified the various funds and their management company as being affiliated with AIM.  
+
+  After completing the subaccount application and choosing the GAP portfolio of STIT as the investment option, KPMG's Cash Manager gave the application to the administrative assistant for KPMG's Chief Financial Officer with a request that the CFO execute the application on behalf of the firm.  The CFO thereafter signed the account application without reviewing the document.  After obtaining the CFO's signature, the Cash Manager faxed the completed application to SunTrust and the account was opened.  The Cash Manager, who had authority to direct funds to any money market account previously approved by the firm's CFO in amounts up to $200 million, instructed a subordinate to make an initial investment of $25 million in the new account on May 5, 2000.  
+
+    After the initial investment of $25 million, KPMG made eleven additional investments over the course of the next two months so that, from July 6, 2000, through September 18, 2000, KPMG's account balance in STIT represented approximately 35% of KPMG's total invested surplus cash and constituted approximately 15% of STIT's net assets.  KPMG redemptions in September and early October brought the account balance down to an amount that represented approximately 18% of KPMG's total invested surplus cash, where it remained until shortly before the account was closed in late December.  Each time KPMG either purchased or redeemed shares, a KPMG Treasury Department employee effectuated the transaction by calling the toll-free "800" telephone number for AIM shareholder services, which routinely answered each caller with the greeting "AIM Funds, this is [name]."  Each time, the funds would be wired later in the day and AIM would mail KPMG its trade confirmation addressed to the attention of KPMG's Treasurer.  AIM also sent its monthly account statements to KPMG's Treasurer.  The trade confirmations and account statements were on AIM letterhead, but were not reviewed by KPMG's Treasurer because, on receipt, they apparently were directed by an administrative assistant to the Assistant Cash Manager.
+
+    In November 2000, KPMG's Department of Professional Practice ("DPP") requested that the firm's Treasurer help compile a complete list of the firm's investments as part of the SEC's voluntary "look back" program.  4    At the Treasurer's direction, one of his subordinates prepared a list from the firm's Treasury Department, which in its last iteration included an investment identified as "AIM Institutional Funds/Suntrust Bank."  On November 17, this list was e-mailed to KPMG's Treasurer, Cash Manager, and several other KPMG employees, including an individual in the firm's DPP.  Notwithstanding the circulation of this list to recipients in both KPMG's Treasury Department and its DPP, no one at KPMG noticed that one of the listed investments was with one of the firm's audit clients.  
+
+    On December 19, 2000, an AIM employee was performing a routine check of large redemptions and came across KPMG's name as an investor in STIT.  Recognizing KPMG as AIM's outside auditor, the employee brought this information to the attention of AIM management, and AIM alerted a member of the KPMG audit team.  No member of the KPMG audit team had any prior knowledge that KPMG had an investment in an AIM fund. After it was alerted by AIM, KPMG immediately liquidated its remaining investment in STIT.  Ultimately, KPMG resigned from all of its AIM fund audit engagements,  5   and AIM retained another accounting firm to reaudit the financial statements that were to be included in filings due from each of the three STIT portfolios on December 29, 2000.  6    In contemporaneous filings for other AIM funds, AIM included KPMG's audit reports for the financial statements of those funds, accompanied by a disclosure regarding the firm's independence issue with STIT.  
+
+     3. KPMG Audited STIT While Its Independence Was Impaired 
+
+  As described above, KPMG had a substantial investment in STIT throughout the period from May 5, 2000 through December 19, 2000.  That time period overlapped with some portion of the fiscal years of all three constituent portfolios of STIT -- for which KPMG issued audit reports that were included in semi-annual reports sent by AIM to STIT shareholders and filed by AIM with the Commission during the second half of 2000.  For example, on November 9, 2000, STIT made 16 separate filings on Form N-30D (semi-annual reports to shareholders for the period ended August 31, 2000), one for each of the individual classes of its three constituent portfolios.  Each of those filings contained a KPMG audit report for STIT dated October 6, 2000.  
+
+  In addition to issuing audit reports while its independence was impaired, KPMG repeatedly confirmed its putative independence from the AIM funds it audited, including STIT, during the period in which it was invested in STIT.  Pursuant to Independence Standards Board Standard ("ISB") No. 1,  Independence Discussions With Audit Committees , KPMG sent letters to AIM's audit committee dated May 30, 2000, September 1, 2000, and November 1, 2000, each time assuring the committee that the firm was "not aware of any relationships between [KPMG] and the [AIM] Funds that, in our professional judgment, may reasonably be thought to bear on our independence," and confirming to the committee that KPMG's auditors were "independent accountants with respect to the [AIM] Funds, within the meaning of the Securities Acts administered by the Securities and Exchange Commission and the requirements of the Independence Standards Board."  KPMG similarly confirmed its independence in oral discussions with AIM's audit committee during the period in which it lacked independence.
+
+     4. KPMG Lacked Adequate Policies and Procedures Designed to Prevent and Detect the Independence Problem That Occurred With AIM 
+
+  Until AIM brought the matter to KPMG's attention in December 2000, KPMG was unaware that a significant portion of the firm's surplus cash had been invested for more than seven months with one of its audit clients.  This impairment of KPMG's independence occurred primarily because the firm lacked adequate policies or procedures to prevent or detect this independence problem, and because the steps that KPMG personnel usually took before initiating similar firm investments were not taken here.  For example, although KPMG Treasury Department personnel were generally aware of the firm's policy to avoid investing firm funds in restricted entities, KPMG had not prepared or distributed a written set of procedures required to be taken by Treasury Department personnel to avoid independence-impairing relationships.  In particular, KPMG had no specific procedure directing its Treasury Department personnel to check the firm's "restricted entity list" to confirm that a proposed investment was not restricted.  7    Typically, before opening a new money market account for the firm, KPMG's Cash Manager reviewed the most recent prospectus available for the fund to confirm that KPMG was not identified as the auditor.  She apparently failed to take this precaution with STIT because she mistakenly believed, based on her contact with SunTrust in opening the account, that the fund in question was a SunTrust fund, and because she understood that SunTrust Bank, as one of KPMG's lenders, was not a restricted entity.  8    KPMG also had no specific policies or procedures requiring any participation by a KPMG partner in the investigation and selection of money market investments before the firm opened a new account for the investment of surplus cash.  The Treasury Department's written investment policy memorandum, which was reviewed annually by the firm's Chief Financial Officer, included a list of money market funds approved for the investment of the firm's surplus cash, and required written approval from the Chief Financial Officer for investment in any money market funds that were not on the list.  9    In the case of STIT, KPMG's Cash Manager, a clerical employee with neither an accounting background nor any formal training regarding auditor independence, opened a new investment account on behalf of KPMG with no significant oversight by either the firm's Treasurer or its Chief Financial Officer.  The Chief Financial Officer apparently signed the account application form on the firm's behalf without reviewing it.  
+
+  Finally, KPMG had no policies or procedures designed to put KPMG audit professionals on notice of where the firm's cash was invested, or requiring them to check a listing of the firm's investments, prior to accepting new audit engagements or confirming the firm's independence from audit clients in accordance with ISB No. 1.  KPMG had no requirement that its Treasury Department issue a firm-wide notice when it initiated a new investment on behalf of the firm, and the firm did not maintain a comprehensive list of its investments.  As a result, there was no procedure available to KPMG audit engagement partners that would have allowed them to confirm the firm's independence before having communications with audit clients as required by ISB No. 1. 
+
+   D. Legal Analysis  
+
+  Section 30 of the Investment Company Act requires that all financial statements included in annual reports sent to investment company shareholders, or filed with the Commission, be accompanied by a "certificate of independent public accountants."  15 U.S.C. § 80a-30(i).  Section 2-01 of Regulation S-X, both before and after the Commission's recent amendments thereto, clearly states that the Commission does not consider an accountant to be "independent" from its client if the accountant has any direct financial interest or material indirect financial interest in the client.  Section 602.02.b.i of the Commission's Codification of Financial Reporting Policies states that "[t]he ownership of a financial interest in an audit client or its affiliates is one of the principal factors having an adverse effect on the independence of accountants."   See also  Revision of the Commission's Auditor Independence Requirements, Rel. Nos. 33-7919, 34-43602; 35-27279; IC-24744; IA-1911; FR-56 (Nov. 21, 2000) (adopting revised auditor independence requirements and reiterating importance of auditor independence).
+
+  Section 2-02 of Regulation S-X requires an accountant's audit report to state  "whether the audit was made in accordance with generally accepted auditing standards."  Here, KPMG's audit reports on the financial statements of the STIT portfolios for the fiscal year ended August 31, 2000 stated that the audits were conducted in accordance with GAAS, when in fact they were not.  Consistent with the Commission's rules and pronouncements, GAAS requires auditors to maintain strict independence from their audit clients.  Statement on Auditing Standards No. 1, Codification of Auditing Standards and Procedures (commonly referred to as "SAS No. 1"), explains the independence requirement as follows:
+
+     It is of utmost importance to the profession that the general public maintain confidence in the independence of independent auditors.  Public confidence would be impaired by evidence that independence was actually lacking, and it might also be impaired by the existence of circumstances which reasonable people might believe likely to influence independence.  To be independent, the auditor must be intellectually honest; to be recognized as independent, he must be free from any obligation to or interest in the client, its management, or its owners. . . .  Independent auditors should not only be independent in fact; they should avoid situations that may lead outsiders to doubt their independence.
+
+   As described above, KPMG lacked adequate policies and procedures designed to prevent and detect independence problems caused by investments of the firm's surplus cash.  This failure constituted an extreme departure from the standards of ordinary care, and resulted in violations of the auditor independence requirements imposed by the Commission's rules and by GAAS.     IV. 
+
+    Based on the foregoing and on KPMG's Offer of Settlement, the Commission finds that KPMG engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice.
+
+    V. 
+
+    Accordingly, the Commission hereby accepts KPMG's Offer of Settlement and orders, effective immediately, that:
+
+    A. KPMG is censured pursuant to Rule 102(e)(1); and
+
+      B. KPMG shall comply (within 90 days of this Order unless otherwise specified below) with the following undertakings, as set forth in its Offer of Settlement, designed to prevent and detect independence violations caused by financial relationships with, and investments in, audit clients:
+
+      (1) KPMG will designate at least one partner in its Department of Professional Practice ("DPP") with full-time responsibility for ensuring the firm's compliance with the Commission's auditor independence requirements, including without limitation the adoption, implementation, and oversight of firm policies and procedures designed to ensure such compliance; 
+
+      (2) KPMG will require all of its Treasury Department personnel to undergo training regarding auditor independence at least once every 12 months;  10    (3) KPMG will adopt and implement written procedures to provide reasonable assurance that investments of firm funds will not be made in entities from which KPMG is required to maintain independence, including:
+
+        (i) procedures requiring Treasury Department personnel, prior to making any investment of firm funds, to obtain conclusive evidence that the investment is not a restricted investment by, at a minimum, verifying that the prospective investee is not identified as a restricted entity on KPMG's Restricted Entity List or its most current automated or electronic database of restricted entities, and that KPMG is not identified as the auditor for the prospective investee in any prospectus available for the investment; and
+
+        (ii) procedures requiring Treasury Department personnel to document the steps taken to ascertain that the investment under consideration is not restricted; requiring that such documentation be reviewed by KPMG's Chief Financial Officer, and by a partner in KPMG's DPP having responsibility for auditor independence matters, before the investment is made; and requiring KPMG's Chief Financial Officer to confirm the DPP partner's approval of the investment and to document that confirmation as well as the CFO's own review of the documentation prepared by Treasury Department personnel;
+
+      (4) KPMG will create and maintain a listing, in its most current automated or electronic system for independence compliance, identifying all financial relationships entered into and investments held by KPMG, in a form sufficient to provide automated notice to the appropriate Treasury Department personnel and to the Chief Financial Officer in the event that an entity with which KPMG has a financial relationship, or in which KPMG has an investment, becomes restricted (in which case KPMG shall sever the financial relationship or divest itself of the investment as soon as practicable and in any event within ten (10) business days of receipt of such notice);
+
+      (5) KPMG will, prior to confirming the firm's independence from audit clients in accordance with Independence Standards Board Standard No. 1,  Independence Discussions with Audit Committees , or otherwise, perform and document procedures designed to establish that KPMG does not have a financial relationship with, or an investment in, the audit client that would impair KPMG's independence from that client; and
+
+      (6) KPMG will distribute a copy of this Order to all of its audit professionals and Treasury Department personnel within 10 business days after entry of the Order. 
+
+    By the Commission.
+
+              Jonathan G. Katz
+             Secretary
+  
+
+ 
+ Footnotes 
+     1      Rule 102(e)(1) of the Commission's Rules of Practice, 17 C.F.R. § 201.102(e), provides in pertinent part:
+
+  The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for a hearing in the matter . . . to  have engaged in . . . improper professional conduct.  
+
+      2     The findings herein are not binding on anyone other than KPMG.
+
+
+
+      3      After all of the events described herein, KPMG replaced its Treasurer.
+
+      4     The "look back" program, announced in June 2000, required each participating accounting firm (including KPMG and the other "big five" firms), among other things, to review certain independence procedures and violations.   See generally  SEC Press Release No. 2000-77 (June 7, 2000).
+
+      5      The Commission's recent amendments to its auditor independence rules, which in relevant part became effective in February 2001, explicitly require an auditor of any fund within a mutual fund family to maintain independence as to all funds within the family.  KPMG resigned from its relationship with AIM before the effective date of these amendments.
+
+      6      KPMG reimbursed AIM for the cost of the reaudit and its related expenses. 
+
+      7      A firm's "restricted entity list" typically identifies all entities (most notably its audit clients) with which the firm, its partners, and certain employees are restricted from making investments or entering into certain other financial relationships.
+
+
+
+      8      In late December 2000, when her supervisors asked KPMG's Cash Manager to review the Treasury Department file for this investment to determine the circumstances surrounding the investment, the Cash Manager discovered that she had no file for the investment.  Indeed, the Cash Manager could not find a copy of the account opening form or the prospectus, and had to call her contact at SunTrust to request that she fax KPMG a copy of the account opening form. 
+
+      9      KPMG's Cash Manager was authorized to make investments of up to $200 million in any single money market fund previously approved by the Chief financial officer without further supervisory approval.
+
+      10      Such training shall commence within 30 days of the date of this Order for all personnel who have not undergone such training since January 2001.  For other personnel, such training shall commence for each employee no later than 12 months after that employee's most recent training regarding auditor independence.    
+
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diff --git a/raw/aaer/2002/AAER-1492.txt b/raw/aaer/2002/AAER-1492.txt
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+ Litigation Release No.   17308   /   January 14, 2002
+
+  Accounting and Auditing Enforcement Release No.   1492  /  January 14, 2002
+
+   Securities and Exchange Commission v. R. Bruce Acacio , Civil Action No. 2:01CV-1010ST
+(USDC Utah) 
+
+  On January 7, 2002,  the Honorable Ted Stewart, U.S. District Judge, District of Utah, issued  a Final Judgment of Permanent Injunction against defendant R. Bruce Acacio, the Chairman and Chief Executive Officer of California Software Corp.   Acacio, who consented to the order without admitting or denying the Commission's allegations, was enjoined from: (1) violating the provisions of the federal securities laws which prohibit providing false and misleading information in the offer and sale of securities, falsifying the books and records of an issuer of securities and providing false information to auditors in connection with the audit of financial statements; and (2) aiding and abetting California Software's violations of the provisions of the federal securities laws which require issuers to file accurate annual and quarterly reports, maintain manually signed signature pages for reports filed with the Commission, and maintain books and records that accurately reflect a company's financial condition.  Acacio was also ordered to pay a civil penalty of $30,000.
+
+  The complaint, filed December 18, 2001, alleged that from September 1999 through May 2000, California Software filed periodic reports containing audited and unaudited financial statements overstating the company's revenues, earnings, assets, and shareholders' equity,  primarily as a result of an improper revenue recognition practice utilized by the company.  The complaint further alleged that the overstatements of revenues and earnings were included in a private placement memorandum used in an offering of California Software stock that raised over $8.7 million, and that Acacio failed to sign and caused California Software to fail to maintain manually signed signature pages with respect to its filings with the Commission.
+
+  The complaint alleged that until September 2000, California Software had recognized revenue upon shipment of the software to potential customers, whether or not persuasive evidence existed of an arrangement to purchase the software by the potential customer.  Finally, it was alleged that in October 2000, California Software restated its financial statements for the year ended December 31, 1999, and for the quarter ended March 31, 2000..
+
+  Defendant Acacio's actions  were found  in violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Rules 13b2-1 and 13b2-2 promulgated under the Securities Exchange Act of 1934;  and  Sections 13(a) and 13(b)(2) of the Exchange Act of 1934, and Rules 12b-11, 12b-20, 13a-1, and 13a-13 thereunder.  
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diff --git a/raw/aaer/2002/AAER-1493.txt b/raw/aaer/2002/AAER-1493.txt
new file mode 100644
index 0000000000000000000000000000000000000000..21d58bc4cdbdb2f1d8afc01f1ce1cef8a2a9438a
--- /dev/null
+++ b/raw/aaer/2002/AAER-1493.txt
@@ -0,0 +1,1369 @@
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+              Michael A. Porter
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+ Litigation Release No.   17309 /   January 14, 2002
+
+  Accounting and Auditing Enforcement Release No.  1493  /   January 14, 2002
+
+  [United States Securities and Exchange Commission v. Michael A. Porter, Case No. 1:02CV00061 (RCL) (D.C.D.C.)].   
+
+   SEC Sues Texas Businessman For Forgery Of Arthur Andersen Audit Opinion 
+
+  The Securities and Exchange Commission today filed a Complaint in the United States District Court for the District of Columbia alleging that Michael Porter, the founder and majority shareholder of St2ep LLC, forged an audit opinion and related cover letter of Arthur Andersen LLP in an unsuccessful attempt to consummate a merger between privately-held St2ep and a publicly-traded company, MPM Technologies, Inc.     
+
+  The Complaint alleges that St2ep of Houston Texas, MPM of Spokane, Washington, and certain other related entities and individuals entered into a written merger agreement pursuant to which MPM was to acquire all of the assets of St2ep.  The Complaint alleges that the merger was partly contingent upon St2ep's providing MPM with certified audited statements for calendar year 1999.   The Complaint further alleges that in an attempt to consummate the merger between MPM and St2ep, Porter prepared St2ep's 1999 financial statements and then drafted and attached to the financial statements an unqualified audit opinion and cover letter on Arthur Andersen letterhead.  According to the Complaint, the financial statements, together with the audit opinion and forged cover letter were then provided to MPM, and MPM's independent auditor contacted Arthur Andersen, which denied having prepared or audited St2ep's financial statements.
+
+  Porter, without admitting or denying the allegations of the Complaint, simultaneously consented to the entry of a permanent injunction against violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and agreed to pay a $25,000 civil penalty 
+  
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diff --git a/raw/aaer/2002/AAER-1495.txt b/raw/aaer/2002/AAER-1495.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8768f1d8d94f9a366a6fe6e92860c22431a79c15
--- /dev/null
+++ b/raw/aaer/2002/AAER-1495.txt
@@ -0,0 +1,1381 @@
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+ Litigation Release No. 17310 / January 15, 2002
+
+  Accounting and Auditing Enforcement Release No. 1495 / January 15, 2002
+
+  SEC v. BellSouth Corporation, Civil Action No. 1:02-CV-0113 
+(N. D. Ga.) (filed January 15, 2002)
+
+  SEC SETTLES CASE AGAINST BELLSOUTH CORPORATION
+
+  The Securities and Exchange Commission today filed a settled civil action in federal court, in which BellSouth Corporation (BellSouth) consents to a judgment directing it to pay a $150,000 civil penalty.  The Commission's Complaint (Complaint) alleges that BellSouth violated certain provisions of the Foreign Corrupt Practices Act (FCPA).  Specifically, the Complaint alleges that BellSouth violated the books and records provisions - Section 13(b)(2)(A) - and internal  controls provisions - Section 13(b)(2)(B) - of the Securities Exchange Act of 1934 in connection with payments made by BellSouth's Venezuelan and Nicaraguan subsidiaries.  BellSouth settled the civil action without admitting or denying the Commission's allegations.  
+
+    According to the  Complaint, between September 1997 and August 2000, former senior management of BellSouth's Venezuelan subsidiary, Telcel, C.A. (Telcel), authorized payments totaling approximately $10.8 million to six offshore companies and improperly recorded the disbursements in Telcel's books and records, based on fictitious invoices, as bona fide services.  Telcel's internal controls failed to detect the unsubstantiated payments for a period of at least two years.  As an additional consequence of this control deficiency, the Complaint alleges that BellSouth was unable to reconstruct the circumstances or purpose of the Telcel payments, or determine the identity of their ultimate recipients.   Telcel is Venezuela's leading wireless provider, contributing more revenue to BellSouth's Latin American Group segment than any other Latin American BellSouth operation.
+
+
+
+  The Complaint also alleges that, between October 1998 and June 1999, BellSouth's  Nicaraguan subsidiary, Telefonia Celular de Nicaragua, S.A.'s (Telefonia), improperly recorded payments to the wife of the Nicaraguan legislator who was the chairman of the Nicaraguan legislative committee with oversight of Nicaraguan telecommunications.  
+
+
+
+  According to the Complaint, in 1997 BellSouth acquired a 49 percent ownership interest in Telefonia, and an option to acquire an additional 40 percent.   At the time of BellSouth's acquisition of its minority interest in Telefonia, a Nicaraguan law prohibited foreign companies such as BellSouth from acquiring a majority interest in Nicaraguan telecommunications companies ("foreign ownership restriction").   BellSouth intended to exercise its 40 percent option, but could do so only in the event that the Nicaraguan legislature repealed the foreign ownership restriction.   
+
+   The Complaint alleges that, in October 1998, Telefonia retained the wife of the Nicaraguan legislator to provide various regulatory and legislative services, including lobbying for repeal of the foreign ownership restriction.   The wife (lobbyist) had prior financial and operations experience in the telecommunications area, but no prior legislative experience.  Because the lobbyist's husband chaired the legislative committee with jurisdiction over the foreign ownership restriction, BellSouth International (BSI), an indirectly wholly-owned subsidiary of BellSouth, knew that payments to the lobbyist could implicate the FCPA.  Nevertheless, a former BSI in-house attorney approved Telefonia's retention of the lobbyist.  BSI officials, however, knew or should have known that the attorney lacked sufficient experience or training to enable him properly to opine on the matter.
+
+  According to the Complaint, the lobbyist worked predominantly on the repeal of the foreign ownership restriction.  The Complaint further alleges that, during the lobbyist's retention, the legislator/husband drafted the text of the proposed repeal of the foreign ownership restriction and enlisted support for the proposed repeal from other Committee members.   The husband scheduled and presided at a hearing in April 1999, during which his Committee heard arguments from BSI and others advocating repeal of the foreign ownership restriction. 
+
+  In May 1999, Telefonia terminated the lobbyist.  In June 1999, Telefonia made a severance payment to her.  Telefonia recorded the total sum of $60,000 paid to the lobbyist as consulting services and as a severance payment.   In September 1999, the Committee referred the proposed amendment for approval by the Nicaraguan National Assembly.   In December 1999, the National Assembly voted to repeal the foreign ownership restriction.   BellSouth exercised its 40 percent option and increased its ownership interest in Telefonia to 89 percent in June 2000
+
+  In a related proceeding, the Commission today also issued a settled cease-and-desist order (Order) against BellSouth in which the Commission finds that BellSouth violated the books and records provisions and internal accounting controls provisions of the Securities Exchange Act of 1934 in connection with payments made by BellSouth's Venezuelan and Nicaraguan subsidiaries.  Without admitting or denying the Commission's findings, BellSouth consented to the entry of the Order that requires BellSouth to cease and desist from violating those provisions.  The Order notes that in determining to accept Bellsouth's settlement offer, the Commission considered Bellsouth's cooperation with the Commission staff after being advised of the staff's investigation.  The Order also notes that BellSouth undertook several remedial measures, including the disciplining and termination of various employees.  Finally, the Order notes that BellSouth has taken steps designed to enhance its compliance program, which currently consists of a number of components, including corporate governance, policies and procedures, training, internal auditing, and corrective action and discipline.
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diff --git a/raw/aaer/2002/AAER-1496.txt b/raw/aaer/2002/AAER-1496.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9e49861aea7e98d23f33a467f0787c85a55cd516
--- /dev/null
+++ b/raw/aaer/2002/AAER-1496.txt
@@ -0,0 +1,1480 @@
+
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+ 
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+ SECURITIES EXCHANGE ACT OF 1934
+ RELEASE NO.  45280 /  January 15, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO.   1496  /  January 15, 2002
+  ADMINISTRATIVE PROCEEDING
+ FILE NO.    3-10679
+
+         In the Matter of     
+   NELSON BARBER, CPA   
+       Respondent.    
+    
+    : : : : : : : :   
+   ORDER INSTITUTING PUBLIC
+  ADMINSTRATIVE PROCEEDINGS
+  PURSUANT TO RULE 102(e)
+  OF THE COMMISSION'S RULES
+ OF PRACTICE AND FINDINGS
+ AND ORDER OF THE COMMISSION      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that administrative proceedings be, and hereby are, instituted against Nelson Barber ("Respondent") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1     II. 
+
+    In anticipation of the institution of these public administrative proceedings, Barber has submitted an Offer of Settlement, which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings, except that he admits to the Commission's finding that a Final Judgment of Permanent Injunction ("Final Judgment") has been entered against him, and admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Barber consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice and Findings and Order of the Commission ("Order").
+
+   III. 
+
+    On the basis of this Order and Barber's Offer of Settlement, the Commission makes the following findings:  2     THE RESPONDENT 
+
+     Nelson Barber  is a certified public accountant licensed in Connecticut.  After several years as Fine Host's Treasurer, Barber served as Senior Vice President and CFO from 1995 to April 1997.  He continued to work for the Company in the capacity of treasurer until December 1997, when he was terminated by the board of directors because of his role in the Company's financial fraud.
+
+   SUMMARY 
+
+  Fine Host Corporation is a Connecticut-based company that, at all times relevant to this Order, provided food and beverage concession, catering and other services to approximately 400 facilities in 38 states.  Fine Host conducted an initial public offering in June 1996, and a secondary offering in February 1997.  Its stock was registered with the Commission under Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and listed for trading on the NASAQ National Market System.  Based on an internal investigation, Fine Host issued a restatement of its financial statements in February 1998, reflecting that from 1992 through the third quarter of fiscal year 1997, Fine Host had overstated its pretax income by over $49 million.  For fiscal years 1994, 1995 and 1996, Fine Host had overstated pretax income by 149%, 213%, and 197%.  For the first, second, and third quarters of fiscal year 1997, it had overstated pretax income by 324%, 320%, and 170%, respectively.  Fine Host's market capitalization peaked in October 1997 at approximately $390 million, but declined to a nominal amount after the disclosure of its financial fraud.  On January 7, 1999, subsequent to the extensive restatement of its financial statements, Fine Host entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to its plan of reorganization, Fine Host has now become a private entity.
+
+    On December 27, 2001, the Commission filed a complaint against Barber in  Securities and Exchange Commission v. Nelson Barber,  (" SEC v. Barber "), Civil Action No. 1:01CV02670 (D.D.C.).  On December 27, 2001, Barber consented to the entry of a Final Judgment against him in  SEC v. Barber , without admitting or denying the allegations in the complaint, except as to jurisdiction, to which Barber admitted.  On January 3, 2002, the United States District Court for the District of Columbia entered the Final Judgment, which permanently enjoins Barber from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder, and further enjoins him from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+    The Commission's complaint in  SEC v. Barber  alleges, among other things, that Barber engaged in an extensive financial fraud that, when detected, resulted in the collapse of Fine Host's stock price.  The scheme predated Fine Host's June 1996 initial public offering by several years and continued through the third quarter of the fiscal year ended December 31, 1997.  It involved, as its primary mechanism, the improper capitalization as assets millions of dollars in Company expenses.  Barber also manipulated acquisition reserve accounts, income from vendor rebates, and other accounts for the purpose of managing reported earnings.  During the period of its fraudulent reporting, Fine Host obtained approximately $91 million from investors through its IPO and a February 1997 secondary offering of its common stock.  After the public exposure of its financial fraud in early 1998, Fine Host's market capitalization declined from a high of approximately $390 million to approximately $0.
+
+   IV. 
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement submitted by Barber and accordingly,
+
+    IT IS HEREBY ORDERED, effectively immediately, that:
+
+    Nelson Barber is denied the privilege of appearing or practicing before the Commission as an accountant.
+
+    By the Commission.
+
+              Jonathan G. Katz
+             Secretary
+  
+
+ 
+ Footnotes 
+     1       Paragraph (3) of Rule 102(e) provides, in relevant part, that:
+
+ ...(i) The Commission, with due regard to the public interest...may...suspend from appearing or practicing before it any...accountant...who has been by name...permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.
+ 
+      2       The findings herein are made pursuant to Barber's Offer of Settlement and are not binding on any other person or entity in this or in any other proceeding.    
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diff --git a/raw/aaer/2002/AAER-1497.txt b/raw/aaer/2002/AAER-1497.txt
new file mode 100644
index 0000000000000000000000000000000000000000..401c5b2bed636695092b7e3f9bf308aa8808e65a
--- /dev/null
+++ b/raw/aaer/2002/AAER-1497.txt
@@ -0,0 +1,1375 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc., Karen Losordo, Diane M. Trainor, Daniel J. Trainor, Geraldine Trainor and Mary N. Celentano 
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+              William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc., Karen Losordo, Diane M. Trainor, Daniel J. Trainor, Geraldine Trainor and Mary N. Celentano
+           
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+        William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc., Karen Losordo, Diane M. Trainor, Daniel J. Trainor, Geraldine Trainor and Mary N. Celentano
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+ Litigation Release No.  17313 / January 15, 2002
+  Accounting and Auditing Enforcement
+ Release No.  1497 /  January 15, 2002
+
+   SEC v. William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc.), Karen Losordo, Diane M. Trainor, Daniel J. Trainor, Geraldine Trainor and Mary N. Celentano , Civil Action No. 98CV01533 (EGS) (D.D.C.) 
+
+   VINCENT D. CELENTANO ENJOINED IN FRAUD ACTION  
+  PAYS $350,000 PENALTY 
+
+  The United States Securities and Exchange Commission ("Commission") today announced that on January 9, 2002, the Honorable Emmet G. Sullivan of the United States District Court for the District of Columbia entered a Final Judgment As To Vincent D. Celentano ("Final Judgment") in the above-captioned civil action.  The Commission sued Vincent D. Celentano ("Celentano"), a Hillsboro Beach, Florida resident, for his role in two separate but related frauds concerning the securities of HealthCare, Ltd. ("HealthCare"), a company purportedly based in Russia, and Novatek International, Inc. ("Novatek") of Columbia, Maryland.  
+
+  Celentano consented, without admitting or denying the allegations of the Commission's complaints, to entry of a Final Judgment that i) permanently enjoins him from violating or aiding and abetting the violation of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and (B), 15(a)(1) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13, 13b2-1, 13d-1 and 16a-3 promulgated thereunder, ii) permanently bars him from serving as an officer or director of a public company, and iii) orders him to pay a $350,000 civil money penalty.  The Commission also dismissed Mary N. Celentano, Celentano's wife, as a relief defendant.
+
+  On June 18 and August 12, 1998, the Commission filed its complaint and amended complaint ("Complaints"), respectively, against Celentano and others based on their participation in fraudulent "pump and dump" schemes involving the purchase and sale of HealthCare and Novatek securities, both of which claimed to own licenses to distribute medical diagnostic test kits designed to rapidly diagnose HIV, cholera and other diseases.  In 1995, HealthCare, a shell company controlled by Celentano and another defendant, raised approximately $2.5 million from investors, primarily friends and family members.  HealthCare falsely claimed to have signed contracts worth millions of dollars with Russian governmental entities for the sale of the test kits.  The Complaints allege, among other things, that 1) Celentano's offers and sales of HealthCare securities were not registered with the Commission, as required by law; 2) Celentano and others defrauded investors by knowingly making false and misleading statements regarding the existence of the multi-million dollar contracts; and 3) Celentano was not licensed to sell securities, as required by law.  In fact, no such contracts ever existed and HealthCare never sold any product for commercial purposes.     
+
+  In 1996, Celentano and others orchestrated a second fraudulent scheme whereby they obtained more than $10 million from investors in connection with sales of Novatek securities.  Novatek claimed to own a license to distribute test kits in South and Central America.  Through a series of press releases, Novatek stated that it had entered into contracts worth more than $400 million with several South American entities.  The purported contracts, however, never existed and Novatek never made any commercial shipments of any test kits.  In connection with the Novatek fraud, the Complaints allege, among other things, that 1) Celentano and others artificially inflated the value of Novatek securities through a series of sham transactions; 2) Celentano caused Novatek to file reports with the Commission containing false and misleading financial statements; and 3) Celentano knowingly made false and misleading statements to investors and prospective investors concerning the existence of purported contracts.  
+
+  Additionally, in two related matters, the U.S. Department of Justice has filed criminal charges against Celentano and William P. Trainor in the U. S. District Court for the Southern District of Florida.  In  United States v. Celentano , 01-6179-CR-WDF, Celentano pleaded guilty to violating 18 U.S.C. §1001 for making a false statement to the Commission and was sentenced by Judge Wilkie D. Ferguson to two years probation and assessed a $5,000 fine.  The indictment against Trainor charges him with twenty-one counts of wire fraud and money laundering in violation of 18 U.S.C. §§1345, 1956, 1957 and 2 in  United States v. Trainor , 01-6215-CR-Jordan.  This matter is still pending.      
+
+  On January 10, 2002, Judge Sullivan entered an order staying the Commission's action against the remaining defendants in the Commission's case, pending the outcome of the criminal proceeding against Trainor.
+
+  For additional information, see Litigation Release Nos.  15786  and  15844,  and Securities Exchange Act of 1934 Release Nos.  40169 ,  40170  and  40171 .
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diff --git a/raw/aaer/2002/AAER-1499.txt b/raw/aaer/2002/AAER-1499.txt
new file mode 100644
index 0000000000000000000000000000000000000000..28a8a06071d905be6514c4218a533afcf0f2889e
--- /dev/null
+++ b/raw/aaer/2002/AAER-1499.txt
@@ -0,0 +1,1568 @@
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+              Trump Hotels & Casino Resorts, Inc.
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+ Securities Exchange Act of 1934 
+Release No. 45287 / January 16, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No. 1499 / January 16, 2002 
+
+ Administrative Proceeding 
+File No.   3-10680 
+
+     
+In the Matter of    
+
+TRUMP HOTELS & 
+CASINO RESORTS, INC.     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING 
+CEASE-AND-DESIST 
+PROCEEDINGS 
+PURSUANT TO SECTION 
+21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND 
+ISSUING CEASE-AND- 
+DESIST ORDER  ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that  cease-and-desist proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Respondent Trump Hotels & Casino Resorts, Inc. ("THCR" or "the Company") be, and hereby are, instituted.   
+
+ II. 
+
+ In anticipation of the institution of these cease-and-desist proceedings, THCR has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings set forth herein, except that THCR admits the jurisdiction of the Commission over it and over the subject matter of these proceedings, THCR, by its Offer of Settlement, consents to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Issuing Cease-and-Desist Order ("Order"). 
+
+ III. 
+
+ On the basis of this Order and the Offer, the Commission makes the following findings: 
+
+ Summary 
+
+ A. On October 25, 1999, THCR issued a press release announcing its results for the third quarter of 1999 (the "Earnings Release" or the "Release").  To announce those results, the Release used a net income figure that differed from net income calculated in conformity with generally accepted accounting principles ("GAAP").  Using that non-GAAP figure, the Release touted THCR's purportedly positive operating results for the quarter and stated that the Company had beaten analysts' earnings expectations.   
+
+ B. The Earnings Release was materially misleading because it created the false and misleading impression that the Company had exceeded earnings expectations primarily through operational improvements, when in fact it had not.  The Release expressly stated that the net income figure excluded a one-time charge.  The statement that this one-time charge was excluded  implied that no other significant one-time items were included in THCR's stated net income.  Contrary to that implication, however, the stated net income included an undisclosed one-time gain of $17.2 million.  
+
+ C. The misleading impression created by the reference to the single one-time charge and the undisclosed inclusion of the one-time gain was reinforced by the comparison of the stated earnings-per-share figure with analysts' earnings estimates and by statements in the Release that the Company had been successful in improving its operating performance.  In fact, without the one-time gain, the Company's revenues and net income would have decreased from the prior year and the Company would have failed to meet analysts' expectations.  The undisclosed one-time gain was thus material, because it represented the difference between positive trends in revenues and earnings and negative trends in revenues and earnings, and the difference between exceeding analysts' expectations and falling short of them.  
+
+ D. By knowingly or recklessly issuing a materially misleading press release, THCR violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+
+ Settling Respondent 
+
+ E. THCR is a publicly-held Delaware corporation.  Through various subsidiaries, it owns and operates the Trump Taj Mahal Casino Resort (the "Taj Mahal") located in Atlantic City, New Jersey, as well as other casino resorts.  THCR and its subsidiaries file reports, including their financial statements, on a consolidated basis.  The Company's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded on the New York Stock Exchange.  The Company's executive offices are in New York City, and its business and financial operations are centered in Atlantic City. 
+
+ Facts 
+
+ The All Star Gain 
+
+ F. In September 1999, Taj Mahal Associates ("Taj Associates"), a THCR subsidiary, took over the All Star Caf© located in the Taj Mahal Casino from Planet Hollywood International, Inc.  On September 15, 1999, Taj Associates, Planet Hollywood, and the All Star Caf©, Inc. reached an agreement pursuant to which, effective September 24, 1999, the All Star Caf©'s lease of space at the Taj Mahal would be terminated and All Star would be relieved of its rental obligations to THCR.  In return, Taj Associates would receive the All Star Caf©'s leasehold improvements, alterations, and certain personal property.  Because the Taj Mahal was going to continue to use the space as a restaurant, the Company's outside auditor advised that Taj Associates should record as operating income the fair market value of the leasehold improvements, alterations and personal property reverting to Taj Associates.  Based on this advice and on an independent appraisal, and in conformity with GAAP, Taj Associates (and, on a consolidated basis, THCR) recorded $17.2 million, the estimated fair market value of these assets, as a component of operating income for the third quarter of 1999. 
+
+ The Earnings Release 
+
+ G. On October 25, 1999, THCR issued the Earnings Release, publicly announcing its results for the third quarter of 1999.  The Release, and the accompanying financial data, defined net income, or net profit, for the quarter as income before a one-time Trump World's Fair closing charge of $81.4 million.  Using this " pro forma " net income,  1   the Release announced that the Company's quarterly earnings exceeded analysts' expectations, stating: 
+
+ Net income increased to $14.0 million, or $0.63 per share, before a one-time Trump World's Fair charge, compared to $5.3 million or $ 0.24 per share in 1998.  THCR's earnings per share of $0.63 exceeded First Call estimates of $0.54.  2   
+
+ H. The Release fostered the false and misleading impression that the positive results and improvement from third-quarter 1998 announced by the Company were primarily the result of operational improvements.  In the Release, THCR's chief executive officer ("CEO") was quoted as saying:  
+
+ Our focus in 1999 was three-fold: first, to increase our operating margins at each operating entity; second, to decrease our marketing costs; and third, to increase our cash sales from our non-casino operations.  We have succeeded in achieving positive results in each of the three categories.  The third quarter and nine month results for the company indicate that we have successfully instituted the programs that we focused on during 1999. 
+
+ I. The Release failed to disclose, however, that the Company's  pro forma  net income for the quarter included the one-time gain resulting from the All Star Caf© lease termination.  Accordingly, it failed to disclose the impact of that $17.2 million one-time gain upon the Company's $14 million  pro forma  net income or upon any of the other figures cited in the Release.  Not only was there no mention of the one-time gain in the text of the Release, but the financial data included in the Release gave no indication of it, because, as discussed below, all revenue items were reflected in a single line item.  
+
+ J. In fact, quarterly  pro forma  results that excluded the one-time gain as well as the one-time charge would have reflected a decline in revenues and net income and would have failed to meet analysts' expectations.  The table below illustrates the impact of the one-time gain on the trends reported in the Earnings Release: 
+
+           3rd Q 1998    3rd Q 1999 Per Release    3rd Q 1999 Excluding   One-Time Gain     (In thousands)    Revenues      $397,387  $403,072  $385,872    Net Income      $5,312  $13,958  $3,048    EPS      $0.24  $0.63  $0.14    K. The Earnings Release was misleading.  The Release used  pro forma  numbers that implied that all significant one-time items had been excluded, when they had not.  The Release compared the  pro forma  EPS to analysts' expectations for quarterly EPS, which are generally and were in this case calculated on the basis of continuing business operations, thus reinforcing the false implication that all one-time items had been excluded.  Moreover, the Release highlighted improvements in the Company's operations, i.e., the Company's increased operating margins, decreased marketing costs, and increasedcash sales from non-casino operations.  3    By making these representations about THCR's quarterly performance, without disclosing the existence or impact of the one-time gain, the Release created the false and misleading impression that the Company's third-quarter results had improved over the results for third-quarter 1998 and had exceeded analysts' expectations primarily because management had been effective in improving the Company's operating performance.  4   
+
+ Preparation of the Earnings Release 
+
+ L. Historically, THCR announced its quarterly results in an earnings release that included financial data presented in a format similar to that of a Form 10-Q or Form 10-K financial statement.  Among other things, financial data in these earlier earnings releases itemized revenues (on a Company-wide basis and also by property) by "Casino," "Rooms," "Food & Beverage," and "Other."  In the third quarter of 1999, however, at the direction of the Company's CEO, and following similar models used by some of THCR's competitors, the Company adopted a less detailed, or "streamlined," format for the financial data contained in its earnings releases.  Unlike the more detailed format used in earlier quarters, the new, streamlined format did not break out revenue items, but instead disclosed revenue as a single line item for each casino.  Thus, the streamlined format did not break out "other revenue," the line-item classification in which the $17 million one-time All Star Caf© gain would have been reported under the old format. 
+
+ M. The Earnings Release was prepared by the Company's corporate treasurer ("Treasurer") and its chief financial officer ("CFO"), under the supervision of the CEO, who approved the contents of the Release and made the decision to issue it.  The contract of the CEO expired in June 2000 and was not renewed; he is no longer associated with the Company.   5   
+
+   N. When the Release was issued, THCR knew that the estimated fair market value of the All Star Caf© lease termination would be recorded as part of operating income for third-quarter 1999and that the estimated fair market value of the transaction was $17.2 million.  The Company also knew that the Earnings Release used a  pro forma  net income figure that expressly excluded the $81.4 million one-time charge but did not disclose the existence or impact of the $17.2 million one-time gain.  
+
+ Publication of the Earnings Release and the Aftermath 
+
+ O. At 10:00 a.m. on October 25, 1999, the day the Earnings Release was issued, THCR held a conference call with analysts.  During the call, the CEO told the analysts that increasing non-casino sales at the Taj Mahal had been a priority over the past year, and cited the Taj Mahal's third-quarter revenues as evidence that the emphasis had paid off.  The CEO did not say that the Taj Mahal's non-casino revenue had increased primarily because of the All Star Caf© transaction.  6   
+
+ P. Immediately after the issuance of the Earnings Release and the conference call, analysts began asking questions about the details of the Company's increase in revenues.  Within hours of the conference call, THCR's CFO spoke to several analysts who called with questions about specific aspects of Company's third-quarter results, and he provided them with information about the All Star Caf© gain.  Over the next few days, additional analysts raised questions about the quarterly results, and the lack of detail in the Earnings Release.  As a result, the Company's CFO and Treasurer attempted to speak to every analyst who had been on the conference call to explain the All Star Caf© transaction.  In addition, the Company decided to accelerate the filing of its 10-Q for the quarter, which would contain a description of the one-time gain. 
+
+ Q. After learning about the one-time gain, certain analysts informed their clients of its impact.  One analyst at Bear, Stearns & Co. notified his clients on October 27, 1999 that the increased third-quarter EPS resulted from the inclusion in revenue of the one-time All Star Caf© gain.  On October 28th, analysts at Deutsche Banc Alex Brown issued a report on the effect of the one-time gain, which was disseminated to subscribers to Deutsche Banc research over the First Call Research Network.  The Deutsche Banc analysts reported that Company management had disclosed that day that roughly $0.47 of the $0.63 third-quarter  pro forma  EPS the Company had previously reported "were not operating EPS but were actually the result of an accounting gain."  The analysts determined that after backing out the one-time $17 million gain, THCR's net revenues would have fallen 2.7 %, rather than rising 1.5 % as they did when the one-time gain was included.  The Deutsche Banc report also explained that, without the one-time gain, the Company experienced negative trends in Company-wide cash flows and margins, as well as in Taj Associates' revenues from operations, rather than the positive trends indicated by the Earnings Release.   Adjusting for the impact of the one-time gain, the Deutsche Banc analysts loweredtheir 1999 EPS estimate from -$1.17, contained in their initial report on THCR's third-quarter results, to -$1.64.  7   
+
+ R. On October 25th, the day the Earnings Release was issued, the price of the Company's stock rose 7.8 % (from $ 4 to $ 4.3125), on volume approximately five times the previous day's volume.  On October 28th, the day of the second Deutsche Banc analysts' report, the stock price fell approximately 6%, on volume approximately four times the previous day's volume.  8   
+
+ S. On November 4, 1999, THCR filed its quarterly report on Form 10-Q.  The 10-Q disclosed the existence and amount of the one-time gain in a footnote to the financial statements. 
+
+ THCR Violated Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 
+
+ T. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful, in connection with the purchase or sale of securities, "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading."  
+
+   U. To violate Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, a misrepresentation or omission must be material, meaning that a reasonable investor would have considered the misrepresented or omitted fact important when deciding whether to buy, sell or hold the securities in question.   See   Basic Inc. v. Levinson , 485 U.S. 224, 231-32, 108 S. Ct. 978, 983 (1988). To constitute a violation, the material misstatement or omission must be made with scienter.   Aaron v. SEC,  446 U.S. 680, 701-02, 100 S. Ct. 1945, 1958 (1980).  Scienter can be shown by knowledge of the misrepresentation and, in the Second Circuit, by reckless disregard for the truth or falsity of a representation.   Sirota v. Solitron Devices, Inc. , 673 F.2d 566, 575 (2d Cir. 1982),  cert. denied , 459 U.S. 838 (1982).  Recklessness is defined as "conduct which is highly unreasonable and which represents an extreme departure from the standards of ordinary care . . . to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it."   Rolf v.Blyth, Eastman Dillon & Co. , 570 F.2d 38, 47 (2d Cir.),  cert. denied , 439 U.S. 1039 (1978);  see also   SEC v. McNulty , 137 F.3d 732, 741 (2d Cir. 1998) (applying  Rolf  recklessness standard). 
+
+ V. Thus, an issuer that knowingly or recklessly makes false or misleading statements in public announcements to investors, including press releases and other public statements, violates Section 10(b) and Rule 10b-5.   See   SEC v. Koenig , 469 F.2d 198 (2d Cir. 1972);  SEC v. Great American Industries, Inc. , 407 F.2d 453 (2d Cir. 1967),  cert. denied , 395 U.S. 920 (1969).   See also   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 861-63 (2d Cir. 1968) ( en banc ),  cert. denied , 394 U.S. 976 (1969).  In  Public Statements by Corporate Representatives , Securities Act Rel. No. 6504 (January 1984), the Commission reminded registrants that Section 10(b) and Rule 10b-5 apply to all public statements by persons speaking on behalf of a public company.  The Commission also made clear that public announcements and press releases constitute public statements.   Id.    See   also   In re Carter-Wallace, Inc. Sec. Litig. , 150 F.3d 153 (2d Cir. 1998) (advertisements by issuer can be "in connection with" the purchase or sale of securities);  Sunbeam Corporation , Exchange Act Rel. No. 44305 (May 15, 2001)(issuer violated Section 10(b) and Rule 10b-5 when it disseminated materially false and misleading press releases).  
+
+ W. The omission from the Earnings Release of the information that THCR's  pro forma  net income included a $17.2 million one-time gain was misleading, for several reasons.  9    Absent disclosure to the contrary, the use of  pro forma  numbers in an earnings release reasonably implies that any adjustments to GAAP numbers were made on a consistent basis and do not obscure a significant result or a trend reflected in the GAAP numbers.  Here, THCR's express exclusion of a one-time charge reasonably implied that no other significant one-time item was included in the  pro forma  net income figure.  This implication was reinforced by the Company's assertions in the Release that its quarterly results had exceeded analysts' EPS expectations, which are generally, and were in this case, a measure of expected operating performance.  Moreover, the misleading impression created by the use of the  pro forma  net income figure without disclosing the inclusion of the one-time gain was reinforced by the statements in the Release about improvements in the Company's operating performance, specifically, improvements in operating margins, marketing costs, and sales from non-casino operations. 
+
+ X. In the context of the express exclusion from  pro forma  net income of the one-time charge, the comparison to analysts' earnings expectations, and the statements about the Company's operational improvements, the omission of information about the one-time gain was material, because the undisclosed one-time gain represented the difference between positive trends in revenues and earnings and negative trends in revenues and earnings, and the difference between exceeding analysts'expectations and falling short of them.  Thus, the omission of  information about the one-time gain obscured a negative trend and a failure to meet analysts' expectations, and therefore could reasonably have led analysts and investors to draw false conclusions about THCR's quarterly results.  
+
+ Y.   THCR, through the THCR officers involved in the drafting and issuance of the Earnings Release, knew that the estimated fair market value of the All Star Caf© lease termination was recorded as part of operating income for third-quarter 1999 and that the estimated fair market value of the transaction was $17.2 million.  THCR knew that the Earnings Release used a  pro forma  net income figure that expressly excluded the one-time charge but did not disclose the existence or impact of the one-time gain.  Accordingly, THCR knew or recklessly disregarded that the Earnings Release was materially misleading.  
+
+ Z. While engaged in the conduct described above, THCR, directly and indirectly, used the means or instrumentalities of interstate commerce or the mails. 
+
+ AA. Based on the foregoing, THCR violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by knowingly or recklessly issuing the Earnings Release. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by THCR and impose the cease-and-desist order specified in the Offer.   In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by THCR, and the limited duration of the violations. 
+
+ V. 
+
+ Accordingly, IT IS ORDERED, pursuant to Section 21C of the Exchange Act, that THCR cease and desist from committing or causing any violation, and any future violation, of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1    Although neither the text of the Release nor the accompanying financial data used the term " pro forma ," the net income figure was  pro forma  in that it differed from net income calculated in conformity with GAAP by excluding the one-time charge.  (Accordingly, the net income figure is hereafter referred to as " pro forma  net income" and the earnings-per-share figure derived from the  pro forma  net income is referred to as " pro forma  EPS.")  The Release also used another  pro forma  figure, EBITDA, which it defined as earnings before interest, taxes, depreciation, amortization, corporate expenses and the $81.4 million Trump World's Fair closing charge. 
+
+   2    The financial data contained in the Release also included figures for net income (loss) and earnings per share for the quarter that, in compliance with GAAP, included the World's Fair charge.  Those figures were, respectively, a loss of $67.4 million and earnings per share of -$3.04. 
+
+   3    Although the statements about increased operating margins, decreased marketing costs, and increased cash sales from non-casino operations were nominally true, in the context of the Earnings Release they were misleading, because, without the $17.2 million one-time gain, the increases in margins and cash from non-casino operations were negligible.  Excluding the one-time gain, THCR's operating margins increased by 0.4% from third-quarter 1998 and its non-gaming revenue increased by $1.8 million, or approximately 2.25%.  The Company's marketing costs (as represented by promotional allowances) decreased by approximately $549,000, or approximately 1%.  
+
+   4   See  note 7,  infra  (noting that the first research report by Deutsche Banc after the issuance of the Earnings Release had reported that the Company's $0.63 third-quarter EPS was driven by margin gains). 
+
+   5    In addition, after the events at issue, the Company established a procedure by which earnings releases are reviewed by the Audit Committee before they are issued. 
+
+   6    Without the $17.2 million one-time gain, non-casino sales at the Taj Mahal increased by only $300,000, or less than one percent, from third-quarter 1998 to third-quarter 1999.  
+
+   7    The Deutsche Banc analysts first issued a report on THCR's third-quarter performance (also disseminated via First Call) on October 26th.  The earlier report's headline announced that Trump Hotels had reported third-quarter operating EPS of $0.63, driven by margin gains.  The analysts had also reported that net revenues were up 1.5%, despite a 1.3 % decline in gaming revenues at the Company's three Atlantic City properties.  In the initial report, the analysts had said that the net revenue increase was the result of an increase in cash flow and profitability at the Atlantic City properties (including the Taj Mahal) and concluded that the increase in cash flow indicated that the Company's emphasis on cost reduction had been effective.  As a result of the reported quarterly performance, in the initial report, the Deutsche Banc analysts had raised their 1999 EPS estimate. 
+
+   8    October 28th was also the date on which an article discussing the impact of the one-time gain and the Company's failure to disclose it in the Earnings Release appeared in the  Atlantic City Press . 
+
+   9    As explained in note 1 above, the Earnings Release did not use the term  pro forma  but the figures in the Release were  pro forma  numbers in that they differed from numbers calculated in conformity with GAAP.  Even if the Release had identified the numbers as  pro formas , however, the Release would still have been misleading for the reasons discussed above.  The presence or absence of the term  pro forma  is not, in and of itself, dispositive of the question of whether an earnings release or financial statement is misleading. 
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diff --git a/raw/aaer/2002/AAER-1500.txt b/raw/aaer/2002/AAER-1500.txt
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+       
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+ LITIGATION RELEASE NO. 17319 / January 16, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1500 / January 16, 2002
+
+   Securities and Exchange Commission v. Thomas W. Lambach , Case No. 1:CV-02-69 (M.D. Pa.)
+
+   SEC CHARGES FORMER CFO OF ATCHISON CASTING CORPORATION SUBSIDIARY UNIT WITH ACCOUNTING FRAUD  
+
+   Defendant Falsified Books and Records, Causing Income Overstatement and Concealing Theft of Over $900,000 
+
+    The Securities and Exchange Commission ("Commission") today charged Thomas W. Lambach, a former Controller and Chief Financial Officer of a subsidiary unit of Atchison Casting Corporation ("Atchison"), with accounting fraud.  The Commission's Complaint, filed in the United States District Court for the Middle District of Pennsylvania, alleges that, while Lambach was employed with Atchison's Pennsylvania Foundry Group ("PFG"), he stole more than $900,000 of corporate funds and made numerous false accounting entries in the PFG's books and records, which had the effect of concealing his theft and making the PFG and, in turn, Atchison, appear more profitable than they were.
+
+  Specifically, the Complaint alleges that Lambach made or caused to be made "miscellaneous adjustment" journal entries over a multi-year period to alter balances in various of the PFG's accounts.  These adjustments lacked any economic or accounting justification.  Mr. Lambach also allegedly created fictitious asset and other accounts that lacked any support or substance.  During the same period, Lambach stole more than $900,000 of corporate funds by writing numerous unauthorized checks payable to himself from certain Atchison bank accounts.  
+
+  The Complaint further details that Lambach, in his position as CFO of the PFG, regularly compiled and transmitted the fraudulent accounting information for the PFG to Atchison's corporate offices for inclusion in the company's consolidated financial statements.  As a result of Lambach's conduct, the periodic reports filed by Atchison with the Commission for its fiscal years ending June 30, 1997, 1998, 1999, and 2000, contained materially false and misleading consolidated financial statements.  More specifically, the Complaint alleges that, over that period, Atchison's net income was overstated by between 12% and 575% and its operating income was overstated by as much as 1580%.  The Commission also alleges that Lambach actively attempted to conceal his accounting fraud and theft by interfering with an audit conducted by Atchison's independent auditors in July and August 2000.     
+
+  Lambach resigned his position in October 2000, and, on November 2, Atchison announced that it had discovered accounting errors involving the PFG and that it had begun an investigation into the matter.  On April 24, 2001, Atchison announced it had completed its investigation and restated its financial statements for the fiscal years ended June 30, 1997 through June 30, 2000, including a reduction in net income of approximately $24.5 million over that period.    
+
+  The Commission alleges that Lambach's conduct violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5 and 13b2-1 thereunder.  Lambach has agreed to settle the charges brought against him without admitting or denying the allegations set forth in the Complaint.  Lambach has consented to the entry of a final judgment permanently enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder.  In addition, the final judgment to which Lambach consented provides that he is permanently barred from acting as an officer or director of any public company.  
+
+  The United States Attorney's Office for the Middle District of Pennsylvania has filed criminal charges against Lambach related to the same conduct.  The thirteen-count indictment, filed on December 6, 2001, charges Lambach with twelve counts of wire fraud and one count of conspiracy.  
+  
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+          SEC Complaint  in this matter.    
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diff --git a/raw/aaer/2002/AAER-1502.txt b/raw/aaer/2002/AAER-1502.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2a3a6a9f262f900586af7ff7f7ffb2b5628f5543
--- /dev/null
+++ b/raw/aaer/2002/AAER-1502.txt
@@ -0,0 +1,1367 @@
+
+
+ 
+ 
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+     SEC.gov | Patrick O. Wheeler, Steven S. Gallers, Robert L. Carberry 
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+              Patrick O. Wheeler, Steven S. Gallers, Robert L. Carberry
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+        Patrick O. Wheeler, Steven S. Gallers, Robert L. Carberry
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+ Cyberguard's Former Chairman Of The Board Settles 
+ SEC Charges and Agrees To Pay $50,000 Penalty
+ Cyberguard and Two Former Officers Settle 
+ Cease-and-Desist Proceeding 
+ On January 30, 2002, the Commission filed two related enforcement proceedings arising from a wide-ranging accounting fraud at CyberGuard Corporation, a Fort Lauderdale-based company in the business of developing and selling computer network security systems.  First, the Commission filed a lawsuit in federal court in Miami charging three former CyberGuard officers - Patrick O. Wheeler, Steven S. Gallers, and Robert L. Carberry - with securities fraud and other violations.  Second, the Commission issued a settled cease-and-desist order finding that CyberGuard and two other former officers - William D. Murray, and Tommy D. Steele - violated the periodic reporting, books-and-records, and internal accounting controls provisions of the federal securities laws.
+  As described in the Commission's complaint and order, CyberGuard engaged in a number of improper accounting practices that required the company to restate its financial statements for the fiscal year ended June 30, 1997 (including all interim quarters and its beginning balance sheet as of July 1, 1996) and for the first three quarters of its fiscal year ended June 30 1998.  According to the Commission, CyberGuard's improper accounting practices departed from both generally accepted accounting principles ("GAAP") and CyberGuard's own stated revenue recognition policies.  Specifically, the Commission found that CyberGuard: (i) improperly wrote off $3.244 million in capitalized software costs at the end of its 1996 fiscal year, which inflated the company's reported profit margins by approximately 43.5% for its 1997 fiscal year and by approximately 4.4% for the first three quarters of its 1998 fiscal year; and (ii) improperly recognized revenue during its 1997 and 1998 fiscal years, which inflated the company's reported revenues by approximately $1.4 million (or 9.8%) for the 1997 fiscal year and by approximately $2.2 million (or 17%) for the first three quarters of the 1998 fiscal year.
+  In the federal lawsuit, the Commission alleged that Wheeler (CyberGuard's former chief financial officer and vice president of North American sales, and current vice president of business development) and Carberry (CyberGuard's former chairman of the board, chief executive officer, and president) signed off on the improper write-off of capitalized software costs when they knew, or were reckless in not knowing, that the write-off was improper under GAAP.  The complaint further alleges that Wheeler and Carberry made, directly or indirectly, materially false and misleading statements, and omitted to state material facts, in their communications with CyberGuard's outside auditors about the reasons for the write-off.
+   According to the complaint, Wheeler, Carberry, and Gallers (CyberGuard's former controller and assistant treasurer) were all involved in CyberGuard's improper revenue recognition during its 1997 and 1998 fiscal years.  Wheeler allegedly knew, or was reckless in not knowing, that CyberGuard materially misstated its reported revenues during the 1997 fiscal year and certain quarters of the 1998 fiscal year as a result of improperly booking revenue from contingent sales.  Wheeler is further alleged to have misrepresented to the auditors, in connection with the company's 1997 fiscal-year audit, that CyberGuard had no contingent agreements.  Carberry allegedly knew, or was reckless in not knowing, that CyberGuard improperly booked revenue from a contingent transaction accounting for substantial revenues reported for the quarter ended September 30, 1997, and accelerated revenue recognition during the March 31, 1998 quarter on incomplete sales transactions.  Gallers is alleged to have improperly booked revenue from contingent transactions, and accelerated revenue recognition on after-quarter shipments of product, over the seven quarters ended March 31, 1998, which he knew, or was reckless in not knowing, materially misstated CyberGuard's financial results.     
+  The Commission charged Wheeler, Carberry, and Gallers with securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, and with knowingly falsifying the books, records, and accounts of CyberGuard, and knowingly circumventing or failing to implement adequate internal controls, in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1.  The Commission also charged Wheeler and Carberry with misleading CyberGuard's auditors in violation of Exchange Act Rule 13b2-2.  The Commission is seeking injunctions and civil penalties against all three defendants, and officer-and-director bars against both Wheeler and Gallers.  Without admitting or denying the allegations of the complaint, Carberry consented to the entry of a final judgment permanently enjoining him from violating the foregoing provisions, and requiring him to pay a $50,000 civil penalty.  
+  In the related cease-and-desist order, the Commission found that CyberGuard violated the periodic reporting provisions of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, and 13a-13, the books-and-records provisions of Exchange Act Section 13(b)(2)(A), and the internal accounting controls provisions of Exchange Act Section 13(b)(2)(B), and ordered CyberGuard to cease and desist from violating those provisions in the future.  The Commission's order further found that Murray (a former chief financial officer of CyberGuard) and Steele (a former chief operating officer of CyberGuard) knowingly circumvented or failed to implement internal controls at CyberGuard, and knowingly falsified CyberGuard's books and records, in violation of Exchange Act Section 13(b)(5) and Rule 13b2-1, and were causes of CyberGuard's violations, and ordered them to cease and desist from committing or causing such violations in the future.  Without admitting or denying the Commission's findings, CyberGuard, Murray, and Steele each consented to entry of the Commission's order.  
+  
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diff --git a/raw/aaer/2002/AAER-1503.txt b/raw/aaer/2002/AAER-1503.txt
new file mode 100644
index 0000000000000000000000000000000000000000..472fe3f098d061a56007ca19538d878b051c1fae
--- /dev/null
+++ b/raw/aaer/2002/AAER-1503.txt
@@ -0,0 +1,1578 @@
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+              Critical Path, Inc.
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+        Critical Path, Inc.
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No.  45393 / February 5, 2002 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1503 / February 5, 2002 
+
+ ADMINISTRATIVE PROCEEDING 
+File No.  3-10693 
+
+     
+
+In the Matter of    
+
+CRITICAL PATH, INC.,     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS AND IMPOSING 
+A CEASE-AND-DESIST ORDER     I. 
+
+ The Securities and Exchange Commission deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Critical Path, Inc. committed or caused violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-13 thereunder. 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Critical Path has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept.  Solely for purposes of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction over it and over the subject matter of these proceedings, which Critical Path admits, Critical Path consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").  In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Critical Path and cooperation afforded the Commission staff.   
+
+ III. 
+Facts 
+
+ Based on the foregoing, the Commission finds:  1   
+
+ A. Respondent 
+
+ Critical Path, Inc. is a California corporation with principal offices in San Francisco. From its initial public offering in March 1999 to the present, Critical Path's common stock has been registered with the Commission pursuant to Section 12(g) of the Exchange Act and has been quoted on the Nasdaq Stock Market.  The company is a provider of Internet messaging infrastructure products and services. 
+
+ B. Summary 
+
+ For two successive fiscal quarters in late 2000, Critical Path materially overstated its revenue, and materially understated its loss, in contravention of Generally Accepted Accounting Principles (GAAP).  The company filed materially incorrect financial statements with the Commission for the third quarter of fiscal 2000 (ended September 30, 2000).  On January 18, 2001, Critical Path issued a press release containing materially incorrect statements of operations and financial position for the fourth quarter and the year 2000.  Certain Critical Path managers, including its president, its sales chief and others, caused this incorrect recording of revenue by creating spurious sales contracts, hiding contingencies affecting revenue recognition, and backdating software license agreements.   
+
+ Critical Path's finance department uncovered improper practices before incorrect fourth quarter and annual financial statements were filed with the Commission.  The company's board of directors conducted an internal investigation, fired the wrongdoers, hired a new management team, and improved internal controls.  On April 5, 2001, Critical Path restated its financial results for the third quarter and revised results for the fourth quarter and full year 2000.   
+
+ C. Background and Critical Path's Forecast of Profitability For the Fourth Quarter of 2000 
+
+ Critical Path was founded in 1997.  Its business plan was to provide e-mail software and services to companies that wished to outsource that function.  In 1998 Critical Path had revenue of $897,000 and lost $11.4 million.  Three months into 1999, the company went public.  During the next year, Critical Path used its stock and the cash from the IPO to buy a number of companies with related technology.  This enabled Critical Path to offer a suite of products and become the leader in the nascent outsourced e-mail and messaging market.  But like many Internet companies, Critical Path was not making a profit. 
+
+ After reporting revenue of $16.1 million for the year ended December 31, 1999, the company reported revenue of $24.6 million in the first quarter of 2000 alone.  The next quarter revenue jumped to $33.5 million, beating consensus revenue estimates by almost $6 million.  Critical Path reported a net loss for the second quarter (excluding special charges) of  $20.2 million, or thirty-four cents per share, but beat consensus earnings-per-share estimates by two cents.  When Critical Path's CEO announced second quarter results to analysts on July 19, 2000, he predicted that for the fourth quarter of 2000 Critical Path would, for the first time, report a profit, excluding special charges.  Critical Path had publicly set itself the task of moving from a $20.2 million quarterly net loss to profitability in just two quarters. 
+
+ D. Third Quarter 2000:  Critical Path Overstates Revenue and Understates Loss 
+
+ As the third quarter drew to a close, the company was short of meeting its revenue and earnings goals.  To meet consensus earnings estimates by analysts who followed the company, Critical Path's president engaged in or oversaw several transactions that the company should not have reported, but did report, as revenue on its third quarter Form 10-Q.  
+
+ The largest misstated transaction involved a barter transaction with a business software company.  On September 28, 2000, the software company agreed to buy out a periodic royalty obligation  2   for $2.8 million and buy another $240,000 of software; in exchange, Critical Path's president signed an agreement obligating Critical Path to buy about $4 million of software and services from the software company, $2.6 million more than Critical Path was set to purchase just days before. To recognize revenue from such a barter transaction in conformity with GAAP, Critical Path needed to establish the fair value of either the software it received from or the software it sent to the software company, and the value ascribed to the software Critical Path was receiving had to reasonably reflect Critical Path's expected use of the software.  3    Although these requirements were not satisfied, Critical Path recorded a $3.09 million sale to the software company as revenue for the third quarter.  After completing the internal investigation and annual audit, Critical Path permanently reversed the entire $3.09 million.  
+
+ Another misstated transaction involved a $536,000 contract with an Internet portal company.  Critical Path's president agreed to extend payment terms well beyond the company's standard payment terms.  In an attempt to evade Critical Path's internal controls and the scrutiny of the company's independent accountants, he put the extension in a side letter and did not provide it to the finance department.  Under GAAP, extended payment terms raise various concerns and can prevent a sale from being immediately recognized as revenue.  4    Critical Path included the revenue from this transaction in its third quarter financial statements.  After completing the internal investigation and annual audit, Critical Path reversed the entire $536,000 amount for several reasons, including the side letter granting extended payment terms, with plans to recognize the revenue in a later period.     
+
+ Critical Path did not have internal accounting controls sufficient to ensure that all elements of SOP 97-2 were satisfied before a software license agreement was recorded as revenue.  After the end of the third quarter, Critical Path's European division recorded as third quarter sales three software license transactions valued at a total of $1.395 million.  The company included the revenue from the three sales in its third quarter financial statements.  In the restatement, Critical Path reversed this revenue and recognized it in the fourth quarter because persuasive evidence of an arrangement-as required by SOP 97-2-did not exist in the third quarter.   
+
+ By including in third quarter revenue these five later-restated transactions, Critical Path exceeded consensus earnings estimates for the quarter.  On October 19, 2000, Critical Path announced third quarter revenue of $45 million and a loss of fourteen cents per share (excluding special charges).  On November 14, 2000, the company filed financial statements with the Commission for the quarter ended September 30, 2000, that improperly included revenue from the later-restated transactions. 
+
+ E. Fourth Quarter 2000:  Critical Path Issues Press Release Overstating Revenue and Understating Loss For Fourth Quarter and Year 2000 
+
+ In October 2000, Critical Path's CEO publicly stated that the company was increasing its fourth quarter revenue estimate from $54 million to $56 million and reiterated his earlier prediction that the company would earn its first quarterly profit-one cent per share.  On November 2, Critical Path issued a press release reiterating that guidance. 
+
+ In December 2000, the company was in a race to close sales and reduce costs before the end of the month so that it could announce a profit for the quarter as promised.  In the final week, Critical Path's president and its sales chief concluded there were no legitimate means by which Critical Path could achieve the ambitious revenue and earnings goals the company had announced.  The president told the sales chief to get approximately $4 million in "back pocket" deals and assured him that Critical Path could use its bad debt reserve to absorb the losses when the purported customers failed to pay. 
+
+ Because Critical Path's finance department required that at least an evaluation agreement be signed by a potential customer before it would ship software, the sales chief instructed the sales force to secure all possible deals (whether real or not) at least to the point of getting an evaluation agreement so that software could be shipped.  The plan was to get final agreements signed at some later date, and to backdate them if necessary. 
+
+ The result of this plan was the recording of revenue from three $2 million spurious or contingent transactions and three smaller backdated agreements.  As those carrying out the plan at Critical Path and the customers' representatives knew, in two of these $2 million transactions the customers had no intention of buying the software.  The third transaction-a $2.221 million software license agreement with a company that provides Internet access to schools-was accompanied by two secret side letters that allowed the company to void the transaction at its sole discretion.  After completing the internal investigation, Critical Path permanently reversed the entire $6.35 million from these three transactions.  
+
+ After the end of the year, Critical Path employees closed and backdated three sales agreements valued at a total of $825,000.  Critical Path included these sales in the fourth quarter results it initially announced.  In the restatement, Critical Path moved the revenue to the first quarter of 2001. 
+
+ On January 11, 2001, Critical Path's president directed Critical Path personnel to backdate to December a $750,000 sale just made to a multimedia software company.  In addition, the company planned to recognize a $7 million sale to a firm-ostensibly a value-added reseller-that was formed for this transaction and was owned by a group that owned a substantial amount of Critical Path stock.  With the revenue from these transactions, Critical Path would beat consensus estimates for revenue-but not earnings-for the quarter. 
+
+ On about that day, however, a Critical Path finance officer disclosed the backdating of the $750,000 multimedia software company contract to Critical Path's new CFO.  5    The new CFO corrected the contract date and did not allow the revenue to be recorded in the fourth quarter.  On January 17, Critical Path's independent accountants told the new CFO that the company should not record as revenue the $7 million transaction with the reseller because, in its view, both the reseller and the business objectives of the transaction lacked substance.  Critical Path agreed not to record the revenue.   
+
+ Critical Path had failed to meet revenue estimates for the quarter despite including in quarterly revenues additional transactions that were later revised.  After the market closed on January 18, 2001, Critical Path announced unaudited condensed consolidated operating results for the fourth quarter and year 2000 "prepared and presented in accordance with generally accepted accounting principles."  Even though the announced results for the fourth quarter were materially overstated, they were below consensus estimates for both revenue and earnings.  Critical Path had forecast a one cent per share profit on revenue of $54 to $56 million.  It now reported a loss of $11.5 million for the quarter, or sixteen cents per share, on revenue of $52 million.  On the news of the missed quarterly estimates, Critical Path's stock price plummeted.  By the close of the first full day of trading after the announcement, it had dropped 55%, from $20 to $9. 
+
+ F.  January 31, 2001: The Plan Is Discovered 
+
+ On January 31, 2001, Critical Path's new CFO learned about the misconduct and alerted the company's board, which held an emergency meeting on February 1.   The board took a number of steps, including forming a special committee to conduct an investigation and placing the company's president and sales chief on administrative leave.  The company's independent auditors were also alerted. 
+
+ On February 2, before the market opened, Critical Path issued a press release disclosing that its board had formed a special committee to conduct an investigation into the company's revenue recognition practices, and that it now believed that the results the company announced on January 18 might have been materially misstated.  Nasdaq suspended trading in the stock before the market opened pending the company's release of accurate financial results.  Trading resumed on February 15 after the company announced, on a preliminary basis, that it would revise its fourth quarter revenue downward by $6.5 to $8 million, and that approximately $4.2 million of the revision would involve transactions that would never result in revenue.  That day Critical Path's share price closed at $3.06, a decline of approximately 70% from $10.06, the last Nasdaq price before the trading halt. 
+
+ On April 5, 2001, Critical Path filed its Form 10-K for fiscal 2000.  The following table compares the originally reported or announced financial results with the restated or revised results: 
+
+   Line Item 
+ As Originally Released 
+ As Restated or Revised 
+ % Original Was Over- or Understated     3rd Quarter 2000 Revenues  
+  $45,000,000  
+  $35,300,000  
+  27.47%      3rd Quarter 2000 Net Loss  
+  (8,700,000)  
+  (18,600,000)  
+  53.22%      4th Quarter 2000 Revenues  
+  52,000,000  
+  42,300,000  
+  22.93%      4th Quarter 2000 Net Loss  
+  (11,500,000)  
+  (23,300,000)  
+  50.64%      Fiscal 2000 Revenues  
+  155,000,000  
+  135,700,000  
+  14.22%      Fiscal 2000 Net Loss  6    
+  $(57,200,000)  
+  $(78,900,000)  
+  27.50%     IV. 
+Legal Discussion 
+
+ A. Critical Path Violated the Periodic Reporting Provisions of the Exchange Act 
+
+ Section 13(a) of the Exchange Act requires issuers to file such annual and quarterly reports as the Commission may prescribe and in conformity with such rules as the Commission may promulgate. Rule 13a-13 requires the filing of quarterly reports that comply with the Commission's Regulation S-X, which requires that financial statements be presented in conformity with GAAP.   
+
+ As described above, the Form 10-Q filed by Critical Path for the third fiscal quarter of 2000 (ended September 30, 2000), contained financial statements that were not presented in conformity with GAAP.  Consequently, Critical Path violated Section 13(a) of the Exchange Act and Rule 13a-13 thereunder. 
+
+ B. Critical Path Violated the Record-Keeping and Internal Controls Provisions of the Exchange Act 
+
+ Section 13(b)(2)(A) of the Exchange Act requires issuers to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer."  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain the accountability of assets.    
+
+ Critical Path's books and records contained extensive false and misleading entries relating to, among other things, spurious, contingent, and backdated software license agreements, and so did not fairly and accurately reflect the company's sales and receivables.  Critical Path therefore violated Section 13(b)(2)(A). 
+
+ Critical Path also violated Section 13(b)(2)(B).  Company management did not devise a sufficient system of internal accounting controls or enforce the control procedures that were in place.  
+
+ V. 
+Findings 
+
+ On the basis of this Order and the Offer of Settlement submitted by the Respondent, the Commission finds that Critical Path violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-13 thereunder. 
+
+ VI. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that Critical Path, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-13 thereunder. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1    The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding. 
+
+   2     At the end of the second quarter 2000, the business software company had contracted to pay $500,000 for a source code license for one of Critical Path's applications, which the other software company planned to bundle with its own products.  Under the arrangement the other software company was also to pay certain royalties to Critical Path based on the other software company's future sales of the bundled product.  The other software company also had an option to buy out the future royalty obligation for $3 million.   
+
+   3     Accounting Principles Board Opinion No. 29,  Accounting for Non-monetary Transactions ; American Institute of Certified Public Accountants (AICPA) Technical Practice Aid 5100.47.  An exchange between the parties of a barter transaction of offsetting monetary consideration, such as a swap of checks for equal amounts, does not evidence the fair value of the transaction.  Emerging Issues Task Force 99-17,  Accounting for Advertising Barter Transactions , paragraph 4. 
+
+   4      GAAP generally requires that software revenue be recorded in conformity with Statement of Position 97-2,  Software Revenue Recognition , issued by the Accounting Standards Executive Committee of the AICPA.  Paragraph 8 of SOP 97-2 states that if the arrangement to deliver software does not require significant production, modification, or customization of software, revenue should be recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the vendor's fee is fixed or determinable, and (iv) collectibility is probable.  
+
+   5     Although his predecessor had left the company in November 2000, the new CFO did not report for work until January 3, 2001.   
+
+   6     Excludes special charges. 
+
+ 
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+     SEC.gov | David A. Thatcher and Timothy J. Ganley 
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+              David A. Thatcher and Timothy J. Ganley
+           
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+        David A. Thatcher and Timothy J. Ganley
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+ Litigation Release No. 17353 / February 5, 2002
+
+  Accounting and Auditing Release No. 1504 / February 5, 2002
+
+   Securities and Exchange Commission v. David A. Thatcher and Timothy J. Ganley , Civil Action No. C-02-0621 (SBA) (N.D. Cal.) (Feb. 5, 2002)
+
+   SEC CHARGES TWO FORMER CRITICAL PATH EXECUTIVES 
+WITH SECURITIES FRAUD 
+
+  The Securities and Exchange Commission filed a civil action today charging two former executives of Critical Path, Inc., a California company that provides e-mail services, with participating in a scheme to inflate the company's revenues and earnings for fiscal 2000.  Named in the complaint were David A. Thatcher, 46, of Rancho Santa Fe, California, the former president of Critical Path, and Timothy J. Ganley, 45, of Aptos, California, a former vice-president of sales at the company.  Separately, the Commission instituted and settled an administrative proceeding against Critical Path charging the firm with violations of the periodic reporting, books and records, and internal control provisions of the Securities Exchange Act of 1934.
+
+    The complaint filed in the civil action alleges that during 2000 and early 2001 Thatcher and other Critical Path employees caused Critical Path to record revenue from eight fictitious, contingent, or backdated transactions in the third and fourth quarters of fiscal 2000.  As a result, Critical Path improperly recorded revenue totaling approximately $10.8 million during fiscal 2000.  During part of that period Thatcher was the acting Chief Financial Officer for the company.  As a result of the conduct, the net loss reported by Critical Path in its Form 10-Q for the third quarter of 2000 was understated by over 50 percent.  On January 18, 2001, Critical Path issued a press release announcing its financial results for 2000, and the improperly recorded revenue was included in the results released, causing Critical Path's net loss for the year to be understated by over 27 percent.  Before Critical Path filed its annual report on Form 10-K for fiscal 2000, the scheme unraveled, and in February 2001, the company announced that it would revise its previously reported results to reverse improperly recorded transactions.  Following that announcement, Critical Path's share price plunged approximately 70 percent.
+
+    The Commission's complaint also charges that Ganley participated in one of the eight transactions, a fictitious sale for which Critical Path improperly recorded revenue of $2 million, and alleges that Ganley then illegally sold 1,300 shares of Critical Path stock in January 2001 based on information he possessed about the fraud and the company's true financial condition.
+
+    Simultaneously with the filing of the Commission's complaint, without admitting or denying the Commission's allegations, Thatcher and Ganley consented to the entry of final judgments imposing the relief detailed below.
+
+    As to Thatcher:
+
+      A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rule 13a-13;
+
+       Payment of a $110,000 civil penalty for his participation in the financial fraud; and 
+
+       A five-year bar from acting as an officer or director of a public company.
+   In addition, Thatcher has agreed to the issuance of a Commission order, pursuant to Rule 102(e) of the Commission's Rules of Practice, denying him the privilege of appearing or practicing before the Commission as an accountant, based on the entry of the injunction. 
+
+    As to Ganley:
+
+      A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act;
+
+       Payment of over $105,900 in penalties and disgorgement, as follows:
+
+         disgorgement of the $27,950 loss he avoided by engaging in insider trading, plus prejudgment interest;
+
+         a $27,950 civil penalty for insider trading; and
+
+         a $50,000 civil penalty for his participation in the fictitious transaction that was part of the financial fraud.
+   In the related administrative proceeding against Critical Path, without admitting or denying the Commission's findings, Critical Path consented to an order finding that the company violated the periodic reporting, books and records, and internal control provisions of the Exchange Act.  The order directs Critical Path to cease and desist from committing or causing violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rule 13a-13.    In the Matter of Critical Path, Inc. ,  Exchange Act Release No. 34-45393, February 5, 2002.  
+
+    In a related matter, the United States Attorney's Office for the Northern District of California today announced criminal charges against Thatcher and Ganley.
+
+    The Commission thanks the U.S. Attorney's Office for the Northern District of California and the Federal Bureau of Investigation for their cooperation in this matter.
+
+    The Commission's investigation in this matter is continuing.
+
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diff --git a/raw/aaer/2002/AAER-1505.txt b/raw/aaer/2002/AAER-1505.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fe3142522b4b48922f97366f253cfcb7798e5164
--- /dev/null
+++ b/raw/aaer/2002/AAER-1505.txt
@@ -0,0 +1,1518 @@
+
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+     
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+ 
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+     
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+     SEC.gov | William H. Warner and Robert J. Quigley 
+     
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+           
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+        William H. Warner and Robert J. Quigley
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 45441 / February 13, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1505 / February 13, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10699
+
+        In the Matter of   
+  WILLIAM H. WARNER and 
+  ROBERT J. QUIGLEY, 
+          Respondents.   
+    
+    : : : : : : : :   
+  ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT     TO SECTION 21C OF THE    SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS  AND IMPOSING A CEASE-AND-DESIST ORDER       I 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against William H. Warner ("Warner") and Robert J. Quigley ("Quigley").
+
+               II 
+
+    In anticipation of the institution of these administrative proceedings, Warner and Quigley (collectively, "Respondents") have each submitted an Offer of Settlement, which the Commission has determined to accept.  Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except for the jurisdiction of the Commission over them and over the subject matter of these proceedings, which each Respondent admits, the Respondents, by their Offers, consent to the entry of this order, and the findings and the imposition of the cease-and-desist Order set forth below.
+
+   III 
+
+    The Commission makes the following findings:  1     A.  SUMMARY  
+
+    Respondents Warner and Quigley violated the reporting, record-keeping and internal control provisions of the Exchange Act by causing International Thoroughbred Breeders, Inc. ("ITB" or "the company") to improperly disclose and account for certain related party transactions involving the company's former chief executive officer.    
+
+   B.  RESPONDENTS  
+
+            
+
+     William H. Warner  ("Warner") has been the chief financial officer and treasurer of ITB from 1983 until the present.  Warner is a certified public accountant licensed in New Jersey.
+
+     Robert J. Quigley  ("Quigley") has been a director of ITB from 1980 until the present.  He was president of ITB during the relevant period.
+
+   C.  OTHER RELEVANT ENTITIES AND INDIVIDUALS   
+
+   International Thoroughbred Breeders, Inc.  is a Delaware corporation headquartered in New Jersey.  During the relevant period, ITB owned and operated two racetracks in New Jersey.  ITB's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and was traded on the American Stock Exchange until August 1998, when it was delisted.  During the relevant period, ITB filed periodic reports with the SEC pursuant to Section 13(a) of the Exchange Act.  ITB's fiscal year ends June 30. 
+
+   Nunzio DeSantis  ("DeSantis") was a board member and chief executive officer of ITB from January 1997 until his resignation from the company in January 1999.  During that same period, DeSantis was chairman of the board, president and chief executive officer of Autolend Group, Inc.   ("Autolend"), a sub-prime lender headquartered in Albuquerque, New Mexico.  2     D. RESPONDENTS CAUSED ITB TO IMPROPERLY DISCLOSE AND  ACCOUNT FOR CERTAIN RELATED PARTY TRANSACTIONS   
+
+      1. ITB's December 31, 1996 Form 10-Q  
+
+  Immediately after taking control of ITB in January 1997, DeSantis instructed Warner to issue a $150,000 check to his other company, Autolend, which DeSantis knew was then experiencing financial difficulties.  The purpose of this payment was represented to Warner as reimbursement to Autolend for financing charges incurred on ITB's behalf in December 1996.  Warner failed to record an expense for the $150,000 Autolend payment on ITB's books and records for the quarter ended December 31, 1996, as required by generally accepted accounting principles.  As a result, ITB's loss for the quarter ended December 31, 1996 was materially understated by $150,000 or approximately 5 percent.  Warner also failed to disclose the related-party nature of the Autolend payment, as required by Item 404 of Regulation S-K [17 C.F.R. § 229.404].  On or about February 13, 1997, Warner and Quigley signed ITB's Form 10-Q for the quarter ended December 31, 1996.  That document, which was filed with the Commission on or about February 15, 1997, was materially false and misleading because it failed to disclose and properly account for the Autolend payment.
+
+
+
+     2.  ITB's March 31, 1997 Form 10-Q   
+
+  In February 1997, DeSantis instructed Warner to begin paying salaries and operating expenses for Southwest Jet.  A corporate airline charter service,  Southwest Jet had no assets of its own and operated an airplane partially owned by DeSantis.  Louis DeSantis, DeSantis' twenty-three year old son, operated Southwest Jet.  Around the same time, DeSantis instructed Warner to place an individual who turned out to be DeSantis' personal cook on the ITB payroll.  ITB's payments on behalf of Southwest Jet and DeSantis' cook totaled approximately $160,000 as of March 31, 1997.  These related party payments constituted approximately 10 percent of ITB's net loss for the quarter and contributed to a cash-flow crisis.  Warner failed to disclose the related-party nature of ITB's payments on behalf of Southwest Jet and DeSantis' cook, as required by Item 404 of Regulation S-K [17 C.F.R. § 229.404].  Warner instead accounted for them as part of general and administrative expenses.
+
+  In March 1997, Warner made certain disclosures concerning related party transactions to Quigley and the compensation committee.  On or about May 19, 1997, Warner and Quigley signed a management representation letter to ITB's outside accountants that misrepresented that all material transactions had been properly accounted for and that all related party transactions had been properly disclosed.  On or about May 20, 1997, Warner and Quigley signed ITB's Form 10-Q for the quarter ended March 31, 1997.  That document, which was filed with the Commission on or about May 20, 1997, was materially false and misleading because it failed to disclose the related-party nature of the company's payments on behalf of Southwest Jet and DeSantis' cook.   
+
+   IV 
+
+   A. RESPONDENTS CAUSED ITB'S VIOLATIONS OF THE REPORTING  PROVISIONS OF THE EXCHANGE ACT  
+
+  Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of registered securities to file with the Commission factually accurate quarterly reports.  Exchange Act Rule 12b-20 requires that periodic reports contain all information necessary to ensure that statements made in such reports are not materially misleading.  Financial statements incorporated in Commission filings must comply with Regulation S-X, which in turn requires conformity with generally accepted accounting principles.  No showing of scienter is necessary to establish civil violations of Section 13(a) or the rules promulgated thereunder.   See   SEC v. McNulty , 137 F.3d 732, 740-41 (2d Cir. 1998);  cf .  Savoy Indus. , 587 F.2d at 1167.  ITB violated Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder by filing quarterly reports for the quarters ended December 31, 1996 and March 31, 1997 that failed to properly account for and/or disclose certain related party transactions.
+
+  Section 21C of the Exchange Act authorizes the Commission to issue a cease-and-desist order on a showing that respondent was a cause of a securities law violation.  Section 21C(a) provides in relevant part:
+
+     If the Commission finds, after notice and opportunity for hearing, that any person is violating, has violated, or is about to violate any provision of this title, or any rule or regulation thereunder, the Commission may publish its findings and enter an order requiring such person, and any other person that is, was, or would be a cause of the violation, due to an act or omission the person knew or should have known would contribute to such violation, to cease and desist from committing or causing such violation and any future violation of the same provision, rule, or regulation.
+
+   Warner and Quigley caused ITB's reporting violations within the meaning of Section 21C of the Exchange Act.  Warner was aware of the relevant related party transactions, but failed to ensure that they were properly accounted for and/or disclosed in the two Forms 10-Q he prepared and signed.  By March 1997, Quigley was aware of the related party transactions, yet he signed the March 31 Form 10-Q without ensuring that they were properly disclosed.           
+
+
+
+   B. RESPONDENTS VIOLATED THE RECORD-KEEPING AND  INTERNAL CONTROLS PROVISIONS OF THE EXCHANGE ACT   
+
+  Section 13(b)(2)(A) of the Exchange Act requires a reporting company to make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect its transactions and disposition of assets.  Section 13(b)(2)(B) of the Exchange Act requires every reporting company to devise and maintain an adequate system of internal accounting controls.  No showing of scienter is necessary to establish civil violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.   See    SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 745-752 (N.D. Ga. 1983).  ITB violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act by maintaining books, records and accounts which failed to accurately and fairly reflect certain related party transactions and by maintaining an inadequate system of internal controls over those transactions.  Warner caused ITB's record-keeping and internal control violations within the meaning of Section 21C of the Exchange Act as a result of his failure to properly record the related party transactions as discussed above.  
+
+  Rule 13b2-1 of the Exchange Act prohibits any person from directly or indirectly falsifying a book, record or account subject to Section 13(b)(2)(A).  Rule 13b2-2 of the Exchange Act prohibits any director or officer of an issuer from directly or indirectly making a materially false or misleading statement to an accountant in connection with any audit or examination of financial statements. Warner violated Rule 13b2-1 by causing ITB's books, records and accounts to be in violation of Section 13(b)(2)(A) by improperly accounting for the related party transactions discussed above.  Warner and Quigley violated Rule 13b2-2 by signing the false and misleading management representation letter to ITB's outside accountants.  
+
+   V 
+
+  Based on the foregoing, the Commission finds that:
+
+    A. Warner caused ITB's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, and violated Rules 13b2-1 and 13b2-2 directly; and
+
+    B. Quigley caused ITB's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, and violated Rule 13b2-2 directly. 
+
+      VI 
+
+  Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that:
+
+    A. Warner cease and desist from causing any violation or future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder and from committing or causing any violation and any future violation of Rules 13b2-1 and 13b2-2; and
+
+    B. Quigley cease and desist from causing any violation or future violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder and from committing or causing any violation and any future violation of Rule 13b2-2.
+
+  By the Commission
+
+              Jonathan G. Katz
+                                                                                     Secretary       
+  
+  Footnotes 
+     1        The findings herein are not binding on anyone other than Warner and Quigley.       2        The Commission filed a related civil injunctive action against DeSantis and ITB.            
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diff --git a/raw/aaer/2002/AAER-1506.txt b/raw/aaer/2002/AAER-1506.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6b68495bde977e08250bad85204d0034b287e455
--- /dev/null
+++ b/raw/aaer/2002/AAER-1506.txt
@@ -0,0 +1,1379 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | International Thoroughbred Breeders, Inc., and Nunzio DeSantis 
+     
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              International Thoroughbred Breeders, Inc., and Nunzio DeSantis
+           
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+             
+        International Thoroughbred Breeders, Inc., and Nunzio DeSantis
+       
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+
+ Litigation Release No.  17361 / February 14, 2002
+
+  Accounting and Auditing Enforcement
+ Release No. 1506 / February 14, 2002
+
+   Securities and Exchange Commission v. International Thoroughbred Breeders, Inc., and Nunzio DeSantis , Case No. 1:02CV00282 (D.D.C. filed February 13, 2002)
+
+   Securities and Exchange Commission v. Nunzio DeSantis , Case No. CIV-01-484 (D.N.M.) (April 30, 2001)
+
+  SEC CHARGES FORMER HORSE RACETRACK COMPANY AND THREE OF ITS OFFICERS FOR ACCOUNTING VIOLATIONS 
+
+    The Securities and Exchange Commission ("Commission") announced today that it filed a settled civil action alleging that Nunzio DeSantis ("DeSantis") of Albuquerque, New Mexico, violated anti-fraud, disclosure and tender offer provisions of the federal securities laws while an officer and director of two publicly traded companies, International Thoroughbred Breeders, Inc. ("ITB") of New Jersey, and AutoLend Group, Inc. ("AutoLend") of Albuquerque.  The Commission also announced that it instituted settled cease-and-desist proceedings against ITB's Chief Financial Officer, William H. Warner, and former President, Robert J. Quigley. 
+
+  In the federal court action, which was filed in the United States District Court for the District of Columbia, the Commission alleged that DeSantis aided and abetted ITB's failure to disclose and properly account for certain related party transactions in its Forms 10-Q for the quarters ended December 31, 1996 and March 31, 1997.  According to the Complaint, DeSantis repaid ITB the personal expenses paid on his behalf in 1999.  The Commission also alleged that DeSantis engaged in a scheme to defraud the holders of AutoLend's 9.5% convertible subordinated debentures during a self tender offer made on October 22, 1996 to the AutoLend bondholders, and that DeSantis aided and abetted AutoLend's failure to disclose related party transactions in the company's December 31, 1996 Form 10-Q and in its March 31, 1997 Form 10-K.  The allegations relating to AutoLend were originally contained in a complaint the Commission filed against DeSantis on May 1, 2001, in the United States District Court for the District of New Mexico [LR- 16985].  As part of a settlement with the Commission, the New Mexico case was dismissed and refiled as part of the District of Columbia action.    
+
+  DeSantis, without admitting or denying the allegations in the Complaint, consented to the entry of a final judgment permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 14e-5 (formerly Rule 10b-13) thereunder ,  and aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(e) and 14(e) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13e-4(j) (formerly Rule 13e-4(b)) thereunder pursuant to Section 20(e) of the Exchange Act.  DeSantis also agreed to pay a civil penalty of $80,000 and to be prohibited for a period of five (5) years from acting as an officer or director of any publicly traded company.  Without admitting or denying the allegations in the Complaint, ITB consented to the entry of a final judgment permanently enjoining it from future violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 promulgated thereunder.  
+
+  In the cease-and-desist proceedings, the Commission found that Warner and Quigley committed and caused violations of the reporting, record-keeping and internal control provisions of the Exchange Act by causing ITB to improperly disclose and account for certain related party transactions.  Without admitting or denying the Commission's substantive findings, Warner consented to the issuance of an order that he cease and desist from causing any violation or future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder and from committing any violations and any future violations of Rules 13b2-1 and 13b2-2, and Quigley consented to the issuance of an order that he cease and desist from causing any violation or future violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder and from committing any violation and any future violation of Rule 13b2-2 [Sec. Exch. Act Rel. No. 45441; AAE Rel No. 1502].
+  
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diff --git a/raw/aaer/2002/AAER-1508.txt b/raw/aaer/2002/AAER-1508.txt
new file mode 100644
index 0000000000000000000000000000000000000000..29d46f317eeec89b809f4b9265534a4ad4c0fa98
--- /dev/null
+++ b/raw/aaer/2002/AAER-1508.txt
@@ -0,0 +1,1372 @@
+
+
+ 
+ 
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+     SEC.gov | J. Donald Nichols, Jeb L. Hughes, and C. Sheldon Whittelsey, IV 
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+                                                                                                                                                                                                                                                                                                                                                 
+  
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+   
+
+                   
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+               Home 
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+              J. Donald Nichols, Jeb L. Hughes, and C. Sheldon Whittelsey, IV
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        J. Donald Nichols, Jeb L. Hughes, and C. Sheldon Whittelsey, IV
+       
+
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+   
+
+
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+                   
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+
+ Litigation Release No.    17366 / February 20, 2002        
+
+  Accounting and Auditing Enforcement Release No. 1508 / February 20, 2002
+
+   Securities And Exchange Commission v. J. Donald Nichols, Jeb L. Hughes, and C. Sheldon Whittelsey, IV, United States District Court for the Northern District of Georgia,  Civil Action No. 1:02-CV-478
+
+    The Securities and Exchange Commission announced that it filed a settled civil injunctive action on February 20, 2002, in United States District Court for the Northern District of Georgia, against J. Donald Nichols of Atlanta, GA, Jeb L. Hughes of Atlanta, GA, and C. Sheldon Whittelsey, IV of Marietta, GA.
+
+    The Commission's complaint alleges that the three defendants, all former officers of JDN Realty Corporation, a public company, arranged for cash and property to be transferred to Hughes and Whittelsey from third parties who sold real estate to JDN Realty.  Nichols, Hughes, and Whittelsey failed to inform JDN Realty's accounting department of this compensation arrangement, and they also failed to disclose certain other related-party transactions.  As a result, JDN Realty's public filings failed to disclose the executive officer compensation and related-party transactions, and by not properly accounting for the compensation, JDN Realty materially misstated its 1994 through 1997 annual financial statements and two quarterly financial statements in 1998.
+
+    Nichols, without admitting or denying the allegations in the Complaint, consented to the entry of a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act; Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act; and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 13b2-2, and 14a-9 thereunder. Nichols also agreed to pay a civil penalty of $110,000.  Hughes and Whittelsey, without admitting or denying the allegations in the Complaint, consented to the entry of final judgments permanently enjoining them from future violations of Section 17(a) of the Securities Act; Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(5), and 14(a) of the Exchange Act; and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 14a-9 thereunder.  Hughes and Whittelsey also agreed to pay civil penalties of $60,000 each and to be prohibited for a period of five (5) years from acting as an officer or director of any publicly traded company.
+  
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diff --git a/raw/aaer/2002/AAER-1509.txt b/raw/aaer/2002/AAER-1509.txt
new file mode 100644
index 0000000000000000000000000000000000000000..64b73d88c7953c82e5ede6f8e81201d414b7b03e
--- /dev/null
+++ b/raw/aaer/2002/AAER-1509.txt
@@ -0,0 +1,1366 @@
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+              Eagle Building Technologies, Inc. and Anthony Damato
+           
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+        Eagle Building Technologies, Inc. and Anthony Damato
+       
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+
+ LITIGATION RELEASE NO. 17389 / March 1, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION v. EAGLE BUILDING TECHNOLOGIES, INC. AND ANTHONY DAMATO , No. 1:02CV00397ESH (D.D.C.)
+
+  The Commission today filed an action in federal court and obtained preliminary injunctions against Eagle Building Technologies, Inc. and Anthony Damato for financial fraud and false and misleading statements.  The complaint alleges that Eagle and Damato engaged in a massive financial fraud by falsely recognizing millions of dollars of non-existent revenue from its foreign operations in India.  This revenue, which was reported in Eagle's 2000 Form 10-K and its Forms 10-Q for the first three quarters of 2001, was almost completely fictitious, according to the complaint.  Additionally, the complaint asserts that Eagle and Damato issued three false and misleading press releases touting anti-terrorism security measures marketed by Eagle that capitalized on the public's anxiety post-September 11.
+
+  Judge  James Robertson  in the United States District Court for the District of Columbia entered the preliminary injunctions against Eagle, and Damato, both located in Boca Raton, Florida.  The Commission alleged that Eagle violated Sections 10(b), 13(a), and 13(b)(2) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.  The Commission further alleged that Damato violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13b2-1, and 13b2-2 thereunder, and aided and abetted Eagle's violations of Section 13(a) and 13(b)(2) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. Each of the defendants consented to the entry of the preliminary injunctions against them, without admitting or denying the allegations of the Commission's complaint.   In addition to the emergency relief granted by the Court, the action seeks permanent injunctions against Eagle and Damato, and disgorgement plus prejudgment interest, civil penalties and an accounting from Damato.
+
+  Previously, on February 14, 2002, the Commission suspended trading in the securities of Eagle for a ten day period pursuant to Section 12(k) of the Exchange Act.
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diff --git a/raw/aaer/2002/AAER-1511.txt b/raw/aaer/2002/AAER-1511.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0697fde5822ff286a141cf74c8abbf2410e0d12e
--- /dev/null
+++ b/raw/aaer/2002/AAER-1511.txt
@@ -0,0 +1,1691 @@
+
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+     SEC.gov | Telxon Corporation, Gary L. Grand, and James G. Cleveland 
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+               Home 
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+               Enforcement and Litigation 
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+               Administrative Proceedings 
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+       
+              Telxon Corporation, Gary L. Grand, and James G. Cleveland
+           
+     
+ 
+
+   
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+     
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+      
+      
+             
+        Telxon Corporation, Gary L. Grand, and James G. Cleveland
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  45507 / March 5, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1511 / March 5, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.   3-10715
+
+        In the Matter of    
+  TELXON CORPORATION,
+ GARY L. GRAND, and 
+ JAMES G. CLEVELAND 
+      Respondents. 
+	    
+  : : : : : : :   
+  ORDER INSTITUTING
+     PROCEEDINGS PURSUANT TO
+     SECTION  21C OF THE SECURITIES
+   EXCHANGE ACT OF 1934, MAKING
+             FINDINGS AND IMPOSING A
+  CEASE-AND-DESIST ORDER    I.
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Telxon Corporation, Gary L. Grand, and James G. Cleveland (hereinafter referred to collectively as "Respondents").
+
+  II.
+
+    In anticipation of the institution of these administrative proceedings, Respondents have each submitted an Offer of Settlement ("Offers") which the Commission has determined to accept.  Solely for the purposes of these proceedings, and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings set forth below, except as to the jurisdiction of the Commission over themselves and over the subject matter of theseproceedings, which they admit, Respondents consent to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").
+
+  III.
+
+   FACTS 
+
+    The Commission makes the following findings  1  :
+
+    A.  Respondents 
+
+     Telxon Corporation  ("Telxon") is a Delaware corporation, formerly headquartered in Akron, Ohio, that manufactures bar code scanners and hand held computing devices.  Prior to its acquisition by a competitor in December 2000, Telxon's stock was listed on NASDAQ.
+
+     Gary L. Grand , ("Grand") age 38, is a resident of Munroe Falls, Ohio, and was Telxon's controller until September 2001.  He is a CPA licensed in Ohio.
+
+     James G. Cleveland , ("Cleveland") age 49, is a resident of Hudson, Ohio, and was the vice president of North America (sales) of Telxon until January 2000.  
+
+    B.  Summary 
+
+    This matter concerns improper revenue recognition at Telxon, a manufacturer of hand held computing devices and related systems.  Telxon's former chief financial officer Kenneth Haver ("Haver"), with assistance from others, recognized revenue improperly for three transactions, dated September 29 and 30, 1998, that inflated quarterly revenues and profits substantially.  Later that year, a competitor approached Telxon about a potential merger and discovered one of the improper transactions during due diligence.  Telxon reviewed the available facts and restated that transaction in December 1998.  Following an accounting review and subsequent audits, Telxon announced three additional restatements.  Haver bears primary responsibility for the improper revenue recognition and other accounting problems (and is the subject of a concurrent Commission enforcement action).  Cleveland, a former vice President of North America sales, had significant involvement in a restated transaction, and Grand,former controller, assisted in the original recording of the restated transactions and in the preparation of the financial statements that included those transactions.
+
+    C.  Telxon Rejects Takeover/Merger Offers 
+
+    In the summer of 1997, a competitor confidentially indicated to Telxon that it was interested in pursuing a business combination.  In April 1998, the competitor publicly indicated an interest in acquiring all of Telxon's outstanding shares for $38 per share, a significant premium over Telxon's then market price, which had been trading in the range of $22 to $27 per share.  In June 1998, the competitor increased the proposed consideration to $40 per share cash or up to $42 per share, in cash and stock.  
+
+    Telxon's board rejected the competitor's proposal of $40 per share cash as inadequate and stated that it had insufficient information to make a determination with respect to the $42 cash/stock proposal.  The local press quoted a Telxon officer as saying the offers were not "fair value" because the company's earnings had "improved markedly" and it's "strategic growth plan" would allow the stock to reach the competitor's offer price while remaining independent.  At a shareholders' meeting in September 1998, the press reported a Telxon officer's prediction that Telxon "would achieve a 9% operating margin and a 12% to 15% return on equity by the end of its three-year growth plan." 
+
+    Some Telxon shareholders supported the competitor's takeover offers.  One group of funds holding slightly under 5% of Telxon's outstanding shares sought to pressure Telxon into a deal by nominating an outsider for election to Telxon's board of directors, and by proposing a change in Telxon's shareholder rights plan.  The funds' adviser criticized Telxon in the press for its "ostrich defense" and for having "one of the least independent boards [of directors] I have ever seen."  In settlement of litigation brought by Telxon against the adviser, Telxon amended its shareholder rights plan and agreed to appoint a director acceptable to the adviser.  In October 1998, Telxon announced its results for the quarter ended September 30, 1998:  revenues grew 13% from the previous year, and profits grew 51% (excluding certain one-time costs).  In its earnings release, Telxon said it continued to be optimistic for the balance of the fiscal year because of "strong growth" in the U.S. and Europe, and a "surge in demand" for a new product.
+
+    In November 1998, the competitor renewed its confidential approach to Telxon. Representatives of Telxon and the competitor met to discuss terms of a proposed transaction.  During due diligence, Telxon disclosed information relating to a shipment of over $14 million to a distributor on September 30, 1998.  The competitor broke off the discussions and Telxon announced a restatement of the distributor transaction onDecember 11, 1998.  Telxon's stock price, which had reached as high as $30 per share in a rising NASDAQ market, fell to $11.75 per share by December 21.  Following an accounting review, Telxon announced further restatements in February 1999, June 1999 and July 2000.  In December 2000, the competitor purchased Telxon in a stock-for-stock deal valued at $21 per Telxon share.
+
+    D.  Improper September 1998 Transactions 
+
+    Telxon recognized revenue improperly in connection with three transactions dated September 29 and 30, 1998.  These were:  (i) the distributor shipment; (ii) a guaranteed lease-purchase by a chain of hardware stores; and (iii) a software sale to a retail chain.  The effect of the three transactions on Telxon's September 1998 quarterly revenues and profits were (amounts in $000):
+
+        
+       Revenues  
+   
+   Pre-tax profit     As initially reported   
+      $124,300 
+   
+   
+      $4,100 
+        
+      Less:  
+   
+   
+   
+   
+   
+        
+   
+ 1. 
+   Distributor shipment  
+   
+        $14,100 
+   
+   
+      $7,200      
+   
+ 2. 
+   Hardware chain lease  
+   
+          $7,000 
+   
+   
+       $2,200      
+   
+ 3. 
+   Software sale 
+   
+        $2,000  
+   
+   
+         $2,000     Without improper sales  
+   
+          $101,200  
+   
+   
+         ($7,300)     These three transactions were not related to each other.  But as the above table demonstrates, each of the three transactions was material to Telxon's pre-tax profits.
+
+      1.  Distributor Shipment 
+
+    In 1997, Telxon planned to sell product indirectly by recruiting distributors that it referred to as "Value Added Distributors" ("VADs").  One such VAD, located in the Midwest, received a shipment of approximately $4.2 million of Telxon product in June 1998.  Shortly thereafter, while the VAD still held a substantial portion of this product, Telxon and the VAD discussed major increases in shipments -- $14 million more in the September 1998 quarter, and up to $20 million more in the following quarter.  At this time, the VAD offered two basic services that it referred to as the "agent program" and the "distributor program."  Under the "distributor program" the manufacturer (Telxon in this case) was responsible for selling product that the VAD warehoused, shipped, and checked for quality control.  The VAD understood that the discussed shipments fell into the "distributor program" category, and it agreed in principle to the future shipments.
+
+    In mid-to-late September 1998, Haver and another Telxon official asked the VAD whether Telxon could get paid the $14 million at the time of shipment.  The distributor put Telxon in contact with its financing company to arrange the payment.  On September 30 Telxon and the financing company signed a "vendor" agreement, and on September 30 the VAD and the financing company signed a "consignment" agreement. Pursuant to these contracts, Telxon shipped $14.1 million of goods to the VAD on September 30, and the financing company wired $14.1 million to Telxon.  Title to the goods passed to the financing company; the financing company consigned the goods to the VAD; and Telxon agreed to pay up-front fees to the financing company and additional fees based on the balance of unsold goods held by the VAD.  Telxon also agreed to pay monthly fees and handling charges to the VAD, also based on the balance of unsold goods.  The VAD would collect customer payments for wire transfer to the financing company.  The vendor agreement gave the financing company an unrestricted right to repossess the goods from the VAD and put them back to Telxon for immediate and full payment.  As of September 30, 1998, no end-user or customer had placed an order, with either Telxon or the VAD, for any of the goods shipped to the VAD that day.
+
+    Haver negotiated and signed the financing agreement with the financing company on behalf of Telxon.  In accordance with its standard policy, Telxon recognized revenue on the VAD transaction upon shipment.  Telxon's controller, Gary Grand, was responsible for the initial preparation of Telxon's financial statements. Grand failed to learn all terms of this transaction before preparing Telxon's September 1998 quarterly financial statements, even though Grand received and read a copy of the vendor agreement prior to the preparation of those quarterly financial statements.  No disclosure of the VAD shipment or the vendor agreement was made to Telxon's outside auditors during the quarterly review.  Grand directed the preparation of Telxon's financial statements for the September 1998 quarter, and these included the revenue derived from the shipment to the VAD.  Haver reviewed and approved the issuance of those financial statements.
+
+    Revenue recognition for the shipment to the VAD was not in conformity with Generally Accepted Accounting Principles ("GAAP").  The group of agreements was, in substance, a product financing arrangement for which revenue recognition is precluded pursuant to Statement of Financial Accounting Standards ("SFAS") No. 49,  Accounting for Product Financing Arrangements  (June 1981).  More fundamentally, the transaction was not a sale or an "earning[s] process," as revenue had not been realized and earned.   See , FASB Statement of Financial Accounting Concepts No. 5,  Recognition and Measurement in Financial Statements of Business Enterprises  (December 1984), ¶¶ 83-84.  Telxon retained substantially all risks of ownership in the goods; the VAD had almost no risk at all; the ostensible "owner" was a financing company that had no means of using or selling the goods.
+
+      2.  Guaranteed Lease-Purchase 
+
+    In the summer of 1998, Telxon negotiated a sale to a company that operated a chain of hardware stores.  Telxon's competitors were also seeking the business, and it was well known at the time that the hardware chain was in very poor financial condition.  On September 30, 1998, Telxon shipped the product to the hardware chain and recognized revenue of approximately $7 million.  Title to the goods transferred to a leasing company, and the hardware chain signed a long-term lease with the leasing company.  Without the hardware chain's knowledge, however, Telxon also signed a separate agreement with the leasing company on September 29, by which Telxon guaranteed the hardware chain's lease payments to the leasing company (a "credit enhancement agreement").  The leasing company paid cash to Telxon for the product, pursuant to the lease contract with the hardware chain.  The hardware chain filed a bankruptcy petition and defaulted on the lease within months, and the leasing company demanded full payment on the lease from Telxon. 
+
+    Haver negotiated and signed the lease guarantee on Telxon's behalf.   Grand knew about the guarantee prior to preparing the September 1998 quarterly financial statements, but he failed to investigate adequately the circumstances surrounding the transaction before Telxon recorded the revenue associated with the transaction.  The revenues and profits derived from this transaction were incorporated into Telxon's financial statements for the September 1998 quarter.
+
+    Telxon's recognition of this revenue was not in conformity with GAAP, which require that "the sale of property [subject to a lease] shall not be treated as a sale if the seller . . . retains substantial risks of ownership in the leased property."   See , SFAS No. 13,  Accounting for Leases  (November 1976),  ¶¶ 21-22.  Since Telxon guaranteed the lease payments to the leasing company, Telxon retained substantial risks of ownership.
+
+
+
+      3.  Software Sale 
+
+    One of Telxon's biggest customers was a company that operated a nationwide chain of retail stores.  In late September 1998, James Cleveland and Telxon's chief technical officer proposed a sale of customized "AirBeam" software to the retail chain. The software was designed to upgrade existing software and to provide a "Y2K fix." The retail chain agreed to the purchase in principle and negotiated a price of $2 million, but first required that its technicians prepare detailed specifications for upgrades that would be needed to Telxon's base software.  The retail chain providedthose specifications to Telxon by facsimile dated October 2, 1998; Telxon agreed to the specifications and the retail chain issued a purchase order ("p/o") for the software on October 5, 1998.  The p/o stated that the price included all future updates and maintenance, and that payment was contingent upon (i) "fault free performance," (ii) "complete installation . . . in all [chain] business units," and (iii) "the requirements noted in Attachment 'A' [that is, the specifications dated October 2]."  Telxon's chief technical officer estimated that his department needed three to six months to write the software code for the upgrades specified by the retail chain.  
+
+    Cleveland, Haver, Grand and others met shortly after the retail chain's p/o arrived on October 5, 1998.  At the meeting, the group discussed the state of completion of the software and, at or following the meeting, it was decided that Telxon would recognize the full $2 million in revenue as of September 30, 1998.  2    Telxon assigned no related cost-of-goods-sold to the revenues and its pre-tax profits were thereby increased by the entire $2 million.  Telxon delivered the AirBeam product to the retail chain without the requested modifications, and the retail chain did not pay.  
+
+    Recognition of this revenue was not in conformity with GAAP.  For software sales GAAP require,  inter alia , "persuasive evidence of an arrangement" and delivery of the software as of the date of recognition.  Also, if "uncertainty exists about customer acceptance" after delivery, revenue should not be recognized.   See , Statement of Position  ("SOP") 97-2,  Software Revenue Recognition  (October 1997), ¶¶ 8, 20.  The retail chain's p/o highlighted several significant uncertainties as to acceptance.  The evidence of an arrangement between Telxon and the retail chain as of September 30 was not "persuasive," given that the retail chain did not supply its specifications for upgrades until October 2, or a p/o until October 5, 1998.  Likewise, software which was not in existence as of September 30, 1998 can not have been delivered as of that date.  In addition, Telxon's agreement to provide future upgrades and maintenance required deferral of at least a portion of the revenue.   See , SOP 97-2, ¶ 9.
+
+
+
+    E.  Transactions and Impaired Assets Affecting Prior Fiscal Years 
+
+    As of fiscal year end March 31, 1998, Telxon had significant assets on its balance sheet for which collectability was in doubt or dispute, or which had been incorrectly recorded in the first place.  These assets arose mainly from transactions with four distributors or customers:  (i) equity and notes receivable derived from the sale and licensing of a software business to a company operated by a former Telxon employee,in 1996 and 1997;  (ii) equity, notes receivable, and accounts receivable derived from sales to Telxon's Mexican distributor in 1997 and 1998; (iii) a lease-purchase by an insurance company in 1997; and (iv) sales to a VAD in 1997 and 1998.
+
+    Telxon restated these transactions beginning in February 1999.  In addition, Telxon restated many other smaller transactions, which were mostly a question of timing (that is, the revenues were not written off completely, but moved from one period to another).  Without taking into account the smaller transactions, the following table illustrates the effect of restating these transactions on Telxon's financial statements for the years ended March 31, 1996, 1997 and 1998 (amounts in $000):
+
+
+       Fiscal Year Ended  
+  Revenues    
+   Pre-tax Profit (Loss)  
+   Transaction     03/31/96 as reported:  
+       $486,469 
+     $26,835 
+            
+ less: 
+               $2,000  
+     $2,000  
+   Software sale     03/31/96 as adjusted: 
+         $484,469  
+                 $24,835  
+           03/31/97 as reported: 
+        $466,012 
+   ($5,691) 
+           
+   less:  
+             $1,300 
+   $1,600 
+  Software sale       
+   
+  -  
+       $700 
+  Mexico Dist.      
+   
+            $3,100  
+     $1,400  
+   Ins. Co.    03/31/97 as adjusted: 
+         $461,612  
+      ($9,391)  
+           03/31/98 as reported: 
+        $465,870 
+             $28,855 
+            
+ less: 
+                $1,600 
+    $5,800 
+  Software sale       
+   
+          -  
+ $4,300  
+ Mexico Dist.      
+   
+     ($1,000) 
+      ($400) 
+  Ins. Co.      
+   
+            $8,100  
+    $3,200  
+   VAD     03/31/98 as adjusted: 
+         $457,170  
+               $15,955  
+      1.  As to the software sale, the circumstances surrounding the transaction were such that, although legal title transferred, it was subsequently determined that the risks and incidents of ownership did not pass from Telxon for accounting purposes.  Among other things, the buyer was very thinly capitalized, made a very small down payment, financed the transaction with notes payable to Telxon, and planned to fund its payments to Telxon out of future operations.  In addition, Telxon received no payments after March 1997 because of a dispute that arose between Telxon and the buyer over amounts due on a cross-license arrangement.  Nevertheless, Telxon continued to record revenues and costs on this transaction through December 1998, aspayments became due on the licenses, and Telxon did not record a charge to income in connection with the increasing unpaid balance on the notes due from the buyer.
+
+    In restating this transaction, Telxon reversed the licensing revenues and royalty costs accrued, and returned the software assets to its balance sheet, as if unsold. Telxon then reported amortization of the software assets, as if it continued to own the assets for accounting purposes.  As of March 31, 1998, Telxon reported total impairment of all assets connected with the transaction.
+
+    2.  As to the Mexican distributor, the "peso crisis" and expansion into other markets caused the distributor to have financial problems which led to delays in payment beginning in 1997.  Nevertheless, Telxon continued to ship product to the distributor and to record revenues through November 1998.  Telxon failed to record a timely charge to income in connection with the increasing unpaid balance of receivables.  Instead, Telxon agreed to convert the unpaid trade receivables to notes receivable, and to equity in the distributor. 
+
+    In restating these transactions, Telxon reported as bad debt expense all sales to the distributor that were unpaid after 120 days, beginning in the fourth quarter of fiscal 1997.  This effectively erased the conversion of receivables into notes and equity. Telxon did not adjust the revenues that it had previously recorded on the shipments to the distributor.
+
+    3.  As to the insurance company, at the time of the lease-purchase in March 1997, Telxon was in the process of developing a new product which would be used by the buyer.  The buyer originally purchased an existing product with the right to exchange the new product for the old at a later date.  Telxon was subject to significant penalties if it failed to meet the development schedule of the new product.  Subsequently, in June 1997, a Telxon sales department employee granted the third-party leasing agent a right to return the product to Telxon if the buyer ceased making lease payments.  In August 1998, the insurance company stopped making lease payments, alleging that Telxon had failed to meet certain development milestones for the new product.  Telxon initially recorded the transaction as a normal sale, with a portion of the revenue reserved for recognition on shipment of the new product; and Telxon accrued the estimated costs for the delivery of the new product.  Telxon restated by accounting for this transaction as an operating lease.  Revenues were reversed and recorded pro rata over the lease term.
+
+    4.  As to the VAD, in March 1998, Cleveland and another employee in Telxon's sales department signed or authorized letters which granted the VAD the right to return 100% of certain goods, over and above the return rights held by the VAD in itsdistributorship contract.  Telxon thus retained the risks of ownership for these goods for accounting purposes.  At that time, Telxon did not have sufficient internal controls to ensure that all agreements entered into by the sales department were provided to the accounting department, and these letters were not provided to the accounting department.  Telxon recorded revenue upon shipment, its usual manner, for the product covered by the special return rights.  Following the start of Telxon's new fiscal year in April 1998, the VAD returned to Telxon the majority of the product covered by the special return rights.  In restating, Telxon reversed the revenues associated with the special return rights.
+
+    For the reasons discussed above, the initial recognition of revenue in connection with these transactions was, at best, questionable, and likely not in conformity with GAAP.  Notwithstanding the potentially inappropriate recognition of revenue in connection with the software sale and the shipments to the Mexican distributor, the slowed and stopped payments on these accounts were an indication that, by fiscal year end March 31, 1998 at the latest, these assets were potentially impaired and needed to be analyzed in accordance with SFAS No. 5,  Accounting for Contingencies  (March 1975) and SFAS No. 114,  Accounting by Creditors for Impairment of a Loan  (May 1993). These slowed and stopped payments were discussed generally amongst Telxon's management, auditors and board of directors.  Nevertheless, no action was taken until the accounting review which began in 1999.
+
+  IV.
+
+   LEGAL ANALYSIS 
+
+    A.  Telxon Violated the Reporting Provisions of the Exchange Act 
+
+    Section 13(a) of the Exchange Act requires that issuers with securities registered pursuant to Section 12 of the Exchange Act file such information and documents as the Commission shall prescribe by its rules and regulations.  Rules 13a-1 and 13a-13 require issuers to file annual and quarterly reports, respectively.  Rule 12b-20 requires that these periodic reports contain such further information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading.  The filing of a periodic report containing materially false or misleading information constitutes a violation of these provisions.   SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979);  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).
+
+    Telxon violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder by filing annual reports on Form 10-K for the fiscal years ended March 31, 1997 and March 31, 1998, and quarterly reports on Form 10-Q for fiscal 1997 and 1998, and the quarters ended June 30, 1998, and September 30, 1998, that contained materially false and misleading financial statements.  Telxon's balance sheets were materially false and misleading throughout this time because they reflected assets which were derived from improperly recognized revenue.  Telxon's income statements were materially false and misleading for the years ended March 31, 1997 and March 31, 1998, and the quarters therein, and for the quarters ended June 30 and September 30, 1998, because Telxon recognized revenue that was not in conformity with GAAP.
+
+    B. Telxon Violated the Record-Keeping and
+      Internal Control Provisions of the Exchange Act     
+
+    Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.  Telxon violated Section 13(b)(2)(A) of the Exchange Act by maintaining books and records which, among other things, falsely overstated the company's revenues and assets.  
+
+    Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that,  inter alia , transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP.  Telxon violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that revenues were recognized in conformity with GAAP.
+
+    C. Grand and Cleveland Each 
+      Violated Rule 13b2-1 of the Exchange Act  
+
+    Rule 13b2-1 provides that no person shall, directly or indirectly, falsify or cause to be falsified any book, record or account subject to Section 13(b)(2)(A) of the Exchange Act.  Gary L. Grand violated Rule 13b2-1 when he participated in the decision to recognize revenue in connection with the sale of software to the retail chain as of September 30, 1998, and when he directed the preparation of Telxon's financial statements for the quarter ended September 30, 1998, which reflected revenues derived from the software sale, the "credit enhancement agreement" with the leasing company, and the "vendor agreement" with the financing company.  James G. Cleveland violated Rule 13b2-1 when he participated in the decision to recognize revenue in connection with the software sale to the retail chain as of September 30, 1998.
+
+    D. Grand and Cleveland Each Were a Cause of Telxon's 
+      Violations of the Reporting, Books and Records and
+      Internal Control Provisions of Section 13 of the Exchange Act 
+
+    Section 21C of the Exchange Act provides that the Commission may order that any person, who is or was a cause of a violation of any provision of the Exchange Act, to cease and desist from causing such violation.  Grand was a cause of certain Telxon violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, when he directed the preparation of financial statements which contained revenues that were not recognized in conformity with GAAP.
+
+    Cleveland was a cause of certain Telxon violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, when he participated in the decision to recognize revenue in connection with the software sale to the retail chain as of September 30, 1998.
+
+    V.
+
+    Based on the foregoing, the Commission finds that:
+
+    A. Telxon Corporation violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+    B. Gary L. Grand violated Rule 13b2-1 promulgated under the Exchange Act and was a cause of Telxon's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+    C. James G. Cleveland violated Rule 13b2-1 promulgated under the Exchange Act and was a cause of Telxon's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+  VI.
+
+    In view of the foregoing, the Commission deems it appropriate to accept the Respondents' Offers and to impose the relief specified in those Offers.  
+
+  VII.
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that:
+
+    A. Telxon Corporation cease and desist from committing or causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+    B. Gary L. Grand cease and desist from causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and from committing or causing any violation, and any future violation, of Rule 13b2-1 under the Exchange Act.  
+
+    C.   James G. Cleveland cease and desist from causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and from committing or causing any violation, and any future violation, of Rule 13b2-1 under the Exchange Act. 
+
+    By the Commission.
+
+              Jonathan G. Katz
+             Secretary
+    Footnotes 
+     1     The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding.      2     In connection with recording the transaction, Cleveland advised an accounting department clerk that Telxon had received a "verbal" p/o from the retail chain.    
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diff --git a/raw/aaer/2002/AAER-1512.txt b/raw/aaer/2002/AAER-1512.txt
new file mode 100644
index 0000000000000000000000000000000000000000..035a643049a0405b44e40b3f70262c88bdbfac91
--- /dev/null
+++ b/raw/aaer/2002/AAER-1512.txt
@@ -0,0 +1,1372 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Telxon Corporation, Gary L. Grand, and James G. Cleveland 
+     
+     
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+     
+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+        Telxon Corporation, Gary L. Grand, and James G. Cleveland
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+ Litigation Release No. 17394 / March 5, 2002
+  Accounting and Auditing Enforcement Release No. 1512
+
+   SEC v. Kenneth W. Haver , U.S. District Court for the Northern District of Ohio, Akron Division, Docket No. 5:02CV414
+
+   In the Matter of Telxon Corp., Gary L. Grand and James G. Cleveland , Administrative Proceeding File No. 3-10715
+
+  SEC SUES FORMER TELXON CFO KEN HAVER FOR ACCOUNTING FRAUD;
+TELXON AND TWO FORMER OFFICERS CONSENT TO CEASE-AND-DESIST ORDER
+
+  The Securities and Exchange Commission announced that it has sued Kenneth W. Haver, the former Chief Financial Officer of Telxon Corp., for fraud in connection with the company's financial statements and earnings press release for the quarter ended September 30, 1998.  The action alleges that Haver, age 43, of Akron, Ohio, intentionally or recklessly caused Telxon to improperly recognize revenue of $23.1 million from three significant transactions.  Haver's improper conduct inflated Telxon's quarterly revenues by 23% and quarterly profits by 270%, from a loss of $7.3 million to a falsely stated profit of $4.1 million.  The suit also alleges that Haver aided and abetted reporting, books and records, and record keeping violations by Telxon related to the September 1998 quarter and related to additional violations by Telxon from its two previous fiscal years, involving a further $16.6 million of profits that were restated.  Telxon is headquartered in Akron, Ohio and, prior to being acquired by another company in December 2000, was a leading manufacturer of hand held computers and related systems.
+
+  The Commission's complaint, filed in the U.S. District Court for the Northern District of Ohio, alleges that Haver's fraudulent actions took place shortly after Telxon had rejected merger offers from a competitor.  One of the September 1998 transactions involved a $2 million sale of software that was not yet written.  A second transaction involved a $7 million lease-purchase by a near-bankrupt customer and Haver's agreement, on Telxon's behalf, to guarantee the customer's lease payments.  The third transaction involved a $14.1 million "sale" to a financing company and Haver's agreement, on Telxon's behalf, to accept unlimited return of the product.  The $16.6 million in profits restated for Telxon's fiscal years prior to September 1998 concerned Haver's failure, as Chief Financial Officer, properly to account for several customers that had delayed or disputed various payments due Telxon.  
+
+  In a related action, the Commission also announced that it has instituted, and settled, an administrative proceeding against Telxon and two of its former officers:  Gary L. Grand, 38, of Munroe Falls, Ohio, and James G. Cleveland, 49, of Hudson, Ohio. Grand was the company's Controller and Cleveland was the Vice President for North America (Sales).  Without admitting or denying the factual findings in the Commission's order, Telxon, Grand and Cleveland each consented to the issuance of a Commission order which finds that Telxon violated the reporting, books and records, and record keeping provisions of the securities laws, that Grand and Cleveland each was a cause of Telxon's violations, and that Grand and Cleveland each violated Rule 13b2-1 under the Securities Exchange Act.  Telxon, Grand and Cleveland were further ordered to cease and desist from committing or causing such violations.
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diff --git a/raw/aaer/2002/AAER-1513.txt b/raw/aaer/2002/AAER-1513.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3d9860311b3b4f67c5ff2bed662e701e4a5b84f4
--- /dev/null
+++ b/raw/aaer/2002/AAER-1513.txt
@@ -0,0 +1,1445 @@
+
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+ 
+ 
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+     SEC.gov | James E. Slayton, CPA 
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+              James E. Slayton, CPA
+           
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+        James E. Slayton, CPA
+       
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+ Securities Act of 1933
+ Release No.   8067 / March 6, 2002
+  Securities Exchange Act of 1934
+ Release No.  45509 / March 6, 2002
+  Accounting and Auditing Enforcement
+ Release No.   1513 / March 6, 2002
+  Administrative Proceeding 
+ File No. 3-10716
+
+  IN THE MATTER OF JAMES E. SLAYTON, CPA
+
+    The Securities and Exchange Commission today instituted public administrative and cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice against James E. Slayton.  
+
+    The Division of Enforcement ("Division") and the Office of Chief Accountant ("OCA") allege that Slayton willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused and willfully aided and abetted Freestar's violations of Section 12(g) and Rule 12b-20 of the Exchange Act and engaged in improper professional conduct.
+
+    The Division and OCA allege that Slayton issued an audit report on the financial statements of Freedom Surf for the year ended December 15, 1999.  Those financial statements reflected assets valued at $5.18 million, consisting entirely of equipment purportedly purchased from an entity in Costa Rica.  The reported value of that equipment was supported by a fabricated appraisal, which Slayton relied upon in rendering his audit report.  In that report, Slayton stated that Freedom Surf's financial statements fairly presented its financial condition in all material respects in conformity with generally accepted accounting principles ("GAAP") and that he conducted his audit in accordance with generally accepted auditing standards ("GAAS").
+
+  The Division and OCA also allege that the financial statements were materially false and did not present Freedom Surf's financial condition in conformity with GAAP.  Freedom Surf purportedly purchased the equipment for 969,000 shares of its common stock and a promissory note for $335,000.  Under GAAP, assets received by a corporation in return for stock must be recorded at fair value, which may be determined by reference either to the value of the assets received or the stock issued, whichever is more clearly evident.  As Freedom Surf was a start-up at the time, with no public trading and no history of private arms-length transactions, the value of Freedom Surf's stock was not clearly evident.  Freedom Surf, should, therefore, have determined the fair value of the assets received.  Instead, Freedom Surf's officers devised a scheme to fabricate an appraisal falsely showing those assets to be worth over $5 million.  Consequently, Freedom Surf's financial statements were not prepared in conformity with GAAP.
+
+  The Division and OCA further allege that Slayton did not conduct his audit according to GAAS because: Slayton failed to plan his audit by preparing audit programs or conducting audit risk assessments sufficient to determine matters requiring special consideration; Slayton failed to obtain sufficient competent evidential matter upon which to base his opinion; Slayton failed to exercise due professional care and maintain an attitude of professional skepticism to provide reasonable assurance of detecting both material errors and fraud in the financial statements; in relying on the appraisal, Slayton failed to determine whether the appraiser had the skill or knowledge to perform a valid appraisal and failed to understand the assumptions and methods used by the appraiser to ensure that the appraisal supported the values included in the financial statements; and issued an audit report containing an opinion without performing basic audit steps to provide a basis for that opinion.
+
+  A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide James E. Slayton an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate.
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diff --git a/raw/aaer/2002/AAER-1514.txt b/raw/aaer/2002/AAER-1514.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a1d4fda09b5cf247b3cc35b835bebc0111a81843
--- /dev/null
+++ b/raw/aaer/2002/AAER-1514.txt
@@ -0,0 +1,1381 @@
+
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+              Raece Richardson, David McKenzie, Cameron Gorges, and Freestar Technologies
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+        Raece Richardson, David McKenzie, Cameron Gorges, and Freestar Technologies
+       
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+ Litigation Release No. 17397 / March 6, 2002
+
+  Accounting and Auditing Enforcement 
+ Release No. 1514 / March 6, 2002
+
+  Securities and Exchange Commission v. Raece Richardson, David McKenzie, Cameron Gorges, and Freestar Technologies, Civil Action No. 1:02CV00426 (Judge Friedman) (filed March 6, 2002)
+
+   SEC CHARGES FORMER OFFICERS OF FREEDOM SURF, INC. 
+  WITH ACCOUNTING FRAUD 
+  FORMER AUDITOR NAMED IN ADMINISTRATIVE PROCEEDING 
+
+  The Securities and Exchange Commission today filed an action charging Raece Richardson and David McKenzie, formerly the President and Vice President of Freedom Surf, Inc., respectively, with securities fraud, for falsifying Freedom Surf"s financial statements.  Richardson, 37 years old, is a resident of Huntington Beach, California.  McKenzie, 42 years old, is a former resident of Huntington Beach, who is currently living in Costa Rica.    The Commission's complaint alleges that the two included $5.18 million in fraudulently-valued assets on Freedom Surf's financial statements filed with the Commission between January and November 2000.  Freedom Surf, now known as Freestar Technologies, Inc., is located in the Dominican Republic.  Also charged were Cameron Gorges, a friend of Richardson, who provided a phony appraisal of the equipment to assist the scheme, and Freestar Technologies as successor to Freedom Surf.  The company's former auditor, James P. Slayton, CPA, was charged in a separate administrative proceeding.
+
+  Without admitting or denying the allegations in the Complaint, Freestar Technologies McKenzie and Gorges each consented to the entry of final judgments of permanent injunction.  Under the terms of the settlements, the Court did not order McKenzie or Gorges to pay civil money penalties based on their sworn statements of financial condition and other documents submitted to the SEC.  Richardson is currently a defendant in another securities fraud action that the Commission filed in April 2001. See  SEC v. First Americap Corp, et. al. , Civil Action No. H 01-1153 (S.D. Tex.), Lit. Release No.16960 (April 12, 2001).  In the action filed today, the Commission is seeking an injunction, civil money penalties, and an order barring Richardson from serving as an officer or director of a public company in the future.
+
+  The Commission's Complaint alleges that Richardson and McKenzie orchestrated a scheme to inflate Freedom Surf's assets with certain equipment located in Costa Rica and fraudulently valued at $5.18 million.  During the relevant period, this equipment comprised virtually all of Freedom Surf's assets.  Freedom Surf purportedly acquired the equipment in exchange for stock and a note in December 1999.  Richardson had Gorges fabricate and sign an appraisal, which valued the equipment at $5.18 million.  Gorges merely used numbers that McKenzie gave him.  Gorges had no experience valuing this type of equipment, never saw the equipment, and never performed any appraisal.  Gorges' appraisal was then given to Slayton, the auditor, who failed to perform an audit and instead relied on the fabricated appraisal to issue an audit opinion for Freedom Surf's financial statements.  Subsequently, Freedom Surf reported the sale of the equipment in a sham transaction with another company controlled by Richardson.  Freedom Surf included the fraudulent equipment valuation or the sham sale of the equipment in a registration statement, periodic reports, and other filings with the Commission between January and November 2000.
+
+  The Commission's Complaint alleges violations of the antifraud, record keeping, internal controls, and periodic reporting provisions of the federal securities laws.  Specifically, the Complaint charges Richardson and McKenzie with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and with aiding and abetting Freestar's violations of Sections 12(g), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, and 13a-13.  Freestar Technologies is charged with violations of Section 17(a) of the Securities Act, Sections 10(b), 12(g), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13.  Cameron Gorges is charged with aiding and abetting Richardson's, McKenzie's, and Freestar's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Richardson's and McKenzie's violations of Exchange Act Rule 13b2-2.
+
+        Simultaneous with the filing of the Commission's Complaint, the Division of Enforcement and the Office of the Chief Accountant instituted an administrative proceeding against Slayton charging that he violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, caused and willfully aided and abetted Freestar's violations of Section 12(g) and Rule 12b-20 of the Exchange Act; and engaged in improper professional conduct in his audit of Freedom Surf.   Slayton is currently a respondent in another Commission administrative proceeding that charges similar violations in connection with Slayton's audits of another company, California Software Corporation.   In the Matter of James E. Slayton, CPA , Exchange Act Release No. 45245 (Jan. 7, 2002).
+
+        In a related matter, the Commission today issued an order barring John C. Cruickshank, Jr., a former Freedom Surf director, from appearing or practicing before the Commission based on his disbarment by the State Bar of California and on his prior felony conviction for cocaine distribution. Cruickshank prepared and filed all of Freedom Surf's SEC filings involved in this matter.
+
+        The investigation is continuing to determine if there were other violations of the federal securities laws.
+  
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diff --git a/raw/aaer/2002/AAER-1515.txt b/raw/aaer/2002/AAER-1515.txt
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index 0000000000000000000000000000000000000000..bdbf85816b2fd4aec159a53595692632afe7b1e8
--- /dev/null
+++ b/raw/aaer/2002/AAER-1515.txt
@@ -0,0 +1,1383 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     SEC.gov | Jon Jeffrey King, et al.; American Telephone + Data, Inc., William Posnett Lynas, III, Janeen Huxhurst-Lynas, and Daniel W. Kratochvil 
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+              Jon Jeffrey King, et al.; American Telephone + Data, Inc., William Posnett Lynas, III, Janeen Huxhurst-Lynas, and Daniel W. Kratochvil
+           
+     
+ 
+
+   
+
+     
+
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+        Jon Jeffrey King, et al.; American Telephone + Data, Inc., William Posnett Lynas, III, Janeen Huxhurst-Lynas, and Daniel W. Kratochvil
+       
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+ Litigation Release No.  17398 / March 6, 2002
+  Accounting and Auditing Release No.  1515 / March 6, 2002
+
+   United States v. Jon Jeffrey King, et al , Criminal No. SA-00-CR-154-OG (W.D. Texas)
+
+   SECURITIES AND EXCHANGE COMMISSION v. AMERICAN TELEPHONE + DATA, INC., WILLIAM POSNETT LYNAS, III, JANEEN HAUXHURST-LYNAS, AND DANIEL W. KRATOCHVIL , Civil Action No.  SACV-99-98AHS(ANx) (C.D. Cal.). 
+
+  The Commission announced that on February 7, 2002, a judgment of criminal conviction was entered against Jon Jeffrey King   of San Antonio, Texas in the United States District Court for the Western District of Texas.  U.S District Judge Orlando Garcia sentenced King to ten years imprisonment, ordered him to pay a $10 million fine and to forfeit all proceeds from a scheme to defraud investors in several domestic business ventures including American Telephone + Data, Inc. and Cash Can, Inc.  The Court also sentenced King's wife, Patricia L. King, to three years probation for her role in the scheme that defrauded over $10 million from investors.  The convictions result from an extensive investigation conducted with the participation of the Commission, the Federal Bureau of Investigation, and the Internal Revenue Service - Criminal Investigation.
+
+    On June 25, 2001 Jon King pleaded guilty to one count of conspiracy to commit securities, wire and mail fraud and one count of conspiracy to launder money.   That same day Patricia King pleaded guilty to three misdemeanor counts of providing false information on her 1993, 1994, and 1995 income tax returns.    
+
+  Other defendants charged in the criminal case include Jon King's son, Michael J King, of Austin, Texas, Patricia King's sister, Elizabeth Ward Moore, of San Antonio, Texas; Roger Patterson Lund of Salt Lake City, Utah; and Herbert Dale Carver of New Orleans, Louisiana.  On December 3, 2001 Moore pleaded guilty to one count of conspiracy to commit securities, wire and mail fraud.  As a result, she faces up to five years in federal prison and a maximum $250,000 fine. On December 12, 2001, Michael King pleaded guilty to conspiracy to commit money laundering.  As a result, he faces up to seven years in prison.  Lund and Carver each face charges of conspiracy to commit securities, wire and mail fraud and conspiracy to launder money.  No trial date has been scheduled.
+
+    In a related civil enforcement matter, the Commission announced that the United States District Court for the Central District of California entered a Final Judgment of Permanent Injunction and Other Relief against American Telephone + Data, Inc., William Posnett Lynas, III and Janeen Hauxhurst-Lynas.  The judgment, entered by U.S. District Judge Virginia A. Philips on July 28, 2000 after the defendants' default, permanently enjoins all three defendants from violating the antifraud provisions of the federal securities laws:  Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.  The judgment also enjoins American Telephone + Data, Inc. from violating the periodic reporting, books and records and internal controls provisions of the securities laws:  Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(b) and Rules 12b-20, 13a-11 and 13a-13 thereunder.  It also enjoins William Posnett Lynas, III and his wife, Janeen Hauxhurst-Lynas, from violating the accounting controls provisions of the securities laws, Section 13(b)(5) and Rule 13b2-1 thereunder, permanently bars both of them from acting as an officer or director of a public company, pursuant to Section 21(d)(2) of the Exchange Act, and orders them to pay disgorgement and prejudgment interest of $1,679,669.07, for which they are jointly and severally liable.
+
+    The default judgment was entered on the Commission's complaint alleging that William Posnett Lynas, III, and his wife, Janeen Hauxhurst-Lynas, both of Newport Beach, California, controlled American Telephone + Data, Inc., a Costa Mesa company purportedly engaged in telecommunication businesses. The complaint alleged that during 1993 Lynas and Hauxhurst-Lynas filed with the Commission a series of materially false and misleading financial statements. Those financial statements included fictional assets, which resulted in the overstatement of the company's total assets by between 74% and 87%. Chief among these bogus assets were certain purported licensing rights to a high-speed facsimile transmission system that were valued on the company's balance sheets at $10 million. The licensing rights did not exist.  The complaint also alleged that Lynas and Hauxhurst-Lynas misappropriated corporate funds to pay personal expenses and engaged in insider trading.
+
+ 
+
+  The Commission's enforcement action is part of the Commission's four-pronged approach to attacking microcap fraud:  enforcement, inspections, investor education and regulation.  For more information about the SEC's response to microcap fraud, visit the SEC's Microcap Fraud Information Center at  http://www.sec.gov/divisions/enforce/microcap.htm .
+
+    For further information see Litigation Release No.  16232  (August 2, 1999), Accounting and Auditing Enforcement Release Nos. 1147 and 1148 (August 2, 1999), and Exchange Act Release Nos.  41681  and  41680  (August 2, 1999) and 42009 (October 19, 1999).
+  
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diff --git a/raw/aaer/2002/AAER-1517.txt b/raw/aaer/2002/AAER-1517.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3e24495842fede8bbc1bff91e19036c8543d7c10
--- /dev/null
+++ b/raw/aaer/2002/AAER-1517.txt
@@ -0,0 +1,1439 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Frederick W. Kolling III, CPA 
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+              Frederick W. Kolling III, CPA
+           
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+        Frederick W. Kolling III, CPA
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  45550 / March 12, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1517 / March 12, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10718
+
+  PUBLIC ADMINISTRATIVE PROCEEDINGS INSTITUTED AGAINST FREDERICK W. KOLLING III, CPA, PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE 
+
+    Proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice have been instituted against Frederick W. Kolling III ("Kolling").
+
+  The Order Instituting Proceedings alleges that Kolling willfully violated Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and caused and willfully aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+  The Order Instituting Proceedings alleges that Kolling, who was the Chief Financial Officer of Gunther International, Ltd. ("Gunther") during 1997 and 1998, assisted in the preparation of and signed Gunther's annual and periodic financial statements when he knew, or was reckless in not knowing, that these statements were materially false or misleading.  The Order Instituting Proceedings alleges that Kolling overstated assets and revenues and understated expenses when he made or permitted to be made improper entries into Gunther's accounting system and ignored "red flags" that should have alerted him to material errors in Gunther's financial statements.  In addition, the Order Instituting Proceedings alleges that Kolling knew, or was reckless in not knowing, that the statements he made in the Management's Discussion and Analysis section of Gunther's Annual Report on Form 10-KSB for fiscal year 1997 were materially false or misleading.  The Order Instituting Proceedings alleges that Kolling also made materially false or misleading statements to Gunther's independent auditors in connection with their audit of Gunther's fiscal year 1997 and 1998 financial statements.  Finally, the Order Instituting Proceedings alleges that Kolling sold Gunther stock in January 1998, when he knew, or was reckless in not knowing, that Gunther had filed materially false or misleading financial statements with the Commission.
+
+  A hearing before an administrative law judge will be scheduled to determine whether the allegations against Kolling are true, to provide Kolling an opportunity to dispute these allegations, and to determine what relief and remedial action, if any, are appropriate. 
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diff --git a/raw/aaer/2002/AAER-1518.txt b/raw/aaer/2002/AAER-1518.txt
new file mode 100644
index 0000000000000000000000000000000000000000..11f34499a8f5e30b2d642752ecc8a3c4c3920bd6
--- /dev/null
+++ b/raw/aaer/2002/AAER-1518.txt
@@ -0,0 +1,1557 @@
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+              William A. Dickson and Stephen P. Collins
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+ SECURITIES EXCHANGE ACT OF l934   
+ Release No. 45551 / March 12, 2002   
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1518 / March 12, 2002  
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10720
+
+        In the Matter of   
+  William A. Dickson and 
+ Stephen P. Collins,  
+  Respondents.   
+     
+  : : : : : : :   
+  ORDER INSTITUTING PUBLIC
+ ADMINISTRATIVE PROCEEDINGS 
+ PURSUANT TO SECTION 21C OF 
+ THE SECURITIES EXCHANGE ACT
+ OF 1934, MAKING FINDINGS,
+ AND IMPOSING A CEASE-AND-DESIST ORDER     I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate to institute public administrative proceedings against Respondents William A. Dickson ("Dickson") and Stephen P. Collins ("Collins"), pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+   II. 
+
+  In anticipation of the institution of these public administrative proceedings, Dickson and Collins have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's jurisdiction over them and the subject matter of the proceeding, which are admitted, Dickson and Collins each consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order").
+
+   III. 
+
+              On the basis of this Order and the Respondents' Offers, the Commission makes the following findings  1  :
+
+   A.  RESPONDENTS  
+
+      William A. Dickson,  age 47, was manager of production of poultry vaccines at IGI. Inc. ("IGI"), a diversified company engaged in producing and marketing animal health products such as poultry vaccines, veterinary pharmaceuticals, cosmetics and skin care products.  During 1995, 1996, and 1997, Dickson was also responsible for maintaining IGI's inventory of mareks vaccines ("mareks"), a poultry vaccine that is used to inoculate chickens against cancer.  Dickson engaged in improper accounting practices regarding IGI's inventory at the direction of the former President of IGI.  In April 1998, IGI terminated Dickson's employment, in part, for his role in the fraudulent accounting practices that caused IGI to overstate its assets, revenues, and net income. 
+
+
+
+     Stephen P. Collins , age 45, was manager of international sales and marketing at IGI from 1987 through April 1998.  Collins engaged in improper sales cut-off practices and failed to process and record sales credits in a timely manner at the direction of the former President and the former Vice President of Operations of IGI.  In April 1998, IGI terminated Collins' employment, in part, for his role in the fraudulent accounting practices that caused IGI to overstate its assets, revenues, and net income. 
+    B.  OTHER RELEVANT PERSONS AND ENTITIES  
+
+      IGI, Inc . is located in Buena, New Jersey.  IGI's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act, and is listed for trading on the American Stock Exchange.
+
+        The President , who was also IGI's Chief Operating Officer, directed Dickson, Collins, and other former IGI officers and employees to engage in fraudulent accounting practices from 1995 through 1997, that caused IGI to overstate its assets, revenues, and net income.  IGI terminated the President in November 1997.
+    C.  SUMMARY  
+
+  This matter involves fraudulent accounting practices and reporting, internal controls, and books and records violations at IGI.  In 1995, 1996, and for the first three quarters of 1997, IGI's former President manipulated the company's annual and quarterly earnings by directing Dickson and Collins, among others, to engage in improper accounting practices that caused IGI to overstate its assets, revenues, and net income.  Former senior management manipulated IGI's earnings by failing to: (1) write off inventory that was defective or that had been destroyed; (2) record sales revenue in the proper accounting periods; and (3) process and record sales credits in a timely manner.  These accounting improprieties primarily concerned IGI's production and storage of mareks, a poultry vaccine that is used to inoculate chickens against cancer.  
+
+  During the relevant time period, IGI derived most of its revenues from the sale of poultry vaccines, of which mareks was the most important, and other animal health products.  At the direction of the former President, Dickson engaged in fraudulent accounting practices regarding IGI's inventory of Mareks vaccines.  Also, at the direction of the former President, Collins engaged in fraudulent sales cut-off practices and delayed the recording of sales credits.  The former President also directed Dickson and Collins, among others, to falsify the company's books and records, and directed Dickson to withhold records and conceal information from IGI's independent auditors and from the company's accounting staff.  2     D.  FACTS  
+
+       1. Overstatement of Inventory and Understatement of
+	   Related Expenses ___________________________ 
+
+    From 1995 through the third quarter of 1997, IGI overstated its assets and net income by not recording properly the costs associated with reductions in its inventory for large quantities of mareks vaccines that either were destroyed or that were defective and could not be sold.  
+
+    At the former President's direction, Dickson, among others, prepared false inventory count tags by including large quantities of defective mareks vaccines in IGI's annual physical inventory count.  This inflated IGI's inventory and made it appear that the vaccines were available for sale.  Dickson also removed large quantities of defective mareks vaccines from the liquid nitrogen in which they were stored and segregated them for destruction.  As a result, vaccines that were defective were not written off the books and IGI's assets and net income were inflated.  3    Between 1995 and 1997, Dickson maintained a separate record-keeping system -- a production log book -- for mareks.  The production log book represented a more accurate record of the inventory of mareks than IGI's general ledger or perpetual inventory records, which the former assistant controller maintained.  Dickson concealed this log book from the former assistant controller and from IGI's former independent auditors during the audits for fiscal years 1995 and 1996.    
+
+    As a result of Dickson's misconduct, and that of others, involving IGI's inventory, IGI overstated its assets and net income for fiscal years 1995 and 1996, and for the first three quarters of fiscal year 1997. 
+
+       2.  Improper Recognition of Revenue - Sales Cut-off  
+
+  IGI's revenue recognition policy required that sales revenue be recognized when products were shipped.  Contrary to this policy, during fiscal years 1995, 1996, and the first three quarters of fiscal year 1997, IGI routinely recorded sales of its products prior to shipment in order to increase improperly its quarterly and annual revenues and to manipulate its earnings. 
+
+  At or around the end of each quarter, the former President instructed several subordinates, including the former Vice President of Operations, to hold IGI's books open and to backdate invoices and shipping documents.  The former Vice President of Operations then directed Collins to assist him in instructing the sales clerks to backdate the invoices and to record out-of-period sales.  This improper practice caused IGI to overstate its revenue at the end of each quarter. 
+
+
+  As a result of Collins' misconduct, and that of others, involving sales cut-off practices, IGI misstated its assets, revenues, and net income for fiscal years 1995 and 1996, during each interim quarter thereof,  4   and for the first three quarters of fiscal year 1997.
+
+       3. Failure to Process and Record Sales Credits on a 
+	  Timely Basis ____________________________ 
+
+  IGI failed to process and record sales credits on a timely basis in fiscal years 1995, 1996, and 1997.  By delaying the processing and recording of such credits, IGI misstated its accounts receivable, sales, and net income from 1995 through 1996, and during the first three quarters of fiscal year 1997.    
+
+  IGI typically issued sales credits to its customers for returned products, for the return of liquid nitrogen containers used to ship mareks, and for promotional allowances. Customers generally sent requests for credits to the sales clerks who prepared credit memoranda.  Before entering the credits into IGI's accounting system, the sales clerks sent the credit memoranda to their manager, Collins, and to the former Vice President of Operations for approval.  
+
+  The former President routinely instructed the former Vice President of Operations and Collins to delay approval of large sales credits until the revenue levels were high enough to allow write-offs of the credits without affecting expected or targeted earnings.  Collins followed the former President's and former Vice President of Operations' instructions and delayed approval of large sales credits.  In some instances, at the direction of the former President, Collins and the former Vice President of Operations also instructed the sales clerks not to process or record large sales credits at all.
+
+   
+
+  As a result of Collins' misconduct, and that of others, relating to sales credits, IGI misstated its assets, revenues, and net income for fiscal years 1995 and 1996, during each interim quarter thereof,  5   and for the first three quarters of fiscal year 1997.  
+
+   E.  LEGAL DISCUSSION  
+
+    Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, prohibit material misstatements or omissions, made with scienter, in connection with the purchase or sale of securities.   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 860-62 (2d Cir. 1968),  cert .  denied , 394 U.S. 976 (1969).  Scienter is the "mental state embracing the intent to deceive, manipulate or defraud."   Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).  A fact is material if there is a substantial likelihood that a reasonable investor would consider the information to be important.   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988). Misrepresentation of a company's earnings,  SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 849 (2d Cir. 1968),  cert .  denied , 394 U.S. 976 (1969), and the improper recognition of revenue in departure from GAAP,  see   Fin v. American Solar King Corp. , 919 F.2d 290, 297, 300-01 (5 th  Cir. 1990), may be material.
+
+  Issuers must file accurate annual and quarterly reports with the Commission pursuant to Section 13(a) of the Exchange Act, and Rules 13a-1 and 13a-13 thereunder.   See   SEC v. Savoy Industries Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert .  denied , 440 U.S. 913 (1979). Moreover, Rule 12b-20 requires that reports contain all information necessary to ensure that the statements made in them are not materially misleading.  
+
+  Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain the accountability of assets. Section 13(b)(5) provides that no person shall knowingly falsify any such book, record, or account or circumvent an issuer's system of internal accounting controls. Exchange Act Rule 13b2-1 also prohibits, directly or indirectly, the falsification of any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act.  
+
+     F.  VIOLATIONS BY DICKSON AND COLLINS  
+
+  As a consequence of the fraudulent practices described above, IGI's Forms 10-K for the fiscal years ended December 31, 1995 and 1996, and its Forms 10-Q for the periods ended March 31, June 30, and September 30, 1997, contained materially false and misleading financial statements that were not prepared in conformity with Generally Accepted Accounting Principles ("GAAP").  IGI also maintained, with respect to fiscal years 1995 and 1996, and for the first three quarters of fiscal year 1997, false and misleading books and records which, among other things, materially overstated its assets, revenues, and net income during those financial reporting periods.  Accordingly, IGI violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.  
+
+   1.  Dickson  
+
+  From 1995 through 1997, Dickson was manager of production for mareks and was responsible for maintaining IGI's mareks inventory.  During this time, Dickson reported to IGI's former Vice President of Operations.  However, Dickson also took orders directly from the former President, who directed him to engage in improper accounting practices related to IGI's inventory that caused IGI to overstate its assets, inventory, and net income.  
+
+  In connection with the audit of IGI's financial results for fiscal years 1995 and 1996, Dickson prepared false and misleading inventory count tags, thereby falsifying the annual physical inventory counts that were used to verify the mareks inventory.  Dickson also concealed the more accurate production records that he maintained from IGI's accounting staff and from the independent auditors.  As a result, IGI overstated its inventory, assets, and net income by failing to write off the bad vaccines from its books.  Dickson knew that his actions were improper and that his conduct caused IGI to overstate its financial results. 
+
+  Accordingly, the Commission finds that Dickson violated Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and that he was a cause of IGI's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+    2. Collins  
+
+  From 1995 to 1997, Collins participated in the scheme to manipulate IGI's earnings.  Upon instructions from the former President and the former Vice President of Operations, Collins directed IGI's sales clerks to backdate invoices and enter them in improper accounting periods, and also to delay the processing and recording of sales credits, (or not process or record them at all) so that the proper adjustments could not be made to IGI's revenues. As a result, IGI overstated its assets, revenues, and net income.  Collins knew that his actions were improper and that his conduct caused IGI to overstate its financial results.    
+
+    Accordingly, the Commission finds that Collins violated Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and that he was a cause of IGI's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+   IV. 
+
+    Dickson and Collins have each submitted Offers of Settlement in which, without admitting or denying the findings herein, they each consent to the Commission's entry of this Order, which: (1) makes findings as set forth above; and (2) orders them to cease and desist from committing or causing any violation, or any future violation, of certain provisions of the federal securities laws. As set forth in their Offers, Dickson and Collins each undertake to cooperate with the Commission staff in connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party.   
+
+   V.   
+
+  Based on the foregoing, the Commission deems it appropriate to accept the Offers submitted by Dickson and Collins and to impose the relief specified herein.  
+
+  Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that:
+
+    A. Dickson cease and desist from committing or causing any violation, and any future violation, of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and that he cease and desist from causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder; and 
+
+    B. Collins cease and desist from committing or causing any violation, and any future violation, of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and that he cease and desist from causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+    C. IT IS HEREBY FURTHER ORDERED that Dickson and Collins each shall comply with their undertakings described in Section IV. above.
+
+    By the Commission.
+
+  Jonathan G. Katz
+ Secretary
+
+    Footnotes 
+     1      The findings herein are made pursuant to the Respondents' Offers and are not binding on any other person or entity in this or any other proceeding.
+
+      2      On August 24, 1998, IGI, in its 1997 Form 10-K, restated its financial results for the fiscal years ended December 31, 1995 and 1996. IGI also restated its net income in its Forms 10-Q for the first three quarters of fiscal year 1997.    
+
+      3      In order to further manipulate IGI's earnings, the former President decided when defective mareks inventory would be destroyed and, in addition, he only permitted Dickson and others to notify the former assistant controller that defective mareks inventory had been destroyed when IGI had sufficient earnings to record the inventory write-offs.  
+
+      4      Although IGI, based upon the results of the forensic audit, only restated its annual operating results for fiscal years 1995 and 1996, these improper sales cut-off practices resulted in out-of-period sales being recorded in all of the quarters during fiscal years 1995 and 1996.  
+
+      5       Although IGI, based upon the results of the forensic audit, only restated its annual operating results for fiscal years 1995 and 1996, the practice of not processing or recording sales credits on a timely basis occurred in all of the quarters during fiscal years 1995 and 1996.    
+
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diff --git a/raw/aaer/2002/AAER-1519.txt b/raw/aaer/2002/AAER-1519.txt
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+              Donald J. MacPhee
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+        Donald J. MacPhee
+       
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+ SECURITIES EXCHANGE ACT OF l934   
+ Release No. 45552 / March 12, 2002  
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1519 / March 12, 2002   
+  ADMINISTRATIVE PROCEEDING
+ File No.3-10721  
+
+        In the Matter of   
+  Donald J. MacPhee,   
+      Respondent.  
+     
+  : : : : : : :   
+  ORDER INSTITUTING PUBLIC
+ ADMINISTRATIVE PROCEEDINGS 
+ PURSUANT TO SECTION 21C OF
+ THE SECURITIES EXCHANGE ACT
+ OF 1934, MAKING FINDINGS,
+ AND IMPOSING A CEASE-AND-DESIST ORDER     I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate to institute public administrative proceedings against Donald J. MacPhee ("MacPhee" or "Respondent"), pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+   II. 
+
+  In anticipation of the institution of these public administrative proceedings, MacPhee has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's jurisdiction over him and over the subject matter of these proceedings, which are admitted, MacPhee consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order").
+
+   III. 
+
+              On the basis of this Order and the Respondent's Offer, the Commission makes the following findings:  1     A.  RESPONDENT  
+
+   Donald J. MacPhee,  age 50, from 1988 through June 1997, was the Chief Financial Officer of IGI, Inc. ("IGI"), a diversified company engaged in producing and marketing animal health products such as poultry vaccines, veterinary pharmaceuticals, cosmetics and skin care products.  At the direction of the former President of IGI, MacPhee engaged in improper sales cut-off practices, failed to adequately record sales credits in a timely manner and engaged in improper accounting practices regarding IGI's inventory.  In late June 1997, MacPhee alerted IGI's outside counsel about financial irregularities at IGI and in July 1997, he departed IGI for health reasons.  MacPhee is not now, and was not at the time of his misconduct, a certified public accountant.
+
+   B.  OTHER RELEVANT PERSONS AND ENTITIES  
+
+      IGI, Inc.  is located in Buena, New Jersey.  IGI's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act, and is listed for trading on the American Stock Exchange.
+
+         The President , who was also IGI's Chief Operating Officer, directed MacPhee and other former IGI officers and employees to engage in fraudulent accounting practices from 1995 through 1997, that caused IGI to overstate its assets, revenues, and net income.  IGI terminated the President in November 1997.  
+    C.  SUMMARY  
+
+  This matter involves fraudulent accounting practices and reporting, internal controls, and books and records violations at IGI.  Throughout 1995, 1996, and during the first two quarters of 1997, IGI's former President manipulated the company's annual and quarterly earnings by directing MacPhee, among others, to engage in improper accounting practices that caused IGI to overstate its assets, revenues, and net income.  Former senior management manipulated IGI's earnings by failing to: (1) write off inventory that was defective or that had been destroyed; (2) record sales revenue in the proper accounting periods; and (3) process and record sales credits in a timely manner.  These accounting improprieties primarily concerned IGI's production and storage of mareks, a poultry vaccine that is used to inoculate chickens against cancer.  
+
+  During the relevant time period, IGI derived most of its revenues from the sale of poultry vaccines, of which mareks was the most important, and other animal health products.  Rather than writing off the cost of large quantities of destroyed or defective vaccines, the former President directed MacPhee to establish reserves, which the former President then used to achieve his desired financial results.  The former President also directed MacPhee, among others, to hold open IGI's books at the end of the quarters so he could inflate IGI's quarterly revenues. At the direction of the President, MacPhee also did not record sales credits in the appropriate time periods.  MacPhee's actions, in part, caused IGI to overstate its assets, revenues, and net income.  2         
+
+   D.  FACTS  
+
+       1. Overstatement of Inventory and Understatement of
+	   Related expenses _______________________ 
+
+    From 1995 through the second quarter of 1997, IGI, while MacPhee was Chief Financial Officer, overstated its assets and net income by not recording properly the costs associated with reductions in its inventory for large quantities of mareks that were either destroyed or were defective and could not be sold.  In connection with this practice, the former President instructed MacPhee not to write off the cost of large quantities of mareks inventory that either was destroyed or that was defective.  Instead, the former President instructed MacPhee to establish inventory reserves.  The former President decided when and how much mareks would be destroyed and directed MacPhee, who complied with the directive, to reduce or increase the inventory reserve balances to achieve the former President's desired financial results.  MacPhee knew, or was reckless in not knowing, that the reserves did not properly reflect the costs of destroyed or defective inventory.   
+
+    As a result of MacPhee's misconduct, and that of others, involving IGI's inventory, IGI, while MacPhee was the company's Chief Financial Officer, overstated its assets and net income for fiscal years 1995 and 1996, and for the first two quarters of fiscal year 1997. 
+
+       2.  Improper Recognition of Revenue - Sales Cut-off  
+
+  IGI's revenue recognition policy required that sales revenue be recognized when products were shipped.  Contrary to this policy, during fiscal years 1995 and 1996, and the first two quarters of fiscal year 1997, IGI routinely recorded sales of its products prior to shipment in order to increase improperly its quarterly and annual revenues and to manipulate its earnings. 
+
+  At or around the end of each quarter, the former President instructed MacPhee, among others, to hold IGI's books open and to record out-of-period sales.  MacPhee knew, or was reckless in not knowing, that as part of this practice, employees backdated invoices. The accounting department, which MacPhee supervised, routinely informed the sales staff when the "extended quarter" had ended and when out-of-period sales should no longer be entered into IGI's computerized accounting system.  
+
+
+
+  As a result of MacPhee's misconduct, and that of others, involving IGI's sales cut-off practices, IGI, while MacPhee was the company's Chief Financial Officer, misstated its assets, revenue, and net income for fiscal years 1995 and 1996, during each interim quarter thereof,  3   and for the first two quarters of fiscal year 1997.
+
+       3. Failure to Process and Record Sales Credits on a 
+  Timely Basis _________________________________  
+
+  IGI, while MacPhee was Chief Financial Officer, failed to process and record sales credits on a timely basis in fiscal years 1995 and 1996, and for the first two quarters of fiscal year 1997.  By delaying the processing and recording of such credits, IGI misstated its accounts receivable, sales, and net income from 1995 through 1996, and during the first two quarters of fiscal year 1997.
+
+  IGI typically issued sales credits to its customers for returned products, for the return of liquid nitrogen containers used to ship mareks, and for promotional allowances.  Customers generally sent requests for credits to the sales clerks who prepared credit memoranda.  Before entering the credits into IGI's accounting system, the sales clerks sent the credit memoranda to their managers for approval.  The former President routinely instructed a former officer and a former manager to delay approval of large sales credits until revenue levels were high enough to allow write-offs of the credits without affecting expected or targeted earnings.  The former officer and manager followed the former President's instructions and delayed approval of large sales credits.  MacPhee knew, or was reckless in not knowing, that the approval of large sales credits was being delayed in fiscal year 1995.  
+
+  During 1996, the former President also instructed MacPhee not to record valid sales credits.  MacPhee's knowing or reckless failure to record sales credits caused IGI to overstate materially its assets, revenues, and net income in fiscal year 1996.
+
+  As a result of MacPhee's misconduct, and that of others, involving sales credits, IGI, while MacPhee was the company's Chief Financial Officer, misstated its assets, revenues, and net income for fiscal years 1995 and 1996, during each interim quarter thereof,  4   and for the first two quarters of fiscal year 1997.  
+
+
+
+   E.  LEGAL DISCUSSION  
+
+    Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, prohibit material misstatements or omissions, made with scienter, in connection with the purchase or sale of securities.   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 860-62 (2d Cir. 1968),  cert .  denied , 394 U.S. 976 (1969).  Scienter is the "mental state embracing the intent to deceive, manipulate or defraud."   Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).  A fact is material if there is a substantial likelihood that a reasonable investor would consider the information to be important.   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988). Misrepresentation of a company's earnings,  SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 849 (2d Cir. 1968),  cert .  denied , 394 U.S. 976 (1969), and the improper recognition of revenue in departure from GAAP,  see   Fin v. American Solar King Corp. , 919 F.2d 290, 297, 300-01 (5 th  Cir. 1990), may be material.
+
+  Issuers must file accurate annual and quarterly reports with the Commission pursuant to Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.   See   SEC v. Savoy Industries Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert .  denied , 440 U.S. 913 (1979).  Exchange Act Rule 12b-20 requires that statements and reports contain all information necessary to ensure that statements made in them are not materially misleading.  
+
+  Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain the accountability of assets. Section 13(b)(5) provides that no person shall knowingly falsify any such book, record, or account or circumvent an issuer's system of internal accounting controls. Exchange Act Rule 13b2-1 also prohibits, directly or indirectly, the falsification of any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act.  
+
+   F.  VIOLATIONS BY MACPHEE  
+
+  As a consequence of the fraudulent practices described above, while MacPhee was IGI's Chief Financial Officer, IGI's Forms 10-K for the fiscal years ended December 31, 1995 and 1996, and its Forms 10-Q for the periods ended March 31 and June 30, 1997, contained materially false and misleading financial statements that were not prepared in conformity with Generally Accepted Accounting Principles ("GAAP").  IGI also maintained, with respect to fiscal years 1995 and 1996, and for the first two quarters of fiscal year 1997, false and misleading books and records which, among other things, materially overstated its assets, revenues, and net income during those financial reporting periods.  Accordingly, IGI violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+    MacPhee signed IGI's Forms 10-K for fiscal year 1995 and 1996, the interim Forms 10-Q for those years, and the Form 10-Q for the quarter ended March 30, 1997.  5    MacPhee, at the direction of the former President, failed to write off the cost of large quantities of destroyed or defective inventory. Instead, MacPhee, at the President's direction, established inventory reserves, which MacPhee then used, at the President's direction, to systematically reduce the inventory.  Also, MacPhee, at the former President's direction, held open IGI's books at the end of the quarters to recognize out-of-period sales which caused IGI to inflate its quarterly revenues.  At the direction of the former President, MacPhee also did not record sales credits in the appropriate time periods.  
+
+    MacPhee knew, or was reckless in not knowing, that by engaging in the foregoing practices, he caused IGI to materially overstate its assets, revenues, and net income and caused IGI to file materially false and misleading reports and financial statements with the Commission for IGI's fiscal years ended December 31, 1995 and December 31, 1996, and for the quarters ended March 31, and June 30, 1997.  
+
+    Accordingly, the Commission finds that MacPhee violated Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and that he was a cause of IGI's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+   IV. 
+
+    MacPhee has submitted an Offer in which, without admitting or denying the findings herein, he consents to the Commission's entry of this Order, which: (1) makes findings as set forth above; and (2) orders MacPhee to cease and desist from committing or causing any violation, or any future violation, of certain provisions of the federal securities laws.  As set forth in his Offer, MacPhee undertakes to cooperate with the Commission staff in connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party.   
+
+   V. 
+
+  Based on the foregoing, the Commission deems it appropriate to accept the Offer submitted by MacPhee and imposes the relief specified herein.  
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that MacPhee cease and desist from committing or causing any violation, and any future violation, of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and that he cease and desist from causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+    IT IS HEREBY FURTHER ORDERED that MacPhee shall comply with his undertaking described in Section IV. above. 
+
+    By the Commission.
+
+  Jonathan G. Katz
+ Secretary
+
+    Footnotes 
+     1      The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.
+
+      2      On August 24, 1998, IGI, in its 1997 Form 10-K, restated its financial results for the fiscal years ended December 31, 1995 and 1996, and for the first three quarters of fiscal year 1997. IGI also restated its net income in its Forms 10-Q for the first three quarters of fiscal year 1997.  
+
+      3       Although IGI, based upon the results of the forensic audit, restated only its annual operating results for fiscal years 1995 and 1996, these improper sales cut-off practices resulted in out-of-period sales being recorded in all of the quarters during fiscal years 1995 and 1996. 
+
+      4       Although IGI, based upon the results of the forensic audit, restated only its annual operating results for fiscal years 1995 and 1996, the practice of not recording sales credits on a timely basis occurred in all of the quarters during fiscal years 1995 and 1996. 
+
+      5    MacPhee left IGI in late June 1997 and did not prepare or sign IGI's Form 10-Q for the quarter ended June 30, 1997.    
+
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diff --git a/raw/aaer/2002/AAER-1521.txt b/raw/aaer/2002/AAER-1521.txt
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index 0000000000000000000000000000000000000000..592063878ac3e13cb5b92ddab995bad440fd875c
--- /dev/null
+++ b/raw/aaer/2002/AAER-1521.txt
@@ -0,0 +1,1410 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | John P. Gallo; Lawrence N. Zitto; Donald J. MacPhee 
+     
+     
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+     
+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              John P. Gallo; Lawrence N. Zitto; Donald J. MacPhee
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+        John P. Gallo; Lawrence N. Zitto; Donald J. MacPhee
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+ LITIGATION RELEASE NO. 17410 / March 13, 2002           
+
+  ACCOUNTING AUDITING ENFORCEMENT RELEASE NO.  1521 / March 13, 2002
+
+  SEC v. JOHN P. GALLO, Civil Action No. 02-1087 (SMO) (D.N.J. March 13, 2002)
+
+  SEC v. LAWRENCE N. ZITTO, Civil Action No. 02-1088 (SMO) (D.N.J. March 13, 2002)
+
+  SEC v. DONALD J. MACPHEE, Civil Action No. 02-1089 (SMO) (D.N.J. March 13, 2002)
+
+   SEC FILES FINANCIAL FRAUD ACTIONS AND SETTLED  
+  ADMINISTRATIVE PROCEEDINGS AGAINST FORMER SENIOR  
+  OFFICERS AND MANAGERS OF IGI, INC. AND AGAINST IGI, INC.   
+
+  The Securities and Exchange Commission today filed suit in the United States District Court for the District of New Jersey against John P. Gallo ("Gallo"), the former President and Chief Operating Officer of IGI, Inc. ("IGI"), for violations of the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws.  The Complaint alleges that Gallo engaged in a fraudulent scheme to inflate IGI's assets, revenues and net income and to manage the company's reported earnings.  IGI, a small animal health and cosmetics company with its principal offices located in Buena, New Jersey, manufactures, among other things, poultry vaccines and other animal health products, pet products, and cosmetics and skin care products.  
+
+  In related actions, the Commission filed a settled antifraud injunctive action against Lawrence N. Zitto ("Zitto"), IGI's former Vice President of Operations, a settled civil penalty proceeding against Donald J. MacPhee ("MacPhee"), IGI's former Chief Financial Officer, and instituted and simultaneously settled administrative cease-and-desist proceedings against IGI, MacPhee, William A. Dickson ("Dickson"), IGI's former Production Manager for Poultry Vaccines, and Stephen P. Collins ("Collins"), IGI's former Manager of International Sales. 
+
+  The Complaint against Gallo alleges that: 
+
+  From fiscal year 1995 through the third quarter of fiscal year 1997, Gallo directed the former Vice President of Operations, the former Production Manager for Poultry Vaccines and, until the second quarter of fiscal year 1997, the former Chief Financial Officer, not to record properly the costs associated with reductions in IGI's inventory for large quantities of poultry vaccine that either were destroyed or were defective and could not be sold.  Gallo further directed IGI's former Chief Financial Officer to improperly account for destroyed or defective poultry vaccines as inventory reserves, instead of writing them off as the losses were realized in conformity with Generally Accepted Accounting Principles.  Gallo also directed the former Chief Financial Officer to adjust inventory reserve balances to achieve his desired financial results.  
+
+  Gallo directed the former Vice President of Operations and the former Manager of International Sales to record revenue from the sale of IGI products prior to shipment in order to fraudulently increase IGI's revenues and to manipulate its earnings.  Gallo directed these individuals and the former Chief Financial Officer to hold IGI's books open after the quarter had ended and directed the former Vice President of Operations and the former Manager of International Sales to backdate sales invoices and shipping documents.  
+
+  Gallo directed the former Vice President of Operations and the former Manager for International Sales to delay approval of large sales credits until revenue levels were high enough to allow write-offs of the credits without affecting the company's ability to announce realization of its quarterly earnings targets.  Finally, in connection with the annual audits of IGI's financial statements for fiscal years 1995 and 1996, Gallo signed IGI's management representation letters, later given to IGI's independent auditors, that he knew, should have know, or was reckless in not knowing were materially false and misleading. 
+
+  As a result of Gallo's fraudulent conduct, IGI materially overstated its assets, revenues and net income for fiscal years 1995 and 1996, the interim quarters thereof, and for the first three quarters of fiscal year 1997, and IGI filed materially false and misleading reports and financial statements with the Commission for fiscal years 1995 and 1996, and for the first three quarters of fiscal year 1997.
+
+  In its Complaint, the Commission requests that the Court issue a final judgment of permanent injunction and other relief restraining and enjoining Gallo from violating and/or aiding and abetting violations of the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2.  In addition to civil money penalties, the Commission is seeking an order that Gallo be permanently barred from acting as an officer or director of any public company.  The Complaint also seeks an order that Gallo prepare an accounting of (a) all compensation and other remuneration he received as a result of IGI fraudulently misrepresenting that it had attained or exceeded any revenue, net income or other performance targets for fiscal years 1995, 1996 and 1997, including all bonuses or stock options he received, and (b) profits from all sales by him of IGI securities between January 1, 1995 and November 17, 1997, and from the sale of IGI securities resulting from his exercise of stock options after November 17, 1997.  Finally, the Commission's Complaint seeks an order that Gallo disgorge all such compensation, remuneration and trading profits, with prejudgment interest, and surrender to IGI all unexercised stock options.
+
+     SEC SETTLES FRAUD CHARGES WITH LAWRENCE N. ZITTO  
+
+  In a related action, the Commission filed a settled injunctive action against Lawrence N. Zitto that alleges, among other things, that from fiscal year 1995 through the third quarter of fiscal year 1997, Zitto, at the direction of Gallo, failed to process or approve documentation for the destruction of large quantities of poultry vaccines that were included in IGI's inventory.  The Complaint also alleges that Zitto, at the direction of Gallo, instructed his subordinates to hold IGI's books open and record out-of-period sales and that Zitto instructed IGI employees to backdate invoices and shipping documents.  Finally, the Complaint alleges that at the direction of Gallo, Zitto delayed approval of large sales credits, and in some instances instructed his subordinates not to process or record large sales credits at all.
+
+  Zitto, without admitting or denying the allegations of the Complaint, consented the entry of a Final Judgment permanently restraining and enjoining him from violating and/or aiding and abetting violations of the antifraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.  Zitto also agreed to pay a $20,000 civil penalty pursuant to Section 21(d)(3) of the Exchange Act.  
+
+   SEC SETTLES CEASE-AND-DESIST PROCEDING WITH IGI 
+
+
+  In a related action, the Commission instituted and simultaneously settled an administrative cease-and-desist proceeding against IGI pursuant to which IGI, without admitting or denying the Commission's findings, consented to an order requiring it to cease and desist from committing or causing any violation, and any future violation, of the periodic reporting, record keeping and internal controls provisions of the federal securities laws, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13.  The Commission found that in fiscal year 1995 and 1996, and for the first three quarters of fiscal year 1997, IGI overstated its assets, revenues and net income in annual and periodic filings with the Commission.  [In the Matter of IGI, INC., Administrative Proceeding File No. 3-10722; SECURITIES EXCHANGE ACT OF 1934 Release No. 45553; ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1520] March 12, 2002.
+
+     SEC SETTLES CEASE-AND-DESIST PROCEEDING WITH DONALD J. MACPHEE 
+
+  In a related action, the Commission instituted and simultaneously settled an administrative cease-and-desist proceeding against Donald J. MacPhee, pursuant to which MacPhee, without admitting or denying the Commission's findings, consented to an order requiring him to cease and desist from committing or causing any violation, and any future violation, of the antifraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.  Also, without admitting or denying the allegations of the Commission's Complaint, MacPhee consented to the entry of Final Judgment requiring him to pay a civil penalty of $20,000 pursuant to Section 21(d)(3) of the Exchange Act.
+
+  The Commission found that during fiscal years 1995 and 1996, and the first two quarters of fiscal year 1997, MacPhee, at the direction of Gallo, did not write-off the cost of large quantities of poultry vaccines in IGI's inventory that either had been destroyed or that were defective.  Instead, at the direction of Gallo, MacPhee establish inventory reserves that were then adjusted to obtain Gallo's desired financial results. The Commission also found that MacPhee, at the direction of Gallo, held IGI's books open and recorded out-of-period sales and that MacPhee, at the direction of Gallo, did not to record valid sales credits in the proper accounting periods.  [In the Matter of DONALD J. MACPHEE, Administrative Proceeding File No. 3-10721; SECURITIES EXCHANGE ACT OF 1934 Release No. 45552; ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1519] March 12, 2002.
+
+     SEC SETTLES CEASE-AND-DESIST PROCEEDINGS WITH WILLIAM A. DICKSON AND STEPHEN P. COLLINS  
+
+  In a related action, the Commission instituted and simultaneously settled administrative cease-and-desist proceedings against William A. Dickson and Stephen P. Collins each of whom, without admitting or denying the Commission's findings, consented to an order requiring them to cease and desist from committing or causing any violation, and any future violation, of the antifraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1.  
+
+  The Commission found that from fiscal year 1995 through the third quarter of fiscal year 1997, Dickson, at the direction of Gallo, falsified inventory records and failed to disclose accurate records and information concerning IGI's inventory of vaccines to IGI's assistant controller and to IGI's former independent auditors during the audits for fiscal years 1995 and 1996.  The Commission found that Collins, at the direction of Gallo and Zitto, instructed IGI's sales clerks to backdate sales invoices and to record out-of-period sales.  The Commission also found that Gallo and Zitto instructed Collins to delay approval of large sales credits, or to not process or record at them at all.  [In the Matter of WILIAM A. DICKSON and STEPHEN P. COLLINS, Administrative Proceeding File No. 3-10720; SECURITIES EXCHANGE ACT OF 1934 Release No.  45551 ; ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1518] March 12, 2002.
+  
+
+ 
+
+          SEC Complaint:  SEC v. John P. Gallo  in this matter.         SEC Complaint:  Sec v. Lawrence N. Zitto  in this matter.         SEC Complaint:  SEC v. Donald J. MacPhee  in this matter.    
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diff --git a/raw/aaer/2002/AAER-1522.txt b/raw/aaer/2002/AAER-1522.txt
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--- /dev/null
+++ b/raw/aaer/2002/AAER-1522.txt
@@ -0,0 +1,1483 @@
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+              Timothy S. Heyerdahl
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+        Timothy S. Heyerdahl
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  45586 / March 18, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.    1522 / March 18, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10725
+
+        In the Matter of   
+  TIMOTHY S. HEYERDAHL, CPA, 
+   Respondent   
+      
+   : : : : : :   
+  ORDER INSTITUTING PROCEEDINGS
+     PURSUANT TO RULE 102(e) OF THE
+ COMMISSION'S RULES OF 
+        PRACTICE, MAKING FINDINGS AND 
+    IMPOSING REMEDIAL SANCTIONS    I.
+
+    The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Timothy S. Heyerdahl ("Heyerdahl"), a certified public accountant, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice. /   Accordingly, IT IS HEREBY ORDERED that said proceedings be, and hereby are, instituted.
+
+  II.
+
+    In anticipation of the institution of these proceedings, Heyerdahl has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein (except that Heyerdahl admits the jurisdiction of the Commission over him and over the subject matter of these proceedings and that a final judgment of permanent injunction has been entered against him) Heyerdahl consents to the entry of this Order Instituting Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions ("Order").
+
+  III.
+
+    On the basis of this Order and Heyerdahl's  Offer, the Commission finds that:
+
+    A. Heyerdahl, 39, a certified public accountant who is duly licensed by the Texas State Board of Accountancy, is a defendant in  Securities and Exchange Commission v. Timothy Heyerdahl, et. al. , Civ. No. C-01-3651 MMC, in the United States District Court for the Northern District of California.  Heyerdahl, former Senior Vice President, Finance & Treasury of HBO & Co. ("HBOC" or the "Company"), resides in Georgia.
+
+    B. On October 2, 2001, in the above-referenced matter, the United States District Court for the Northern District of California:  (a) permanently enjoined Heyerdahl from future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-13, 13b2-1, 13b2-2, and 12b-20 thereunder; (b) ordered Heyerdahl to disgorge $454,862.11 in ill-gotten gains from his sales of stock while participating in the fraud, and $66,630.07 in prejudgment interest thereon; and (c) ordered him to pay $100,000 in civil penalties.  Heyerdahl consented, without admitting or denying the allegations contained in the Commission's complaint (except as to jurisdiction, which he admitted), to the issuance of the order of permanent injunction and entry of the final judgment thereon.
+
+  C. The Commission's complaint alleged that HBOC inflated its revenue and net income in periodic reports filed with the Commission throughout 1998.  The complaint further alleged that, contrary to Generally Accepted Accounting Principles, HBOC inflated its revenue and net income by, among other things, improperly recognizing revenue on contingent sales and by decreasing expenses through improper entries in HBOC's general ledger.
+
+  D. The complaint further alleged that Heyerdahl knew, or was reckless in not knowing, that HBOC's financial statements for the quarters ended June 30, 1998 and September 30, 1998 were materially false and misleading and that Heyerdahl knowingly provided substantial assistance to HBOC's false and misleading reporting for those quarters.  The complaint alleged that during these periods Heyerdahl directed subordinates to improperly:  (a) record revenue for contracts which Heyerdahl knew were subject to side letter contingencies; and (b) decrease expenses by making improper entries in HBOC's general ledger.  The complaint also alleged that Heyerdahl contributed to the falsification of HBOC's books and records, and circumvented HBOC's internal accounting controls.  In addition, the complaint alleged that Heyerdahl failed to disclose information in response to questions by HBOC's independent auditors about certain of the Company's fraudulent revenue recognition practices.  
+
+  IV.
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction consented to by Heyerdahl in his Offer.
+
+    Accordingly,  IT IS HEREBY ORDERED  that, effective immediately:
+
+      Heyerdahl is suspended from the privilege of appearing or practicing before the Commission as an accountant pursuant to SEC Rule of Practice 102(e)(3)(i)(A) [17 C.F.R. Section 201.102(e)].
+
+       After five years from the date of this order, Heyerdahl may request that the Commission consider his reinstatement by submitting an application (attention:  Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+
+     a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Heyerdahl's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
+
+         an independent accountant.  Such an application must satisfy the Commission that:
+
+     Heyerdahl, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section");
+
+           Heyerdahl, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+           As long as Heyerdahl appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.  
+         The Commission's review of an application by Heyerdahl to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Heyerdahl's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+   By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  
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diff --git a/raw/aaer/2002/AAER-1523.txt b/raw/aaer/2002/AAER-1523.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4f1c6dd1141ffcaa2b6558060c6fcb4cb86dbf3f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1523.txt
@@ -0,0 +1,1480 @@
+
+
+ 
+ 
+   
+     
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+     SEC.gov | David Held, CPA 
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+              David Held, CPA
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+        David Held, CPA
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   45587 / March 18, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1523 / March 18, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10726
+        In the Matter of   
+  DAVID HELD, CPA,   
+        Respondent  
+     
+  : : : : : :   
+  ORDER INSTITUTING PROCEEDINGS
+ PURSUANT TO RULE 102(e) OF THE
+ COMMISSION'S RULES OF 
+ PRACTICE, MAKING FINDINGS AND 
+ IMPOSING REMEDIAL SANCTIONS    I.
+
+    The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest to institute public administrative proceedings against David Held ("Held"), a certified public accountant, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  Accordingly, IT IS HEREBY ORDERED that said proceedings be, and hereby are, instituted.
+
+  II.
+
+    In anticipation of the institution of these proceedings, Held has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein (except that Held admits the jurisdiction of the Commission over him and over the subject matter of these proceedings and that a final judgment of permanent injunction has been entered against him) Held consents to the entry of this Order Instituting Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions ("Order").
+
+  III.
+
+    On the basis of this Order and Held's Offer, the Commission finds that:
+
+  A. Held, 39, a certified public accountant who is duly licensed by the Texas Board of Accountancy, is a defendant in  Securities and Exchange Commission v. Timothy Heyerdahl, et. al. , Civ. No. C-01-3651 MMC, in the United States District Court for the Northern District of California.  During the period from November 1998 through January 12, 1999, Held was Chief Financial Officer for HBO & Co. ("HBOC" or the "Company") and from January 12, 1999 until June 1999 was the Chief Financial Officer of the Information Technology Business ("ITB") unit of McKesson HBOC Inc. ("McKesson HBOC").  Held resides in Georgia.
+
+    B. On October 2, 2001, in the above-referenced matter, the United States District Court for the Northern District of California: (a) permanently enjoined Held from future violations of Sections 10(b), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1 thereunder; and (b) ordered Held to pay a total of $15,000 in civil monetary penalties.  Held consented, without admitting or denying the allegations contained in the Commission's complaint (except as to jurisdiction, which he admitted), to the issuance of the order of permanent injunction and the entry of final judgment thereon.
+
+  C. The Commission's complaint in the above action alleged a broad range of improper and illegal accounting practices by a number of HBOC and McKesson HBOC officials.  As to Held, the complaint alleged that Held fraudulently allowed McKesson HBOC to recognize revenue on a $20 million transaction that was entered into on April 5, 1999 but backdated to March 31, 1999 so it would fall within McKesson HBOC's quarter end.  The sale of software was negotiated and documented by HBOC's President and other high-level employees.  While Held was not directly involved in the negotiation or documentation of the transaction, he knew that the transaction had been backdated and he approved recognition of revenue on the transaction for the March 31 quarter in the books and records of McKesson HBOC's ITB division.  The recognition of revenue on this fraudulent transaction caused McKesson HBOC to materially overstate its software revenue for the quarter ended March 1999.  
+
+  IV.
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction consented to by Held in his Offer.
+
+  Accordingly,  IT IS HEREBY ORDERED  that, effective immediately:
+
+      Held is suspended from the privilege of appearing or practicing before the Commission as an accountant pursuant to SEC Rule of Practice 102(e)(3)(i)(A) [17 C.F.R. Section 201.102(e)].
+
+       After three years from the date of this order, Held may request that the Commission consider his reinstatement by submitting an application (attention:  Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+
+     a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Held's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
+
+         an independent accountant.  Such an application must satisfy the Commission that:
+
+     Held, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section");
+
+           Held, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+           As long as Held appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.  
+         The Commission's review of an application by Held to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Held's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+   By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  
+
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diff --git a/raw/aaer/2002/AAER-1524.txt b/raw/aaer/2002/AAER-1524.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a3d4d537d0990a9c3891fb309355a99da42f9bad
--- /dev/null
+++ b/raw/aaer/2002/AAER-1524.txt
@@ -0,0 +1,1481 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Elaine A. Decker, CPA 
+     
+     
+     
+     
+     
+     
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+              Elaine A. Decker, CPA
+           
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+        Elaine A. Decker, CPA
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   45588 / March 18, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.     1524 / March 18, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10727 
+
+        In the Matter of   
+  ELAINE A. DECKER, CPA,  
+        Respondent  
+     
+  : : : : : : :   
+  ORDER INSTITUTING PROCEEDINGS
+ PURSUANT TO RULE 102(e) OF THE
+ COMMISSION'S RULES OF 
+ PRACTICE, MAKING FINDINGS AND 
+ IMPOSING REMEDIAL SANCTIONS    I.
+
+    The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Elaine A. Decker ("Decker"), a certified public accountant, pursuant to Rule 102(e)(3)(i)(A) of the Commission's Rules of Practice.  Accordingly, IT IS HEREBY ORDERED that said proceedings be, and hereby are, instituted.
+
+  II.
+
+    In anticipation of the institution of these proceedings, Decker has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings contained herein (except that Decker admits the jurisdiction of the Commission over her and over the subject matter of these proceedings and that a final judgment of permanent injunction has been entered against her) Decker consents to the entry of this Order Instituting Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice Making Findings and Imposing Remedial Sanctions ("Order").
+
+  III.
+
+    On the basis of this Order and Decker's Offer, the Commission finds that:
+
+    Decker, 36, a certified public accountant who was duly licensed by the state of Georgia at all relevant times, was a defendant in  Securities and Exchange Commission v. Timothy Heyerdahl, et. al.,  Civ. No. C-01-3651 MMC, in the United States District Court for the Northern District of California.  Decker, former director of contract accounting and contract development and administration for McKesson HBOC Inc. ("McKesson HBOC" or the "Company"), resides in Georgia.
+
+    On October 2, 2001, the United States District Court for the Northern District of California: (1) permanently enjoined Decker from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder; and (2) ordered Decker to pay civil money penalties pursuant to Section 21A of the Exchange Act.  Decker consented, without admitting or denying the allegations contained in the Commission's complaint (except as to jurisdiction, which she admitted), to the issuance of the order of permanent injunction and to the entry of final judgment thereon.
+
+    The Commission's complaint in the above action alleged, in part, that Decker: (1) contributed to the compilation of false and misleading financial statements during and for the quarters ending June 30, 1998 and September 30, 1998 as incorporated in McKesson HBOC's quarterly reports on Form 10-Q that were not prepared in accordance with Generally Accepted Accounting Principles and that materially overstated McKesson HBOC's product revenue; (2) caused McKesson HBOC's  books and records to be falsified and circumvented its internal accounting controls; and (3) failed to disclose information in response to questions by McKesson HBOC's independent auditors that would have revealed certain of the company's fraudulent revenue recognition practices.
+
+  IV.
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction consented to by Decker in her Offer.
+
+    Accordingly,  IT IS HEREBY ORDERED  that, effective immediately:
+
+      Decker is suspended from the privilege of appearing or practicing before the Commission as an accountant pursuant to SEC Rule of Practice 102(e)(3)(i)(A) [17 C.F.R. Section 201.102(e)].
+
+       After three years from the date of this order, Decker may request that the Commission consider her reinstatement by submitting an application (attention:  Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+
+     a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Decker's work in her practice before the Commission will be reviewed either by the independent audit committee of the public company for which she works or in some other acceptable manner, as long as she practices before the Commission in this capacity; and/or
+
+         an independent accountant.  Such an application must satisfy the Commission that:
+
+     Decker, or the firm with which she is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section");
+
+           Decker, or the firm, has received an unqualified report relating to hers, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+           As long as Decker appears or practices before the Commission as an independent accountant she will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.  
+         The Commission's review of an application by Decker to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Decker's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+   By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  
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diff --git a/raw/aaer/2002/AAER-1526.txt b/raw/aaer/2002/AAER-1526.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e53dc96bcfb581693b9176dc41b5242aff682e16
--- /dev/null
+++ b/raw/aaer/2002/AAER-1526.txt
@@ -0,0 +1,1523 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Keith Spero 
+     
+     
+     
+     
+     
+     
+     
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+
+ Securities Exchange Act of 1934 
+Release No.  45611 / March 21, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.   1526 / March 21, 2002 
+
+ Administrative Proceeding 
+File No.  3-10731 
+
+     
+
+In the Matter of    
+
+KEITH SPERO,     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING 
+A CEASE-AND-DESIST ORDER 
+
+   I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Keith Spero ("Spero" or "Respondent"). 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Spero has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, without admitting or denying the findings set forth below, except as to jurisdiction of the Commission over him and over the subject matter of these proceedings, which Respondent admits, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order") set forth below. 
+
+ Accordingly, it is ordered that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted. 
+
+ III. Facts 
+
+ The Commission makes the following findings:  1   
+
+ A. Respondent 
+
+ Spero, age 48, was a Vice-President for Distribution at USA Detergents, Inc. from 1996 to 1998.  In 1998, he became General Manager and an Executive Vice-President. He resides in Basking Ridge, New Jersey. 
+
+ B. Other Relevant Entity 
+
+  USA Detergents , at all times relevant, was a Delaware corporation with its principal executive offices in North Brunswick, New Jersey.  The company was a manufacturer and marketer of laundry and household cleaning products.  Its common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market System.  On May 21, 2001, Church & Dwight Co., Inc. announced that its wholly owned subsidiary, US Acquisition Corp., had completed a $7.00 per share cash tender offer for the outstanding shares of USA Detergents common stock.  As a result of that acquisition, USA Detergents is no longer a Section 12 registrant. 
+
+ C. Respondent's Violative Conduct 
+
+ During the last half of 1996, in anticipation that they could not otherwise achieve their budget or meet analysts' expectations for the company's financial results, management at USA Detergents resorted to fraudulent methods to increase the company's net income and earnings.  At year-end, when the gap between expectations and actual results was at it widest, management undertook a series of steps to inflate income artificially:  it improperly amortized marketing expenses, failed to book invoices, claimed rebates that should not have been recorded, capitalized labor costs, and recognized revenue from certain transactions.  
+
+ USA Detergents' senior management inflated the company's income for the fourth quarter of 1996 by, among other things, directing that the company recognize revenue in 1996 on shipments that, in fact, were made after the year-end and on sham shipments in which goods were merely transported to a warehouse and stored.  As the year-end approached, certain members of senior management became increasingly concerned about meeting the company's 1996 sales goals.  Senior management discussed various ways to meet the goals, including shipping merchandise on New Year's Day 1997 and recognizing the resulting revenue in 1996.  When it became apparent that the company, in fact, would not meet its 1996 goals, certain senior managers insisted that the company remain open on January 1, 1997, to ship merchandise and told Spero to ship on that date.  At management's direction, Spero caused the bills of lading for the shipments to be backdated to December 31, 1996.  The subsequently prepared invoices used the backdated dates from the bills of lading, and the company recognized the revenue from the sales on its books for 1996. 
+
+ At year-end 1996, USA Detergents also improperly recognized revenue on sham shipments of its goods.  In one such instance, Spero was directed to ship $800,000 worth of merchandise even though no firm order had been received.  Having no firm order, Spero was uncertain where to ship the goods.  On instructions from senior managers, Spero made arrangements for the goods to be shipped to a warehouse controlled by certain members of USA Detergents' senior management.  In 1997, the goods were, in fact, returned to the company.  Nevertheless, the company included the "sale" in its revenue for 1996.  The company also recognized revenue on goods it shipped to a company warehouse.  A customer had in fact ordered those goods, but for delivery in 1997.  Nevertheless, certain senior managers instructed that the goods be shipped before year-end.  Spero arranged for the goods to be shipped to a warehouse that USA Detergents maintained for excess inventory.  When the Chief Financial Officer learned where the goods were being stored, he ordered them moved so that the company's public auditors would not discover them while taking inventory.  Spero then had the goods moved to a third-party warehouse located out of state.  The company recognized revenue on the "sale" of the goods in the fourth quarter of 1996.  Ultimately, the merchandise was shipped to the customer in 1997. 
+
+ D. False Filing 
+
+ In March of 1997, USA Detergents filed with the Commission its annual report on Form 10-K for its fiscal year 1996.  The filing was false and misleading because it included financial statements that misrepresented the company's financial condition and results of operations, overstating its income and its earnings.   
+
+ IV. 
+
+ A. Violations of the Antifraud Provisions 
+
+ Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 prohibit a person, in connection with the purchase or sale of a security, from making an untrue statement of a material fact or from omitting to state a material fact necessary to make statements made, in light of the circumstances under which they were made, not misleading.  To violate Section 10(b) or Rule 10b-5, a defendant must act with scienter,  Aaron v. SEC , 446 U.S. 680, 695, 701-02 (1980), which the Supreme Court has defined as "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).   
+
+ USA Detergents materially misstated and misrepresented its financial condition in its annual report on Form 10-K for fiscal year 1996 by overstating income and earnings.   By recognizing revenue from backdated shipments actually made after the 1996 year-end and from sham shipments to warehouses, USA Detergents overstated its income for the fourth quarter of 1996.  The company also failed to disclose that post-period shipments were being included in its 1996 sales, in contravention of the company's stated policy for booking revenue from sales.  Because an investor would consider the information regarding these shipments important to making an investment decision, the misrepresentations were material.   See   Basic Inc. v. Levinson , 485 U.S. 224, 231-32 (1988). 
+
+ By directing the backdating of bills of lading and by directing sham shipments to warehouses, Spero was a cause of the company's violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5. 
+
+ B. Violations of the Exchange Act Reporting and Record-Keeping Provisions 
+
+ Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file annual reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.   See, e.g .,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Exchange Act Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading.  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985). 
+
+ USA Detergents' annual report on Form 10-K for its fiscal year 1996 was false and misleading inasmuch as it included financial statements that misrepresented the company's financial condition and results of operations, overstating its income and its earnings.  Based on the conduct described above, Spero was a cause of the company's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets.  Section 13(b)(5) of the Exchange Act, in relevant part, provides that no person shall knowingly falsify any such book, record, or account.  Rule 13b2-1 also prohibits the falsification of any book, record, or account subject to Section 13(b)(2)(A).  Exchange Act Rule 13b2-2 prohibits an officer or director of an issuer from (a) making or causing to be made a materially false or misleading statement or (b) omitting or causing to be omitted a statement of a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading to an accountant in connection with a required audit or the preparation or filing of a required document or report.   
+
+ During the course of the scheme, the company's books and records reflecting shipments and revenue were intentionally falsified.  By directing the backdating of bills of lading and directing sham shipments to warehouses, Spero knowingly falsified USA Detergents' books, records, and accounts.  Based on the conduct described above, Spero violated Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1 and was a cause of the company's violations of Section 13(b)(2)(A) of the Exchange Act.  Based on the above conduct, Spero was also a cause of management's violations of Exchange Act Rule 13b2-2. 
+
+ V. 
+
+ Based on the foregoing, the Commission finds that Spero committed violations of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1 and was a cause of USA Detergents' violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, and 13a-1, and of violations of Exchange Act Rule 13b2-2 by the management of USA Detergents. 
+
+ VI. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept Respondent's Offer.  
+
+ Accordingly,  IT IS HEREBY ORDERED  that 
+
+ Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, and from causing any violation and any future violation of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13b2-2. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnote 
+
+   1     The Commission's findings herein are made pursuant to Respondent's Offer and are not binding upon any other person or entity in these or any other proceedings. 
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diff --git a/raw/aaer/2002/AAER-1527.txt b/raw/aaer/2002/AAER-1527.txt
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@@ -0,0 +1,1503 @@
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+ Securities Exchange Act of 1934 
+Release No.  45612 / March 21, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.   1527 / March 21, 2002 
+
+ Administrative Proceeding 
+File No.  3-10732 
+
+     
+
+In the Matter of    
+
+FRANK VALDEZ,     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING 
+A CEASE-AND-DESIST ORDER     I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Frank Valdez ("Valdez" or "Respondent"). 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Valdez has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, without admitting or denying the findings set forth below, except as to jurisdiction of the Commission over him and over the subject matter of these proceedings, which Respondent admits, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order") set forth below. 
+
+ Accordingly, it is ordered that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted. 
+
+ III. Facts 
+
+ The Commission makes the following findings:  1   
+
+ A. Respondent 
+
+  Frank Valdez , age 51, was the President of USA Detergents from February 1995 until February 1997, when he resigned.  He resides in Bedminster, New Jersey. 
+
+ B. Other Relevant Entity 
+
+  USA Detergents , at all times relevant, was a Delaware corporation with its principal executive offices in North Brunswick, New Jersey.  The company was a manufacturer and marketer of laundry and household cleaning products.  Its common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market System.  On May 21, 2001, Church & Dwight Co., Inc. announced that its wholly owned subsidiary, US Acquisition Corp., had completed a $7.00 per share cash tender offer for the outstanding shares of USA Detergents common stock.  As a result of that acquisition, USA Detergents is no longer a Section 12 registrant. 
+
+ C. Respondent's Violative Conduct 
+
+ During the last half of 1996, USA Detergents management became increasingly concerned that the company would not be able to meet its stated sales goals for its fiscal year ended December 31, 1996.  Valdez, who was USA Detergents' President at the time, was present at meetings in late 1996 during which managers discussed various means designed to increase the final sales numbers for the year.  Thereafter, Valdez pushed the company's Vice President for Distribution to make two shipments as soon as possible.  One shipment was of goods for which a customer had given only an oral indication of interest.  The second shipment was for an order that the customer had asked to have shipped after the first of the year.  The Vice President for Distribution ordered the shipments made in 1996, and the company recognized the revenue from those shipments in that year.  The improper revenue recognition was subsequently reflected in the company's financial statements for 1996, as Valdez knew or should have known would be the case. 
+
+ D. False Filing 
+
+ In March of 1997, USA Detergents filed with the Commission its annual report on Form 10-K for 1996.  The filing was false and misleading because, as a result of the shipments made at the end of 1996 and the related, improper revenue recognition, it included financial statements that misrepresented the company's financial condition and results of operations, overstating its sales and revenue.   
+
+ IV. Violation of the Exchange Act Reporting Provisions 
+
+ Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file annual reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.   See, e.g .,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Exchange Act Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading.  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).   
+
+ USA Detergents' 1996 annual report on Form 10-K was false and misleading inasmuch as it included financial statements that misrepresented the company's financial condition and results of operations.  Based on the conduct described above, Valdez was a cause of the company's violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 12b-20. 
+
+ V. 
+
+ Based on the foregoing, the Commission finds that Valdez was a cause of USA Detergents' violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 12b-20. 
+
+ VI. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept Valdez' Offer.  
+
+ Accordingly,  IT IS HEREBY ORDERED  that 
+
+ Pursuant to Section 21C of the Exchange Act, Valdez cease and desist from causing any violation and any future violation of Section 13(a) and Rules 13a-1 and 12b-20. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnote 
+
+   1     The findings herein are made pursuant to Valdez' Offer and are not binding on any other person or entity in these or any other proceedings. 
+
+ 
+ 
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diff --git a/raw/aaer/2002/AAER-1528.txt b/raw/aaer/2002/AAER-1528.txt
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index 0000000000000000000000000000000000000000..b374880c65b7a7050c6cc729c68fc532cba6a703
--- /dev/null
+++ b/raw/aaer/2002/AAER-1528.txt
@@ -0,0 +1,1505 @@
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+ Securities Exchange Act Of 1934 
+Release No.  45613 / March 21, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.   1528 / March 21, 2002 
+
+ Administrative Proceeding 
+File No.  3-10733 
+
+     
+
+In the Matter of    
+
+HARLAN SCHIER,     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING 
+A CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Harlan Schier ("Schier" or "Respondent"). 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Schier has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, without admitting or denying the findings set forth below, except as to jurisdiction of the Commission over him and over the subject matter of these proceedings, which Respondent admits, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order") set forth below. 
+
+ Accordingly, it is ordered that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted. 
+
+ III. Facts 
+
+ The Commission makes the following findings:  1   
+
+ A. Respondent 
+
+  Harlan Schier , age 36, was the Controller of USA Detergents, Inc. from March 1994 to December 1997 and assistant to the President from December 1997 to November 1998, when he resigned.  Schier resided in East Brunswick, New Jersey at all times relevant. 
+
+ B. Other Relevant Entity 
+
+  USA Detergents , at all times relevant, was a Delaware corporation with its principal executive offices in North Brunswick, New Jersey.  The company was a manufacturer and marketer of laundry and household cleaning products.  Its common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market System.  On May 21, 2001, Church & Dwight Co., Inc. announced that its wholly owned subsidiary, US Acquisition Corp., had completed a $7.00 per share cash tender offer for the outstanding shares of USA Detergents common stock.  As a result of that acquisition, USA Detergents is no longer a Section 12 registrant. 
+
+ C. Respondent's Violative Conduct 
+
+ Schier was the Controller of USA Detergents during the last half of 1996.  During that time, in anticipation that the company could not otherwise achieve its budget or meet analysts' expectations for the company's financial results, certain other officers and managers at USA Detergents resorted to improper methods to increase the company's net income and earnings, including improperly recognizing revenue from certain transactions.   
+
+ During late December 1996, Schier learned that USA Detergents planned to ship product on January 1, 1997.  During the first week in January, Schier learned that the shipments had, in fact, taken place.  Thereafter, the company improperly recognized approximately $300,000 in proceeds from those shipments as revenue for the fourth quarter of 1996.  In so doing, USA Detergents overstated its income before taxes for the fourth quarter of 1996.  The overstated revenue and income was reflected in the company's 1996 financial statements and included in its annual report on Form 10-K for its fiscal year ended December 31, 1996.  Schier helped coordinate the production of these financial statements and knew or should have known that the annual report on Form 10-K included financial statements that misrepresented the company's income for 1996.   
+
+ D. False Filing 
+
+ In March of 1997, USA Detergents filed with the Commission its annual report on Form 10-K for 1996.  The filing was false and misleading because, as a result of the improper practices described herein, it included financial statements that misrepresented the company's financial condition and results of operations, overstating its revenue, income, and earnings.   
+
+ IV. Violation of the Exchange Act Reporting Provisions 
+
+ Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file annual reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.   See, e.g., SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Exchange Act Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading.  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).   
+
+ USA Detergents' 1996 annual report on Form 10-K was false and misleading inasmuch as it included financial statements that misrepresented the company's financial condition and results of operations.  Based on the conduct described above, Schier was a cause of the company's violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 12b-20. 
+
+ V. 
+
+ Based on the foregoing, the Commission finds that Schier was a cause of USA Detergents' violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 12b-20. 
+
+ VI. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept Schier's Offer.  
+
+ Accordingly,  IT IS HEREBY ORDERED  that 
+
+ Pursuant to Section 21C of the Exchange Act, Schier cease and desist from causing any violation and any future violation of Section 13(a) and Rules 13a-1 and 12b-20. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnote 
+
+   1     The findings herein are made pursuant to Schier's Offer and are not binding on any other person or entity in these or any other proceedings. 
+
+ 
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diff --git a/raw/aaer/2002/AAER-1529.txt b/raw/aaer/2002/AAER-1529.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4fbb689f9ddff1b744376d5b7e88a4be9c11779a
--- /dev/null
+++ b/raw/aaer/2002/AAER-1529.txt
@@ -0,0 +1,1504 @@
+
+
+ 
+ 
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+ Securities Exchange Act of 1934 
+Release No. 45614 / March 21, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.  1529 / March 21, 2002 
+
+ Administrative Proceeding 
+File No.  3-10734 
+
+
+     
+
+In the Matter of    
+
+DANIEL PARKER,     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING 
+A CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Daniel Parker ("Parker" or "Respondent"). 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Parker has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, without admitting or denying the findings set forth below, except as to jurisdiction of the Commission over him and over the subject matter of these proceedings, which Respondent admits, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order") set forth below. 
+
+ Accordingly, it is ordered that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted. 
+
+ III. Facts 
+
+ The Commission makes the following findings:  1   
+
+ A. Respondent 
+
+  Daniel Parker , age 44, was the Director of Purchasing of USA Detergents from May 1995 to August 1996, and Vice President for Materials Management of USA Detergents from August 1996 to November 1997.  He resides in Ringwood, New Jersey. 
+
+ B. Other Relevant Entity 
+
+  USA Detergents , at all times relevant, was a Delaware corporation with its principal executive offices in North Brunswick, New Jersey.  The company was a manufacturer and marketer of laundry and household cleaning products.  Its common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market System.  On May 21, 2001, Church & Dwight Co., Inc. announced that its wholly owned subsidiary, US Acquisition Corp., had completed a $7.00 per share cash tender offer for the outstanding shares of USA Detergents common stock.  As a result of that acquisition, USA Detergents is no longer a Section 12 registrant. 
+
+ C. Respondent's Violative Conduct 
+
+ During the last half of 1996, in anticipation that the company could not otherwise achieve its budget or meet analysts' expectations for the company's financial results, certain officers and managers at USA Detergents resorted to improper methods to increase the company's net income and earnings, including recording a number of bogus vendor rebates or credits on the company's books.  During late 1996 and early 1997, Parker, the company's Vice President for Materials Management, solicited from vendors certain letters and other documentation ostensibly supporting vendor rebates or credits that did not accurately reflect USA Detergents' commercial relationships with those vendors.  Parker submitted the documentation to the company's Chief Financial Officer, who then recorded bogus rebates or credits on the company's books and selected as support some of the documentation supplied by Parker.  As a result, the company understated its cost of goods sold and overstated its income for 1996.  The understated cost of goods sold and overstated income were subsequently reflected in the company's financial statements for 1996, as Parker knew or should have known would be the case. 
+
+ D. False Filing 
+
+ In March of 1997, USA Detergents filed with the Commission its annual report on Form 10-K for 1996.  The filing was false and misleading because, as a result of the practices described herein, it included financial statements that misrepresented the company's financial condition and results of operations, understating its cost of goods sold and overstating its income.   
+
+ IV. Violation of the Exchange Act Reporting Provisions 
+
+ Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file annual reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.   See ,  e . g .,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Exchange Act Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading.  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).   
+
+ USA Detergents' 1996 annual report on Form 10-K was false and misleading inasmuch as it included financial statements that misrepresented the company's financial condition and results of operations.  Based on the conduct described above, Parker was a cause of the company's violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 12b-20. 
+
+ V. 
+
+ Based on the foregoing, the Commission finds that Parker was a cause of USA Detergents' violation of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 12b-20. 
+
+ VI. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept Parker's Offer.  
+
+ Accordingly,  IT IS HEREBY ORDERED  that 
+
+ Pursuant to Section 21C of the Exchange Act, Parker cease and desist from causing any violation and any future violation of Section 13(a) and Rules 13a-1 and 12b-20. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnote 
+
+   1     The findings herein are made pursuant to Parker's Offer and are not binding on any other person or entity in these or any other proceedings. 
+
+ 
+ 
+ 
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diff --git a/raw/aaer/2002/AAER-1532.txt b/raw/aaer/2002/AAER-1532.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32639dab0e1fcd903ec70a3d89c40329d4b22897
--- /dev/null
+++ b/raw/aaer/2002/AAER-1532.txt
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+
+
+ 
+ 
+   
+     
+ 
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+     SEC.gov | Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen 
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+              Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen
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+LITIGATION RELEASE NO. 17435 / March 26, 2002  
+ACCOUNTING AND AUDITING ENFORCEMENT   RELEASE NO. 1532 / March 26, 2002
+  
+  Waste Management, Inc. Founder and Five Other Former Top Officers Sued for Massive Earnings Management Fraud 
+   Securities and Exchange Commission v. Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen , Civil Action No. 02C 2180 (Judge Manning) (N.D. Ill. March 26, 2002)
+   The Securities and Exchange Commission ("Commission") today filed a Complaint charging the founder and five other former top officers of Waste Management, Inc. ("Waste Management" or "Company") with perpetrating a massive financial fraud lasting more than five years. The Commission alleged that, beginning in 1992 and continuing into 1997, defendants engaged in a systematic scheme to falsify and misrepresent Waste Management's financial results and thereby enrich themselves and keep their jobs. The scheme was orchestrated and implemented by Waste Management's most senior officers: 
+  
+      Dean L. Buntrock  - Waste Management's founder, chairman of the Board of Directors, and chief executive officer during most of the relevant period;
+   Phillip B. Rooney -  president and chief operating officer, director, and CEO for a portion of the relevant period;
+   James E. Koenig -  executive vice president and chief financial officer;
+   Thomas C. Hau  - vice president, corporate controller, and chief accounting officer;
+   Herbert Getz -  senior vice president, general counsel, and secretary; and
+   Bruce D. Tobecksen  - vice president of finance.
+   
+The Commission brought its action in the United States District Court for the Northern District of Illinois. The Complaint alleges that the defendants violated, and aided and abetted violations of, antifraud, reporting, and record-keeping provisions of the federal securities laws. As relief, the Commission seeks final judgments permanently enjoining defendants from further violations of these provisions, ordering disgorgement of defendants' ill-gotten gains plus prejudgment thereon, imposing civil money penalties, and prohibiting defendants from serving as officers or directors of public companies.
+   In its Complaint, the Commission alleges the following:
+  
+ 
+Defendants fraudulently manipulated the Company's financial results to meet predetermined earnings targets. The Company's revenues and profits were not growing fast enough to meet these targets, so defendants instead resorted to improperly eliminating and deferring current period expenses to inflate earnings. They employed a multitude of improper accounting practices to achieve this objective. Among other things, defendants
+  
+   avoided depreciation expenses on their garbage trucks by both assigning unsupported and inflated salvage values and extending their useful lives,   
+
+ assigned arbitrary salvage values to other assets that previously had no salvage value,   
+
+ failed to record expenses for decreases in the value of landfills as they were filled with waste,    
+
+ refused to record expenses necessary to write off the costs of unsuccessful and abandoned landfill development projects,    
+
+ established inflated environmental reserves (liabilities) in connection with acquisitions so that the excess reserves could be used to avoid recording unrelated operating expenses,    
+
+ improperly capitalized a variety of expenses, and    
+
+ failed to establish sufficient reserves (liabilities) to pay for income taxes and other expenses. 
+  
+Defendants' improper accounting practices were centralized at corporate headquarters. Each year, Buntrock, Rooney, and others prepared an annual budget in which they set earnings targets for the upcoming year. During the year, they monitored the Company's actual operating results and compared them to the quarterly targets set in the budget. To reduce expenses and inflate earnings artificially, defendants then primarily used "top-level adjustments" to conform the Company's actual results to the predetermined earnings targets. The inflated earnings of prior periods then became the floor for future manipulations. The consequences, however, created what Hau referred to as a "one-off" problem. To sustain the scheme, earnings fraudulently achieved in one period had to be replaced in the next.
+  
+ Defendants concealed their scheme in a variety of ways. They made false and misleading statements about the Company's accounting practices, financial condition, and future prospects in filings with the Commission, reports to shareholders, and press releases. They also used accounting manipulations known as "netting" and "geography" to make reported results appear better than they actually were and avoid scrutiny. Defendants used netting to eliminate approximately $490 million in current period operating expenses and accumulated prior period accounting misstatements by offsetting them against unrelated one-time gains on the sale or exchange of assets. They used geography entries to move tens of millions of dollars between various line items on the Company's income statement to, in Koenig's words, "make the financials look the way we want to show them."
+  
+ Defendants were aided in their fraud by the Company's long-time auditor Arthur Andersen LLP ("Andersen"), which repeatedly issued unqualified audit reports on the Company's materially false and misleading annual financial statements. At the outset of the fraud, management capped Andersen's audit fees and advised the Andersen engagement partner that the firm could earn additional fees through "special work." Andersen nevertheless identified the Company's improper accounting practices and quantified much of the impact of those practices on the Company's financial statements. Andersen annually presented Company management with what it called Proposed Adjusting Journal Entries ("PAJEs") to correct errors that understated expenses and overstated earnings in the Company's financial statements. 
+  
+ Management consistently refused to make the adjustments called for by the PAJEs. Instead, defendants secretly entered into an agreement with Andersen fraudulently to write off the accumulated errors over periods of up to ten years and to change the underlying accounting practices, but to do so only in future periods. That signed, four-page agreement, known as the Summary of Action Steps (attached to the Commission's complaint), identified improper accounting practices that went to the core of the company's operations and prescribed thirty-two "must do" steps for the company to follow to change those practices. The Action Steps thus constituted an agreement between the company and its outside auditor to cover up past frauds by committing additional frauds in the future.
+  
+ Defendants could not even comply with the Action Steps agreement. Writing off the errors and changing the underlying accounting practices as prescribed in the agreement would have prevented the company from meeting earnings targets and defendants from enriching themselves.
+  
+ Defendants profited handsomely from their fraud. All of the defendants received performance-based bonuses based on the Company's inflated earnings, retained their high-paying jobs, and received stock options. Some also received enhanced retirement benefits based on the improper bonuses, and some received lucrative employment contracts. Buntrock, Rooney, and Koenig also avoided losses by cashing in their Waste Management stock while the fraud was ongoing. For example, just ten days before certain of the accounting irregularities first became public, Buntrock enriched himself with a tax benefit by donating inflated Company stock to his college alma mater to fund a building in his name.
+  
+ Defendants' scheme eventually unraveled. In mid-July 1997, a new CEO ordered a review of the Company's accounting practices. That review ultimately led to the restatement of the Company's financial statements for 1992 through the third quarter of 1997. When the Company filed its restated financial statements in February 1998, the Company acknowledged that it had misstated its pre-tax earnings by approximately $1.7 billion. At the time, the restatement was the largest in corporate history.
+  
+ As news of the Company's overstatement of earnings became public, Waste Management's shareholders (other than the defendants who sold Company stock and thus avoided losses) lost over $6 billion in the market value of their investments when the stock price plummeted by more than 33%.
+  
+ 
+ The Complaint details the roles that each of the individuals played in the scheme. Buntrock was the driving force behind the fraud. He set earnings targets, fostered a culture of aggressive accounting, personally directed certain of the accounting changes to make the targeted earnings, and was the spokesperson who announced the Company's phony numbers. Rooney was in charge of building the profitability of the Company's core solid waste operations and at all times exercised overall control over the Company's largest subsidiary. He ensured that required write-offs were not recorded and, in some instances, overruled accounting decisions that would have a negative impact on operations. Koenig had primary responsibility for executing the scheme. He also ordered the destruction of damaging evidence, misled the Company's audit committee and internal accountants, and withheld information from the outside auditors. Hau was the accounting expert who, among other things, devised many "one-off" accounting manipulations to deliver the targeted earnings and carefully crafted the deceptive disclosures. Tobecksen, another accounting expert, was enlisted in 1994 to handle Hau's overflow. Getz, the general counsel, blessed the Company's fraudulent disclosures.
+   As a result of defendants' conduct, the Commission alleges that Buntrock, Rooney, and Getz violated, or aided and abetted violations of, section 17(a) of the Securities Act of 1933 ("Securities Act"), sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act rules 10b-5, 12b-20, 13a-1, and 13a-13. The Commission further alleges that Koenig and Hau violated, or aided and abetted violations of, section 17(a) of the Securities Act, sections 10(b), 13(a), 13(b)(2)(A) of the Exchange Act, and Exchange Act rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2. The Commission alleges that Tobecksen violated, or aided and abetted violations of, section 17(a) of the Securities Act, sections 10(b), 13(a), 13(b)(2)(A) of the Exchange Act, and Exchange Act rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1.
+   Previously, the Commission instituted and simultaneously settled the following proceedings against Andersen and four of its partners: 
+    SEC v. Arthur Andersen LLP, et al.  , No. 1:01CV01348 (JR) (D.D.C.) [Release No. LR-17039] (June 19, 2001)      In the Matter of Arthur Andersen, LLP  , [Release No. 34-44444] (June 19, 2001)     In the Matter of Robert E. Allgyer CPA  , [Release Nos. 33-7986, 34-44445] (June 19, 2001)     In the Matter of Edward G. Maier CPA  , [Release Nos. 33-7987, 34-44446] (June 19, 2001)     In the Matter of Walter Cercavschi CPA  , [Release Nos. 33-7988, 34-44447] (June 19, 2001)     In the Matter of Robert G. Kutsenda, CPA  , [Release No. 34-44448] (June 19, 2001). 
+
+ 
+ 
+ 
+          SEC Complaint  in this matter.    
+ 
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diff --git a/raw/aaer/2002/AAER-1533.txt b/raw/aaer/2002/AAER-1533.txt
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+     SEC.gov | Kimberly-Clark Corporation and John W. Donehower 
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+              Kimberly-Clark Corporation and John W. Donehower
+           
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+        Kimberly-Clark Corporation and John W. Donehower
+       
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+ Securities Exchange Act of 1934 
+Release No. 45653 / March 27, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No. 1533 / March 27, 2002 
+
+ Administrative Proceeding 
+File No. 3-10741 
+
+     
+
+In the Matter of    
+
+KIMBERLY-CLARK CORPORATION and 
+JOHN W. DONEHOWER,        Respondents.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934, MAKING FINDINGS AND  
+IMPOSING CEASE-AND-DESIST ORDER     I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Kimberly-Clark Corporation ("Kimberly-Clark") and John W. Donehower ("Donehower") (collectively, the "Respondents") to determine whether Kimberly-Clark violated Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, and whether Donehower was a cause of those violations. 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, the Respondents have submitted Offers of Settlement for the purpose of disposing of the issues raised in these proceedings.  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, the Respondents, without admitting or denying the findings set forth herein, except that they admit to the jurisdiction of the Commission over them and over the subject matter of these proceedings, consent to the entry of the findings and to the issuance of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"). 
+
+ III. 
+
+ On the basis of this Order and the Respondents' Offers of Settlement, the Commission finds the following:  1   
+
+ A. Respondents 
+
+   Kimberly-Clark  is a Delaware corporation headquartered in Irving, Texas.  It manufactures tissue paper and other consumer products.  Kimberly-Clark's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades on the New York, Chicago and Pacific stock exchanges under the ticker symbol "KMB."    
+
+  John W. Donehower , age 55, was, at all relevant times, Kimberly-Clark's Chief Financial Officer and signed the company's filings with the Commission.  Donehower is not a Certified Public Accountant.   B. Facts 
+
+ 1. Summary 
+
+ These proceedings arise from inaccurate annual financial statements filed by Kimberly-Clark with the Commission for the years ended December 31, 1995, through December 31, 1998, and quarterly financial statements from March 31, 1996, through the quarter ended March 31, 1999.  These issues arose in connection with a $1.44 billion charge for restructuring and other unusual charges ("restructuring charge") that Kimberly-Clark recorded after its merger with Scott Paper Company ("Scott") in December 1995.  Kimberly-Clark materially overstated this restructuring charge by accruing $354 million of merger-related expenses (about 25% of the $1.44 billion charge) that did not constitute restructuring liabilities under Generally Accepted Accounting Principles ("GAAP").     
+
+ Between 1996 and 1998, the company also failed to account for certain of the liabilities associated with this restructuring charge in accordance with GAAP.  Specifically, during this time period, Kimberly-Clark did not record changes in estimates for the individual programs on its income statement.  2    Instead, in certain cases Kimberly-Clark reallocated changes in estimates to the numerous merger and integration programs and transferred any excess amounts to a restructuring reserve sub-account.   During certain quarters the company reduced this restructuring reserve sub-account resulting in an increase in Kimberly-Clark's reported earnings.         
+
+ In 1999, after discussions with the Commission's Division of Corporation Finance, Kimberly-Clark voluntarily restated its financial statements for these matters.  3   
+
+ 2. Background - Kimberly-Clark's $1.44 Billion Charge 
+
+ Kimberly-Clark manufactures and sells products such as "Kleenex" tissues and "Huggies" disposable diapers.  On July 16, 1995, Kimberly-Clark entered into an agreement to merge with Scott, another consumer products company engaged in the manufacture and sale of products such as Scott bathroom tissue and paper towels.  The merger, completed on December 12, 1995, and valued at about $9.4 billion, created the world's largest manufacturer of tissue products with annual sales of $13 billion.  
+
+ Prior to the merger, Kimberly-Clark had operating facilities in 27 countries and sold its products worldwide; Scott had manufacturing operations in 22 countries and also had worldwide customers.  Kimberly-Clark's dual goals after the merger were to:  (1) conduct the combined business operations immediately thereafter as a single company; and (2) establish an organization that was the right size and configuration.   
+
+ As a result, Kimberly-Clark initially determined that it would dispose of up to 12 mills and cut about 10 percent of its workforce.  Consequently, Kimberly-Clark determined that it would be necessary to record a restructuring charge related to the merger with Scott.  To establish the amount of the charge, Kimberly-Clark's business units documented desired restructuring programs using "program sheets" that contained a narrative of the planned activities, listed a cost estimate, described the timing of associated expenditures and discussed the expected merger synergies.   
+
+ Ultimately, Kimberly-Clark's business units submitted cost estimates that totaled $1.502 billion.  Donehower exercised his judgment to reduce this amount by $62.6 million, and Kimberly-Clark recorded a $1.44 billion one-time charge during the fourth quarter ended December 31, 1995.  
+
+ 3.  Kimberly-Clark Overstated the Original 1995 Charge 
+
+ Kimberly-Clark filed its 1995 Form 10-K on March 26, 1996.  Donehower signed this Form 10-K as Senior Vice President and Chief Financial Officer.  Kimberly-Clark expensed approximately $324 million as severance benefits.  Approximately $111 million of this amount related to 2,700 employees that Kimberly-Clark notified about their pending termination by December 31, 1995.  Kimberly-Clark improperly relied on Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" ("FAS 5") to accrue approximately $213 million in additional severance costs in connection with a number of employees, many of whom for regulatory reasons could not be notified about their terminations until 1996.        
+
+ Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF 94-3"), required Kimberly-Clark to notify relevant groups of employees of benefit arrangements for terminated employees.  Such notification was required before Kimberly-Clark could accrue a liability and record an expense for the related costs.  Because the relevant groups of employees had not been notified prior to year-end 1995, Kimberly-Clark improperly expensed approximately $213 million during the fourth quarter of 1995.      
+
+       During this quarter, Kimberly-Clark incorrectly relied on FAS 5 and expensed certain merger-related expenses as part of the $1.44 billion charge that related to: (1) equipment start-up costs; (2) mill idle time; (3) asset reinstallations; (4) employee relocations; (5) temporary labor and duplicate expenses; (6) transition costs; and (7) other miscellaneous costs providing a future benefit.  EITF 94-3 did not permit the accrual of costs to "exit" an activity if the exit cost could be associated with or could benefit activities that would be continued, and, specifically prohibited the accrual of such costs until an obligation existed to pay cash or otherwise sacrifice an enterprise's assets.  This additional accrual of approximately $141 million did not qualify as exit costs under EITF 94-3.  
+
+ 4. Kimberly-Clark's Restructuring Reserve Sub-Account 
+
+ Between 1996 and 1999, Kimberly-Clark's management evaluated the adequacy of the company's restructuring accrual on a quarterly basis to determine whether the company could complete all the programs encompassing its 1995 restructuring plan for the original estimated amount of $1.44 billion.  Donehower coordinated this evaluation process with the help of the company's business units and accounting personnel.      
+
+ On a quarterly basis, Kimberly-Clark's business units calculated whether their original cost estimates encompassing the $1.44 billion charge were still appropriate.  In some cases the business unit managers determined that their respective units would need to spend more money for certain programs than they had originally estimated.  In other cases, the managers determined their respective units would spend less.  Additionally, these managers sometimes identified costs for "new programs" that had not been specifically identified as of December 31, 1995.  These managers then forwarded their new cost estimates to Kimberly-Clark's accounting staff to consider their cost reallocation requests and requests for new merger-related programs.   
+
+ Using a single plan approach, Kimberly-Clark reallocated funds amongst some of the 360 original programs and, in certain instances, allocated amounts to new merger-related programs.  If the reallocation requests did not balance, then the difference was added to, or subtracted from,  Kimberly-Clark's restructuring reserve sub-account.  In certain instances, Kimberly-Clark reallocated accruals to new programs or cost increases to existing programs directly from this restructuring reserve sub-account.  Because these amounts were recorded in the restructuring reserve sub-account, Kimberly-Clark's changes in estimates to the restructuring liability were not immediately reflected in the company's income statement, as required by GAAP.   
+
+ Examples of how Kimberly-Clark accounted for the restructuring reserve sub-account are as follows: 
+
+ a. Winslow 
+
+ This Scott tissue facility, located in Winslow, Maine, was marked for disposal at some point during October or November 1995.  Consequently, management developed a program for the plant disposal, for which $12.6 million of estimated closing costs were accrued at December 31, 1995.  In early 1996, Kimberly-Clark's management determined that Winslow would not be sold but would probably be expanded.  Nonetheless, Kimberly-Clark did not release the $12.6 million accrual to earnings.  Instead, Kimberly-Clark returned the $12.6 million to its restructuring reserve sub-account and deferred income statement recognition.  
+
+ b. Gennep 
+
+ Kimberly-Clark concluded that as a result of the merger it would have excess tissue manufacturing capacity in Europe.  As a result, Kimberly-Clark expensed $111.5 million in connection with estimated costs to sell or close a former Scott facility located in Gennep, Netherlands.  Approximately $54.8 million of the $111.5 million related to goodwill for the Gennep operations.  However, in January 1996, Kimberly-Clark discovered that part of this goodwill appeared to relate to certain brands that Kimberly-Clark would continue to manufacture.  Based upon preliminary information, Kimberly-Clark's management determined that potentially $20 million of this goodwill related to brands with excess earning capacity that should not have been written-off.  Kimberly-Clark continued to treat the $54.8 million as part of the restructuring accrual until year-end 1996 at which time the $54.8 million was reallocated to the restructuring reserve sub-account instead of being returned to earnings.  
+
+ c. Hull 
+
+ The restructuring charge included $102.4 million related to the closure of the Hull, Ontario facility owned by Scott Paper Limited (ASPL@).  SPL operated Scott's operations in Canada, and Kimberly-Clark acquired a 50.1 percent interest in SPL in the merger.  Kimberly-Clark recorded the $102.4 million charge on the assumption that it would acquire the remaining 49.9 percent interest in SPL and then close the Hull facility.  In April 1996, Kimberly-Clark's management announced that it could not reach an agreement with Canadian regulatory authorities regarding divestitures.  Consequently, Kimberly-Clark decided to sell its 50.1 percent interest instead of acquiring the remaining 49.9 percent.  As a result, management determined that it did not need the $102.4 million accrual because it anticipated a gain on the sale of its 50.1 percent SPL interest and, accordingly, no loss would be realized on Hull.  Kimberly-Clark treated the $102.4 million as an amount that it could reallocate towards other qualifying programs.  Consequently, Kimberly-Clark transferred the $102.4 million to its restructuring reserve sub-account.     
+
+ d.  Accounts Receivable Adjustments 
+
+ Before the Kimberly-Clark/Scott merger became final, Kimberly-Clark discovered that Scott salesmen had offered substantial sales incentive programs that had not yet been processed.  To cover the costs of these sales incentive programs, $45 million was included as a program in the restructuring plan as of December 31, 1995.  Scott's accountants and independent auditor had assured Kimberly-Clark that the original accrual, excluding the $45 million, was sufficient.  Antitrust considerations prevented Kimberly-Clark from performing a thorough due diligence of Scott's sales practices prior to the merger.  Later in 1996, Kimberly-Clark discovered that the amounts actually claimed under Scott's sales incentive programs were $69 million more than expected.  And in 1997, amounts actually claimed by customers were about $30 million more than expected.  Rather than charge this $99 million as expenses in those years, Kimberly-Clark increased the amount of this program and charged the $99 million to the restructuring reserve sub-account.  Under GAAP, Kimberly-Clark was required to increase its bad debt expense in the period Kimberly-Clark determined the amounts were uncollectible.     
+
+ e. New Programs 
+
+ As discussed above, Kimberly-Clark also created a limited number of new merger-related programs that were not specifically identified at the time of recording the original $1.44 billion charge.  For example, in 1996 Kimberly-Clark created programs for "end user pricing contracts" and  "Scott inventory write-downs."  The end user pricing contracts program, for $55 million, consisted of unfavorable contracts that were the result of negotiations prior to the merger by the Scott sales force at unrealistic list prices and with limited controls.  Kimberly-Clark charged the losses related to these contracts against the restructuring reserve sub-account instead of recording them as a current period expense as required by GAAP.  Kimberly-Clark also recorded a  $13.3 million inventory write-down for excessive Scott inventory levels.  This amount was also improperly charged against the restructuring reserve sub-account. 
+
+ 5.  Kimberly-Clark Released Amounts to Earnings 
+
+ On a quarterly basis, Kimberly-Clark's business units sent status reports to accounting personnel showing where each program stood versus the planned expenditures.  Donehower reviewed these reports and decided how much to keep in the restructuring reserve sub-account and how much to return to earnings.  In making this decision, Donehower considered the percent of completion of each program, the time left to complete the program, and the degree of certainty concerning the cost estimate.  Donehower also considered the fact that he reduced the original business unit cost estimates by $62.6 million, that certain programs had cost overruns and that new programs were needed.  Although Donehower considered these factors, the process he used to determine the appropriate level of the remaining accrual was inconsistent with GAAP because it resulted in Kimberly-Clark's maintaining an accrual for merger-related contingencies on its books. 
+
+ 6.  Kimberly-Clark Failed to Comply with GAAP 
+
+ Accounting Principles Board Opinion No. 20, "Accounting Changes" ("APB 20"), paragraph 31, required Kimberly-Clark to record changes in estimates in "(a) the period of change if the change affects that period only or (b) the period of change and future periods if the change affects both."  APB 20, paragraph 38, required Kimberly-Clark to consider materiality "in relation to both the effects of each change separately and the combined effect of all changes."  FAS 5 permits the accrual of a liability if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.  
+
+ Kimberly-Clark's methodology for determining the amount released to earnings and its maintenance of a balance in the restructuring reserve sub-account, did not comply with GAAP.  For all of the examples previously discussed ( i.e. , Winslow, Gennep, Hull, etc.), Kimberly-Clark should have followed APB 20, and recorded the changes in estimates in income in the period in which they became known.  FAS 5 also did not permit Kimberly-Clark to maintain a balance in the restructuring reserve sub-account on its books.  
+
+  In addition, Kimberly-Clark's accounting methodology increased the amount of its reported earnings.  For example, in 1996, Kimberly-Clark increased its earnings by $65 million, or 3.2 percent, from reductions in the restructuring reserve sub-account.  Kimberly-Clark also charged against the restructuring reserve sub-account $69 million, or 3.2 percent of reported pretax income, related to uncollectible Scott accounts receivable balances, and another $95 million, or 4.6 percent of reported pretax income, in new program costs.  In the aggregate, Kimberly-Clark's pretax income was increased by approximately 11.0 percent in 1996.  Kimberly-Clark's earnings were increased, to a lesser extent in subsequent fiscal years, in a similar manner.  
+
+ Kimberly-Clark recorded the releases to earnings as a reduction of its "cost of sales," rather than separately classifying the amounts released as a separate line item on its income statement.  4    As a result, investors were not informed that a certain portion of Kimberly-Clark's earnings resulted from releases from the restructuring plan.  These releases into earnings were $65 million, or 3.2 percent of operating profit in 1996; $58 million, or 4.4 percent of operating profit in 1997; and $10.3 million, or 0.6 percent of operating profit in 1998.   
+
+ C. Legal Analysis 
+
+ 1.  Kimberly-Clark Violated the Reporting Provisions of the Exchange Act 
+
+ Section 13(a) of the Exchange Act requires all issuers with securities registered under Section 12 of the Exchange Act to file such periodic reports as the Commission shall prescribe by its rules and regulations.  Rules 13a-1 and 13a-13, respectively, require issuers to file annual and quarterly reports. 
+
+ Kimberly-Clark violated Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by materially overstating the original 1995 charge and by understating expenses in subsequent periods.  Kimberly-Clark also violated these provisions by accounting for the restructuring liability in a manner that was not in conformity with GAAP.  Specifically, Kimberly-Clark created and maintained a restructuring reserve sub-account on its books, improperly charged certain expenses against the account, and until March 12,1999, failed to disclose, as a result its earnings had increased.  5   
+
+ 2. Donehower Was a Cause of Kimberly-Clark's Violations 
+
+ Donehower, as Kimberly-Clark's principal financial officer, signed all relevant annual and quarterly reports.  He knew or should have known that Kimberly-Clark improperly maintained a restructuring reserve sub-account on its books and made releases from that account that did not comply with GAAP.  As a result, Donehower was a cause of Kimberly-Clark's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.  
+
+ IV. 
+
+ Findings 
+
+ On the basis of this Order and the Offers of Settlement submitted by the Respondents, the Commission finds that: 
+
+  Kimberly-Clark violated Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder; and   
+
+ Donehower was a cause of violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.   V.
+
+  In view of the foregoing, the Commission has determined that it is in the public interest to accept the Respondents' Offers of Settlement.  Accordingly,  IT IS HEREBY ORDERED , effective immediately, that  
+
+  Kimberly-Clark, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violation and any future violation of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder; and   
+
+ Donehower, pursuant to Section 21C of the Exchange Act, cease and desist from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.   By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1    The findings herein are made pursuant to Kimberly-Clark's and Donehower's Offers of Settlement and are not binding on any other person or entity in these or any other proceedings. 
+
+   2     Overall there were about 360 individual programs which Kimberly-Clark treated as a single plan.  Individual program costs ranged from less than $10,000 to more than $100 million.  Each program varied in scope from those with a single planned action and single charge to more comprehensive programs ( e.g. , plant closings), which involved multiple write-downs and accruals. 
+
+   3     As a result, in the restatement of the $1.44 billion charge, for 1996, Kimberly-Clark's quarterly earnings per share were reduced by 25 percent, 20 percent, 28 percent and 31 percent for each quarter respectively.  For 1996, Kimberly-Clark's annual earnings per share were reduced by 26 percent.  For the first quarter of 1997, Kimberly-Clark's quarterly earnings per share were reduced by 11 percent.  For 1997, Kimberly-Clark's annual earnings per share as restated decreased by 10 percent.  For 1998, Kimberly-Clark's annual earnings per share were reduced by less than 1 percent.  Finally, for the first quarter of 1999, Kimberly-Clark's quarterly earnings per share were reduced by 4 percent.  The net cumulative impact of the restatement of the $1.44 billion charge was to decrease Kimberly-Clark's pretax earnings over the entire period from 1995 through the first quarter of 1999 by $20.3 million, or 0.4 percent of Kimberly-Clark's total pretax earnings of $5.5 billion over the same period.  On a per share basis, Kimberly-Clark's earnings per share for the same period were unchanged by the restatement of the $1.44 billion charge. 
+
+   4     If Kimberly-Clark had classified the releases to earnings as "other income," the amount would have exceeded five percent of that line item on the company's income statement in all relevant quarters except the third quarter of 1997 when Kimberly-Clark released no reserves and the third quarter of 1998 when it released only $2.4 million. 
+
+   5     Kimberly-Clark disclosed in its Form 8-K, filed on March 12, 1999, the total amount released to earnings for the years ended 1996, 1997 and 1998. 
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diff --git a/raw/aaer/2002/AAER-1534.txt b/raw/aaer/2002/AAER-1534.txt
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+ SECURITIES EXCHANGE ACT of 1934
+ Release No.  45655  /  March 27, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1534  /  March 27, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.   3-10742
+
+        In the Matter of     
+          SIGNAL TECHNOLOGY CORPORATION,
+          Respondent.          
+     
+  : : : : : :   
+   ORDER INSTITUTING
+  PROCEEDINGS, MAKING 
+  FINDINGS, AND 
+  IMPOSING CEASE-AND-DESIST ORDER
+     I.  
+
+
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against respondent Signal Technology Corporation ("Signal Tech").
+
+     II.  
+
+  In anticipation of the institution of these cease-and-desist proceedings, Signal Tech has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that Signal Tech admits that the Commission has jurisdiction over it and the subject matter of these proceedings, Signal Tech consents to the issuance of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order ("Order"), the entry of the findings and the cease-and-desist order set forth below.
+
+   III. 
+
+  On the basis of this Order and the Offer, the Commission makes the following findings:  1     A.  RESPONDENT  
+
+             Signal Tech is a Delaware corporation currently based in Danvers, Massachusetts.  During the relevant time period, Signal Tech's principal place of business was in Sunnyvale, California.  Signal Tech designs and manufactures electronic systems that are used in defense, space and wireless communications applications.  At all relevant times, Signal Tech's securities were traded on the American Stock Exchange and registered with the Commission pursuant to Section 12(b) of the Exchange Act, and the company was required to file reports with the Commission pursuant to Section 13(a) of the Exchange Act. 
+
+   B.  SUMMARY  
+
+  This matter concerns material overstatements of income in multiple reporting periods by Signal Tech.  During the period from January 1996 through June 1998, Signal Tech's Keltec division prematurely recognized revenue, failed to record contract losses and failed to write down excess inventory.  Signal Tech's former chairman and CEO, former CFO, and other former senior corporate officers, knew of and in multiple instances personally directed improper accounting practices.  2     On several occasions the former chairman and other senior officers even dictated specific misleading entries to be made on Keltec's books.  These practices concealed the extent of Keltec's losses and resulted in Signal Tech's misstating its net income in consolidated financial statements filed in each of its Forms 10-K and 10-Q during the thirty-month period.
+
+  On November 4, 1998, under new management, Signal Tech restated its financial results for  the years ended December 31, 1996 and December 31, 1997, and for each quarter of those years and for the first quarter of 1998.  The restatement showed that Signal Tech originally overstated its 1996 net income by 32%, and overstated its 1997 net income by 294%.  Similarly, in its financial statements for the quarters ended March 31, 1996 through March 31, 1998, Signal Tech misstated its net income by 8% to 253%.   
+
+   C.  FACTS  
+
+  Keltec, one of the largest of Signal Tech's six divisions, produced approximately 25% of Signal Tech's total sales during 1996-1998.  Keltec designed and produced power supply systems used in military, space and communications applications.  A substantial portion of Keltec's business consisted of fixed price contracts, completed over several financial reporting periods.  Under these contracts, Keltec bore the risk that the design and manufacture of the contract product might cost more than the contract price.  During 1996 through the first half of 1998, the Keltec division incurred large cost overruns on many of its biggest contracts.  
+
+  Signal Tech's former chairman pressured Keltec managers to improve profits and terminated those who did not meet the desired profit goals.  For 1996, Keltec was required to produce twice the pre-tax profits it had achieved in 1995; and in 1997 and early 1998 it was also expected to increase its profits.  During the thirty months beginning in January, 1996, Signal Tech's former chairman installed four successive presidents at the Keltec division, due to Keltec's continuing failure to meet profit goals.  
+
+  Signal Tech's former management created a corporate atmosphere which encouraged managers to engage in improper accounting in an effort to improve Signal Tech's bottom line.  Signal Tech's former chairman and other senior officers expressed scorn for accounting principles.  When Signal Tech's CFO left in June 1997, the former chairman assumed many of the CFO's functions and made final accounting policy decisions for Signal Tech, even though he had no accounting expertise.
+
+  As a result of the pressure for profits at all costs and disdain for accounting principles by former senior officers of Signal Tech, all four of Keltec's presidents during this period, as well as Keltec's controller, knowingly allowed improper accounting practices at Keltec, as did the most senior officers of Signal Tech, including its former chairman, former CFO and former president.  Moreover, Signal Tech's senior officers personally directed specific improper accounting practices and dictated misleading entries to be made on Keltec's books to overstate revenue and understate costs.
+
+   1.  Failure Properly to Record Estimated Losses on Contracts at Keltec   
+
+  Keltec improperly failed to record anticipated losses and decreased profit margins as it  performed its long-term contracts.  The division regularly calculated the anticipated profit or loss on each contract and circulated reports reflecting these figures to both Keltec and Signal Tech senior management.  Under generally accepted accounting principles (GAAP), anticipated contract losses must be recorded in the periods in which they became known, and contract cost of sales figures must be adjusted to reflect decreased contract profit margins.  3    By the end of the third quarter of 1996, however, Keltec had accumulated $338,000 in contract cost adjustments which had not been recorded.  Almost 80% of that total was from an anticipated loss on a large contract for an Israeli company, Elisra.  At year-end 1996, the unbooked loss on the Elisra contract had increased to approximately $370,000.  Instead of recording the entire amount of the anticipated loss, Signal Tech's CEO and CFO created a reserve of only $200,000 for anticipated losses on the Elisra contract.  The entire amount of reserve available to cover losses on Keltec's contracts was inadequate even to cover the full amount of the anticipated Elisra loss.  As of year-end 1996, Keltec had failed to record $450,000 in cost of sales adjustments to reflect anticipated contract losses and decreased profit margins on contracts.
+
+  During 1997, Keltec continued its practice of failing to record contract cost of sales increases, under four different division presidents.  By the end of the first quarter of 1997, the total amount of unrecorded contract cost of sales adjustments at Keltec had grown to over $1 million, including $618,000 relating to the Elisra contract, and more than $300,000 on two Raytheon contracts. The unrecorded costs remained at that level through the second quarter.  During the third quarter, Keltec continued not to record any cost increases on some contracts, and for others, began recording only a portion of the total anticipated loss.  The practice of spreading losses over reporting periods was inconsistent with GAAP, which require that the entire amount of a known loss be recorded in the period in which it first becomes known.  Spreading the contract losses distorted Keltec's and Signal Tech's quarterly financial results.    
+
+  At the end of the third quarter of 1997, Keltec failed to record $1 million in contract cost of sales increases, thereby improving its profit.  Some of the cost increases were improperly eliminated by combining  unprofitable contracts with other, profitable contracts.  For others, Keltec did not book an increase in cost of sales because its management stated that the amounts were "not material," or the contracts were "under review."  Under GAAP, neither of these purported justifications is a valid basis for failure to record known cost increases on contracts.  
+
+  At year-end 1997, Keltec failed to record approximately $350,000 in contract cost of sales increases.  During the first and second quarters of 1998, under Keltec's fourth president in the period, Keltec ceased its regular calculation of contract estimates at completion, so that it became difficult to determine whether a contract's profit margin had changed.  Instead, Keltec's president personally dictated the cost of sales figures to be recorded on contracts each month. 
+
+     2.  Improperly Recognized Revenue  
+
+  Beginning in the second quarter of 1996 and continuing through the end of 1997, Keltec improperly recognized revenue on advance payments by customers (such as payments to be used to purchase materials with which to manufacture a product) and on improper ship-in-place transactions.   Neither of these practices complied with GAAP, which requires that revenue be recognized only when it is earned and realized or realizable.  4    During 1996 and 1997, management approved recognition of revenue for the sale of  goods which had not yet been shipped from Keltec.  These "bill and hold" transactions did not meet GAAP criteria for recognition because Keltec's management, rather than the customer, had requested that the bill be sent before product was delivered.  S.E.C. Accounting and Auditing Enforcement Release No. 108 (August 5, 1986).  As one foreign customer noted in a June 28, 1996 fax agreeing to one such request by Keltec's management, "[We] cooperate Keltec be able to achieve its sales goal at the first half of this year, in condition it does not affect the article 3 (payment)."[sic]  Keltec's president initialed this response and signed off on booking the transaction as revenue.  Keltec's management also allowed revenue to be taken on advance payments, which were inaccurately characterized as payments for services rendered.  
+
+  Keltec improperly recognized revenue in each of the last three quarters of 1996, in amounts totaling $934,000, $639,000 and $491,000 respectively.  During each quarter of 1997, Keltec improperly recognized revenue in amounts totaling $915,000, $149,000, $471,0000 and $231,000, respectively.
+
+   3.  Failure to Write Off Worthless Inventory  
+
+  Keltec's third improper accounting practice, which involved keeping worthless inventory on the books rather than writing it off, resulted in further overstatement of Keltec's profits.  By the fourth quarter of 1996, on many contracts Keltec had built up more units in inventory (called "work-in-process" or "WIP") than were needed to fill its backlog of customer orders.  Under GAAP, if the excess WIP on a contract cannot be otherwise used by the company, it must be written off as part of the cost of sales for that contract and a loss must be recorded in the current period.  5    Keltec's management did not write off WIP in excess of backlog.  In fact, there was no regular process by which the value of WIP on open jobs was even compared to backlog, so that there was no way of determining what should be written off.  Instead, WIP remained recorded on Keltec's balance sheet as work-in-process, a component of inventory.  This practice caused Keltec's costs of sales to be understated and its profits overstated.  During the fourth quarter of 1996, Keltec failed to write off $476,000 in excess WIP costs. 
+
+  When contracts were completed, Keltec continued its improper accounting treatment of WIP.  Under GAAP, WIP on closed jobs must be written off as soon as all goods called for by the contract have been shipped.  6    From at least March 1997 through March 1998, Keltec's controller instead improperly amortized the inventory write-down over several financial reporting periods.  Keltec failed to write off material amounts of excess WIP costs during each quarter from the fourth quarter of 1996 through the first quarter of 1998.  For the four quarters of 1997, Keltec failed to write off excess WIP in amounts totaling $69,000, $619,000, $321,000 and $180,000, respectively.  For the first quarter of 1998, Keltec failed to write off  WIP in excess of backlog totaling $797,000.   
+
+   4.  Additional Accounting Improprieties  
+
+  Beginning in the third quarter of 1997, Keltec reduced its overhead rate from 200% to 175%, resulting in a reduction in its cost of sales.  There was no basis in reality for this reduction because Keltec had never achieved a 175% overhead rate, nor did its overhead costs ever actually decrease to that 175% rate during the period it was using the rate to calculate its costs.  The overhead rate reduction resulted in Keltec's profits being overstated by approximately $240,000 during September 1997 through June 1998.  
+
+  Signal Tech and Keltec managers caused reductions to reserves which had no support.  At the end of the first quarter of 1997, Signal Tech reduced its reserve for contract losses by $210,000; no existing documentation sets forth any basis for this reduction.  By the end of 1997, Signal Tech had completely eliminated its reserve for contract losses.  This occurred even though Keltec had no reserve for contract losses at any time during 1997, and at the end of that year, Keltec still had unrecorded anticipated losses on contracts.  At year end 1997, Keltec reduced its reserve for excess and obsolete inventory by $100,000, without support.  At the end of the first quarter of 1998, Keltec reduced its reserve for warranty liabilities by $121,000, without support. 
+
+   5.  Management  's Response to Reports of Accounting Improprieties  
+
+  During the first half of 1998, Signal Tech's board of directors searched for and hired a new CEO, who took over that position on June 1, 1998.  In April 1998, Keltec replaced its former controller with a certified public accountant.  The new controller determined that Keltec might have over $3 million in unrecorded losses relating to WIP.  He also uncovered Keltec's improper revenue recognition practices and its failure to record contract losses.  Keltec's then-president dismissed the controller's conclusions and attempted to bar him from communicating them to Signal Tech's new CEO.  When the new CEO nevertheless was made aware of the issues at Keltec and informed Signal Tech's former chairman of them, the former chairman insisted that he retract his statements and indicated his intent to fire the new CEO.  The new CEO, however, fired Keltec's former president and Signal Tech's board approved the new CEO's recommendation that an internal audit be conducted.  The internal audit of Keltec revealed unrecorded losses totaling approximately $9.8 million.  On August 4, 1998, after the completion of the internal audit, Signal Tech's former chairman resigned at the request of Signal Tech board members.   
+
+  Signal Tech's board of directors authorized the company's outside auditors to conduct a re-examination of Keltec's financials.  On November 4, 1998, Signal Tech filed an amended 10-K for the year ended December 31, 1997.  The amended 10-K restated financial results for the years ended December 31, 1996 and December 31, 1997, as well as restating financial results for all eight quarters in 1996 and 1997.  Signal Tech also filed an amended 10-Q for the quarter ended March 31, 1998.
+
+     6.  Financial Effect of Accounting Improprieties  
+
+  Keltec's improper accounting practices caused Signal Tech's consolidated financials for each quarter of 1996 to be materially misstated.  According to the restated financial results, Signal Tech understated its net loss by 8% in the first quarter of 1996 and understated its net income by 23% in the second quarter.  In the third quarter of 1996, Signal Tech overstated its net income by 64%.  Signal Tech overstated its net income after taxes for year end 1996 by 33%, reporting $2,245,000, rather than $1,698,000.  These results were reported in Signal Tech's Form 10-K, filed with the Commission on March 31, 1997.
+
+  During the first, second and third quarters of 1997, Signal Tech overstated its net income by approximately 253%, 74%, and 67%, respectively.  Signal Tech's 1997 Form 10-K, filed with the Commission on March 31, 1998, misstated the company's net income after taxes for year end 1997 by approximately $1 million: Signal Tech reported $338,000 in net income after taxes although the company actually suffered a net loss after taxes of $657,000.  Signal Tech overstated its net profits after taxes for the first quarter of 1998 by approximately 82%, in its Form 10-Q filed on May 15, 1998.
+
+   D.  VIOLATIONS  
+
+     1.  Signal Tech Violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 Thereunder  
+
+  Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 require issuers of registered securities to file annual and quarterly reports with the Commission.  It is implicit in this requirement that the information provided be accurate.  See   United States v. Bilzerian , 926 F.2d 1285, 1298 (2d Cir.),  cert. denied , 502 U.S. 813, 112 S. Ct. 63 (1991);  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).  Regulation S-X requires that financial statements filed with the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with GAAP or such statements will be presumed to be misleading or inaccurate.  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that statements made in them are not materially misleading.  The issuer reporting provisions are violated when false and misleading reports are filed.   SEC v.  Falstaff Brewing Corp. , 629 F.2d 62, 67 (D.C. Cir.  1980).  No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 12b-20, 13a-1, or 13a-13.   See   SEC v. McNulty,  137 F.3d 732, 740-41 (2d Cir. 1998);  SEC v. Savoy Industries, Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978);   SEC v. Wills , 472 F. Supp.1250, 1268 (D.D.C. 1978);  In re Curtis L. Dally , Exchange Act Rel. No. 39144, (September 29, 1997), 1997 SEC LEXIS 2026. 
+
+  Signal Tech filed Forms 10-K for the years ended December 31, 1996 and December 31, 1997 that materially misstated the company's income by 33% and 294%, respectively. The company improperly reported a net profit for the year 1997, when in fact it had incurred a loss.  Signal Tech filed Forms 10-Q for each of the first three quarters of 1996 and 1997 and the first quarter of 1998, which materially misstated the company's income by 8% to 253%.  Accordingly, Signal Tech violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+   2.  Signal Tech Violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange    Act    
+
+  Section 13(b)(2) of the Exchange Act states, in pertinent part, that every reporting company must:  (A) make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer; and (B) devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP.  These provisions require an issuer to employ and supervise reliable personnel, to maintain reasonable assurances that transactions are executed as authorized, to properly record transactions on an issuer's books and, at reasonable intervals, to compare accounting records with physical assets.   SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 750 (N.D. Ga. 1983).  Sections 13(b)(2)(A) and 13(b)(2)(B) do not require a showing of scienter.   Id. , at 751.
+
+  Signal Tech violated Section 13(b)(2)(A) of the Exchange Act by failing to maintain accurate records concerning its revenues, costs and net income.  It failed to record contract costs, failed to write off excess inventory, and recognized revenue improperly.  Signal Tech's inaccurate and false records were not isolated or unique instances because they were improperly maintained for multiple reporting periods, from January 1996 through June 1998.  Accordingly, Signal Tech violated Section 13(b)(2)(A) of the Exchange Act. 
+
+  In addition, Signal Tech violated Section 13(b)(2)(B) of the Exchange Act by failing to implement procedures reasonably designed to prevent accounting irregularities.  Signal Tech failed to ensure that proper reviews and checks were in place to ensure that its Keltec division did not engage in accounting improprieties.  It failed to ensure that transactions were reported in accordance with its own policies and with GAAP.  During the period from June 1997 through the first quarter of 1998, Signal Tech failed to employ a CFO and the CEO, who was not an accountant, exercised final control over accounting treatment at the company, thus eliminating the segregation of duties which is required for adequate controls.  Accordingly, Signal Tech violated Section 13(b)(2)(B) of the Exchange Act.
+
+     IV.  
+
+    In determining to accept the Offer, the Commission considered remedial acts undertaken
+
+by Signal Tech and cooperation afforded the Commission staff.
+
+     V.  
+
+  In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Signal Tech and to impose the cease-and-desist order agreed to in the Offer.
+
+  Accordingly,   IT IS HEREBY ORDERED , pursuant to Section 21C of the Exchange Act, that Signal Technology Corporation cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+  By the Commission.
+
+  Jonathan G. Katz
+ Secretary
+    Footnotes 
+     1     The findings herein are made pursuant to the Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+
+      2     Simultaneously with the institution of these proceedings, the Commission is filing a civil injunctive action for violations of the antifraud provisions of the federal securities laws against Signal Tech's former chairman and CEO, its former CFO, the former controller of Signal Tech's Keltec division, and the four individuals who served as presidents of Keltec during the period in which the accounting fraud took place.
+
+      3     Statement of Position ("SOP") 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.  FASB Statement of Financial Accounting Standards No. 5 ("FAS5"), Accounting for Contingencies.  Accounting Research Bulletin No. 45, Long-Term Construction-Type Contracts ("ARB 45").  Consistent with GAAP, Signal Tech's corporate accounting policy required that estimated losses on contracts be recognized in full in the period in which they became known.  
+
+      4     FASB Statement of Financial Accounting Concepts No. 5 ("CON 5"), Recognition and Measurement in Financial Statements of Business Enterprises.  
+
+      5     Accounting Research Bulletin No. 43 ("ARB 43"), Chapter 4, Inventory Pricing, Statement 5.
+
+      6     ARB 43, Chapter 4, Inventory Pricing, Statement 4.      
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diff --git a/raw/aaer/2002/AAER-1535.txt b/raw/aaer/2002/AAER-1535.txt
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index 0000000000000000000000000000000000000000..811fd61cad72a0f1536e3a862fbedc8d98bd41c2
--- /dev/null
+++ b/raw/aaer/2002/AAER-1535.txt
@@ -0,0 +1,1403 @@
+
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+     SEC.gov | Dale Peterson, et al. 
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+                  Litigation Release No. 17439  / March 27, 2002
+
+  Accounting and Auditing Enforcement Release No.  1535 / March 27, 2002
+
+  SEC Sues Former Top Officers of Defense Contractor Signal Technology Corp. 
+for Accounting Fraud
+
+   Securities and Exchange Commission v. Dale Peterson et al.  (United States District Court for the Northern District of California C.A. No. C02-01467)   
+
+    The Securities and Exchange Commission yesterday filed a civil fraud action against seven former senior officers of Signal Technology Corp., a Danvers, Massachusetts defense contractor formerly located in Sunnyvale, California.  In the suit, filed in federal court in the Northern District of California, the Commission alleged that defendants caused Signal Tech to inflate its reported earnings by over $9 million from January 1996 through June 1998.  According to the Complaint, each of the individual defendants personally directed or participated in the company's improper accounting practices at its Florida-based Keltec division, when it failed to record known losses on major contracts, prematurely recognized revenue, and failed to write off worthless inventory.  The Commission alleged that the defendants' conduct violated the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws. 
+
+    All of the individual defendants were members of senior management at Signal Tech or its Keltec division.  The Complaint alleges that defendants flouted accounting principles to improve the company's bottom line and repeatedly failed to follow generally accepted accounting principles (GAAP).   The Complaint alleges that the company's disregard for proper accounting came from the top, with the company's former CEO, defendant Dale Peterson, remarking that he was "sick of people thinking GAAP was important.  As a result of its accounting fraud, the Complaint alleges, Signal Tech misstated its net income by amounts ranging from 8% to 294% in financial statements filed for reporting periods during January 1996 through March 1998 and reported a profit, rather than its actual loss, for the year 1997. 
+
+    Individual defendants  
+
+  In its complaint, the Commission named the following defendants:
+
+  Dale Peterson, age 66, who resides in Saratoga, California.  Peterson was Signal Tech's Chief Executive Officer and Chairman of the Board from 1994 to mid-1998. 
+
+  Russell Kinsch, age 52, who resides in Saratoga, California.  Kinsch was Signal Tech's Chief Financial Officer from February 1996 through June 1997.
+
+  James Walsh, age 68, who resides in Sunnyvale, California.  Walsh was president of Signal Tech from May 1993 until August 1997; and vice chairman and chief technical officer from August 1997 until December 1997.   He served as Keltec's  de facto  president during the third quarter of 1997.
+
+  Richard Nabozny, age 68, who resides in Panama City Beach, Florida.  Nabozny was vice president of operations of Signal Tech from 1992 through June 1998 and served as Keltec's president from January through June 1998.
+
+  Michael Smith, age 53, who resides in Chelmsford, Massachusetts.  Smith was vice-president of marketing for Signal Tech beginning in February 1995.  Smith served as president of the company's Keltec division from February 1996 until March 1997.  
+
+  Charles Balentine, age 54, who resides in McElhattan, Pennsylvania.  Balentine was controller of the Keltec division from February 1996 to March 1998.
+
+  Wayne Armstrong, age 55, who resides in Navarre, Florida.  Armstrong was president of Keltec from March 1997 through December 1997.
+
+    Defendant officers' individual roles in alleged fraudulent accounting  
+
+    Specifically, the Complaint alleges that from 1996 through 1998, Signal Tech's Keltec division was experiencing severe financial difficulties due to cost overruns on its defense contracts.  Signal Tech's CEO, Dale Peterson, and its CFO, Russell Kinsch, knew of, directed and approved of Keltec's failure to record contract losses, but signed Signal Tech's materially misleading Forms 10-K and 10-Q, knowing that they incorporated misleading financial results for Keltec.  Peterson and Kinsch also signed false management representation letters to Signal Tech's auditors.
+
+    The other defendants, James Walsh, Richard Nabozny, Michael Smith and Wayne Armstrong, who served as Keltec's division presidents, and Charles Balentine, its division controller, participated in Signal Tech's filing of false financial reports by directing Keltec to provide inaccurate figures for inclusion in Signal Tech's consolidated financial statements. Walsh directed Keltec to conceal over $1 million in contract costs during 1997.  Nabozny directed concealment of costs, made unsupported reductions to Keltec's reserves which improved its profit figures, and approved Keltec's failure to write off worthless inventory.   Smith approved Keltec's failure to record contract cost increases and its premature recognition of revenue. Balentine implemented directives by Keltec's president to record revenues prematurely and not to record contract costs.  He directed inadequate write-offs of worthless inventory.  Armstrong knew of Keltec's failure to record contract cost increases, but allowed Keltec to report the misleading results.
+
+    According to the Complaint, the accounting improprieties came to light after a change in Signal Tech's management in mid-1998.  Balentine's replacement discovered unrecorded losses at Keltec.  Signal Tech's board of directors initiated an examination of the company's books which led to the restatement of its financial results for 1996 and 1997.  By the time of the restatement, none of the seven defendants remained at Signal Tech.
+
+    Commission seeks permanent injunctions, civil money penalties and officer and director bars  
+
+    In its Complaint, the Commission requests that the court issue a final judgment of permanent injunction and other relief enjoining each of the individual defendants from violating or aiding and abetting violations of the antifraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1, and additionally as to Peterson and Kinsch, Rule 13b2-2, which prohibits officers of a company from lying to auditors.  In addition to civil monetary penalties from all individual defendants, the Commission is seeking an order permanently barring Peterson, Kinsch, Walsh, Nabozny and Smith from acting as officers or directors of any public company.  
+
+    Commission settles Cease-and-Desist proceeding with Signal Tech  
+
+    In a related action, the Commission instituted and simultaneously settled an administrative cease-and-desist proceeding against Signal Tech pursuant to which the company, without admitting or denying the Commission's findings, consented to an order requiring it to cease and desist from committing or causing any violation, and any future violation, of the periodic reporting, record keeping and internal controls provisions of the federal securities laws, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13.  The Commission found that in 1996 and 1997 and for the first quarter of 1998, Signal Tech overstated its revenues and net income in annual and periodic filings with the Commission. 
+
+    ( Release No. 34-45655 ) 
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diff --git a/raw/aaer/2002/AAER-1536.txt b/raw/aaer/2002/AAER-1536.txt
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@@ -0,0 +1,1675 @@
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+              PictureTel Corp. and Les B. Strauss
+           
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+        PictureTel Corp. and Les B. Strauss
+       
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+ Securities Exchange Act of 1934
+ Release No.   45665 / March 28, 2002
+  Accounting and Auditing Enforcement
+ Release No.   1536 / March 28, 2002
+  Administrative Proceeding
+ File No.    3-10743
+         In the matter of    
+   PictureTel Corp. and   
+   Les B. Strauss,    
+       Respondents.  
+     
+    : : : : : : : :   
+     Order Instituting proceedings, making Findings, and imposing Cease-and-Desist Order       I. 
+
+    The Securities and Exchange Commission (the "Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted against PictureTel Corp. ("PictureTel") and Les B. Strauss ("Strauss") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). 
+
+   II. 
+
+    In anticipation of the institution of these proceedings, PictureTel and Strauss have submitted Offers of Settlement ("Offers") that the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings, except those findings pertaining to the jurisdiction of the Commission over PictureTel and Strauss and over the subject matter of these proceedings, which PictureTel and Strauss admit, PictureTel and Strauss consent to the issuance of this Order Instituting Proceedings, Making Findings, and Imposing Cease-and-Desist Order (the "Order"), the entry of the findings and the cease-and-desist order set forth below.
+
+
+
+    On the basis of this Order and the Offers of Settlement submitted by Respondents PictureTel and Strauss, the Commission makes the following findings: 1 
+
+   A.    Respondents and Related Parties  
+
+     1.   Respondents  
+
+      PictureTel   is a Delaware corporation, headquartered in Andover, Massachusetts, that designs, manufactures and markets videoconferencing systems.  At all relevant times in 1996 and 1997, PictureTel's shares were traded on the NASDAQ national market system.  Until October 19, 2001, PictureTel's shares were registered with the Commission pursuant to Section 12(g) of the Exchange Act.  On October 18, 2001, PictureTel was acquired by Polycom Inc.  It is currently operating as a separate operating unit within the video division of Polycom and retains the PictureTel name.
+
+      Strauss  , 58, of Wellington, Florida, joined PictureTel in 1990.  At all relevant times, he served as PictureTel's chief financial officer.  He retired in May 1997.  He is currently a self-employed consultant and is a director of various private companies.  Strauss is not a CPA.
+
+     2.   Related Parties  
+
+      David T. Dodge  , 44, of Northbrook, Illinois, was the general manager of El Camino Resources Ltd.'s ("El Camino") vendor leasing division during the time period at issue here.  Dodge was primarily responsible for managing El Camino's relationship with PictureTel.
+
+      El Camino   is a privately-held company headquartered in Woodland Hills, California, which served as PictureTel's leasing agent.  At all times relevant to this matter, El Camino's leasing division, located in Chicago, accounted for approximately 5% of El Camino's revenues. Transactions with PictureTel represented approximately 80-90% of El Camino's leasing business during 1996-97.  El Camino is currently being liquidated.
+
+   B.   Summary  
+
+    This matter involves PictureTel's overstatements of revenue and income and understatements of losses in public announcements and in financial statements filed with its quarterly and annual reports for the periods ended September 28, 1996 through June 29, 1997.  In January 1998, PictureTel restated its financial results because its revenues had been overstated by $17.8 million.  The restatement revealed that between September 1996 and June 1997,PictureTel overstated revenue by 1% to 6% and overstated net income (or understated losses) by 12% to 40%.  During 1996, as a result of the misstatements, the company reported record earnings and exceeded analysts' expectations.  In 1997, the misstatements served to disguise the fact that PictureTel's performance was below expectations during the first quarter of 1997 and to minimize the extent of the company's losses during the second quarter of 1997.  
+
+    PictureTel's financial misstatements were due in significant part to improper revenue and sales practices effected by PictureTel's former Vice President of Finance, Worldwide Sales and Service ("Sales Controller"). 2   PictureTel improperly recorded approximately $12 million of revenue from transactions that the Sales Controller negotiated and approved.  By recording those transactions as revenue, PictureTel did not follow generally accepted accounting principles ("GAAP").   In many of the transactions, the Sales Controller negotiated undisclosed side agreements that relieved PictureTel's direct customer of any obligation to pay for the goods unless they were sold through to end users.  The restated figures also involved reversals of more than $4 million of revenue resulting from improper bill and hold transactions.
+
+    These financial improprieties went undetected as a result of Strauss' failure to ensure that the company maintained effective internal controls.  Beginning in early 1996, Strauss effected organizational and other changes at PictureTel that significantly weakened the company's internal accounting controls.  For example, in February 1996, Strauss realigned reporting responsibilities and caused PictureTel's credit and collections department to report to the Sales Controller.  Formerly, this department had reported to the head of the treasury department.  In addition, by September 1996, Strauss also gave the Sales Controller increased authority to develop business by negotiating the terms of sales transactions, while continuing to allow the Sales Controller to have the authority to recognize revenue. Strauss further weakened PictureTel's internal controls during 1996 and 1997 by increasingly detaching himself from the day-to-day financial operations of the company and delegating significant authority to others without ensuring that the delegated responsibilities were properly performed.  Strauss's organizational changes eliminated the separation between sales and finance functions that had previously acted as an internal control at PictureTel.   The change also vested conflicting responsibilities in the Sales Controller by giving him unchecked authority for extending credit terms, negotiating the terms of sales transactions and determining when revenue would be recognized on a sale.  Accordingly, PictureTel committed and caused violations of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules12b-20, 13a-1 and 13a-13 thereunder.  Strauss violated Section 13(b)(5) ofthe Exchange Act and Rule 13b2-1 thereunder, and he caused PictureTel's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+   C.   Facts  
+
+     1.   PictureTel's Improper Revenue Recognition  
+
+    The majority of financial improprieties that resulted in PictureTel's misstatements of revenue and income resulted from transactions negotiated by the Sales Controller with David Dodge, the general manager of PictureTel's leasing agent, El Camino. 3   A number of these transactions between PictureTel and El Camino were improperly recognized as revenue by the Sales Controller.  In its standard transactions with PictureTel, El Camino provided financing to PictureTel customers by purchasing PictureTel products and then leasing them to end users.  However, during the second half of 1996 and the first half of 1997, the Sales Controller and Dodge negotiated more than $10 million dollars in sales transactions from which PictureTel improperly recognized revenue.  During their negotiations, Dodge and the Sales Controller agreed that El Camino would not be obligated to pay PictureTel unless a third party leased or purchased the products from El Camino.  PictureTel recorded these transactions as sales and recognized revenue from them.  This was improper because the transactions did not comply with GAAP for revenue recognition because there were no firm commitments, by anyone, to pay for the equipment. 4  The Sales Controller knew that these transactions did not comply with GAAP because he negotiated the terms of the purported sales at issue and was also responsible for enforcing PictureTel's revenue recognition policies.
+
+    Representative examples of transactions that resulted in improper recognition of revenue by PictureTel include the following:
+
+     The Demo Program   
+
+    In the summer of 1996, the Sales Controller, on behalf of PictureTel, negotiated a Demonstration Program agreement ("Demo Program Agreement") with Dodge pursuant to which PictureTel purported to sell El Camino used videoconferencing equipment for resale to third parties. The lease-and-sale arrangement was a common type of transaction between PictureTel and El Camino. However, instead of using the standard master lease agreement that governed most of PictureTel's transactions with El Camino, Dodge and the Sales Controller entered into a non-standard agreement that did not obligate El Camino to pay for the goods.  Rather, the Agreement required PictureTel to provide El Camino with a guaranteed 17.5 percent profit on the transaction, either by directly paying El Camino or by repurchasing the equipment if it was not sold to a third party.  PictureTel recorded $2.3 million of revenue from the transaction for the third quarter of 1996 and an additional $444,000 for the fourth quarter of 1996.  Recognition of this revenue was inappropriate because neither El Camino nor any other party was obligated to pay for the demonstration equipment.  As a result, the transactions should not have been treated as sales and revenue from the transactions should not have been recognized under GAAP.
+
+     The Department of Justice Transaction   
+
+    During the fourth quarter of 1996, PictureTel was negotiating a sale of $1.2 million of videoconferencing equipment to the Department of Justice ("DOJ").  On December 31, 1996, the last day of the quarter and the fiscal year, the Sales Controller, on behalf of PictureTel, obtained a purchase order from El Camino for the purchase of $1.2 million of videoconferencing equipment purportedly for lease to the DOJ, thereby causing PictureTel to improperly recognize $1.2 million in revenue from this transaction for the year ended December 31, 1996. 5   However, the purchase order did not represent a  bona fide  order for goods, but rather was a fictitious purchase order that enabled PictureTel to record revenue.  Prior to December 31, 1996, El Camino had never been involved in the negotiations for the DOJ's purchase of equipment from PictureTel.  In fact, the DOJ's general procurement contract did not permit lease financing of the goods.  
+
+     Bill and Hold Transactions   
+
+    Between July 1996 and June 1997, PictureTel also prematurely recognized $4.6 million of revenue from 88 bill and hold transactions.  Seventy-five of these transactions, or 85%, were from amajor telecommunications company.  The Sales Controller approved letters from the telecommunications customer requesting bill and hold treatment for the 75 transactions which did not meet GAAP criteria for revenue recognition. 6   In each instance, revenue recognition was improper because the customer did not assume the risk of loss as storage and insurance cost obligations remained with PictureTel.  Nonetheless, PictureTel improperly recognized millions of dollars in revenue from the transactions.
+
+     The Dealer Transaction   
+
+    At the end of the first quarter of 1997, the Sales Controller approved a major sale of equipment to a PictureTel dealer ("Dealer") in Texas that intended to resell the goods to third parties.  On March 27, 1997, the Dealer faxed a $2.2 million purchase order to PictureTel, which represented PictureTel's largest order for the quarter.  On the purchase order, one of the Dealer's principals wrote that the Dealer's obligation to pay was contingent on "acceptance" by El Camino.  He made this handwritten notation because the Dealer could not afford to pay for the equipment on its own and the Dealer did not have an agreement from El Camino to finance the purchase or, alternatively, a firm commitment from any third party end user to pay for the goods.  Nonetheless, the Sales Controller caused PictureTel to recognize $2.2 million in revenue from the transaction in its 1997 first quarter financial statements.
+
+     2.  Strauss  and PictureTel's Lack of Internal Controls  
+
+    PictureTel's improper financial reporting occurred during this period because the company had insufficient internal controls in place.  As PictureTel's chief financial officer, Strauss was responsible for ensuring that the company had the necessary accounting controls in place.  He failed to properly exercise this responsibility and created an internal reporting structure that allowed PictureTel's accounting improprieties to occur.  
+
+    Beginning in early 1996 and continuing through mid-1997, Strauss made organizational changes that caused PictureTel to have inadequate internal controls. In early 1996, Strauss caused the credit and collections department to report to the Sales Controller, rather than to the head of the treasury department.  This organizational change eliminated an important check-and-balance that had previously existed at the company as a result of the separation between sales and finance functions.  Strauss alsolessened the effectiveness of PictureTel's internal controls during this period by ceasing to function as an effectual CFO.  In the latter half of 1996, he began delegating more and more responsibility to others. By September 1996, Strauss had assigned the Sales Controller additional responsibilities, including responsibility for negotiating and approving sales contracts and for developing relationships with new customers, while at the same time continuing to delegate responsibility for revenue recognition to the Sales Controller.  Around the same time, Strauss privately told PictureTel's CEO that he intended to retire.  Strauss became more and more removed from the day-to-day activities at PictureTel and spent more time working out of his home in Vermont.  He rarely met with the controllers who reported to him, including the Sales Controller.  Strauss stopped conducting quarterly closing meetings with his staff and no longer closely reviewed sales transactions, as he had previously done.  Supervisory control procedures such as simply monitoring the Sales Controller's deal-making efforts or holding quarterly closing meetings may well have prevented the recording of several of the reversed transactions.  As a result of Strauss's actions, PictureTel failed to have adequate internal controls. 
+
+    In addition to the conduct above, Strauss continued to delegate unchecked authority to the Sales Controller even after receiving warnings about the Sales Controller's conduct.  Beginning in the fall of 1996, PictureTel's chief accounting officer became concerned about the Demo Program transaction and concluded that revenue should have been recognized during the fourth quarter of 1996 rather than the third.  On December 13, 1996, the chief accounting officer provided a memo summarizing his conclusions to Strauss.  Strauss took no action to address the matter with the Sales Controller.  During the fall of 1996, Strauss was also informed that the Sales Controller had signed a non-standard sales contract with a customer and had not provided it to the legal department for review and approval, as required by company policy.  Strauss verbally reprimanded the Sales Controller but took no further action to discipline him or impose checks on him.  In January 1997, a PictureTel attorney met with Strauss and raised additional concerns about revenue recognition practices.  Strauss still took no additional action to ensure that the Sales Controller was properly performing the duties that had been delegated to him.  In early February 1997, PictureTel's outside auditors informed Strauss that the Sales Controller's responsibility for both revenue recognition and credit and collections presented a potential internal controls weakness.  Nonetheless, Strauss took no measures to address the auditors' concerns.  Similarly, in April 1997, during its review of PictureTel's first quarter revenue, the outside auditors advised Strauss of their concerns regarding the transaction with the Dealer.  Strauss was aware of the contingency on the Dealer's purchase order and a purported escrow arrangement that the Sales Controller had claimed he negotiated to ensure payment.  In reliance upon and without verifying the Sales Controller's representations (either on his own or through his accounting staff), Strauss acquiesced in the Sales Controller's conclusion that the $2.2 million sale to the Dealer was good revenue and that there was a high likelihood of payment.  
+
+     3.   PictureTel's Reported Financial Results  
+
+    As a result of PictureTel's improper revenue recognition, the company exceeded Wall Street analysts' expectations on multiple occasions between the third quarter of 1996 and the second quarter of 1997.  The company made multiple public announcements and filings with the Commission that were misstated.  The improper revenue transactions were also recorded on the company's books and records.
+
+    Specifically, on October 16, 1996, PictureTel issued a press release reporting revenues of $121.3 million, net income of $8.9 million, and earnings per share of $0.25 for the third quarter of 1996.  The revenue, net income and earnings results each established new quarterly records for the company and exceeded analysts' expectations by $0.02 per share.  However, without the improperly recorded revenue, PictureTel would have reported earnings per share of $0.17, an amount $0.06 per share below analysts' expectations.  On November 12, 1996, the Company filed a Form 10-Q for the third quarter that contained the same financial information. 
+
+    On February 12, 1997, PictureTel announced record revenues for the year ended December 31, 1996 of $482.5 million, a 39% increase over the prior year.  The company also reported earnings per share of $0.96.  Net income for 1996 rose 77% to a record $34.8 million. On March 31,1997 the Company filed its annual report on Form 10-K which reported the same revenue and income figures as the February earnings release.  Without the improperly recorded revenue, PictureTel would have reported earnings per share of $.85 for FY96. 
+
+    On April 16, 1997, PictureTel announced that it had earned revenues of $118.2 million and net income of $3.1 million for the quarter ended March 29, 1997.  In the first quarter of 1997, PictureTel earned $0.09 per share as compared to analyst estimates of $0.20 per share.  Without the improperly recorded revenue, the company would have reported earnings per share of only $0.07. 
+
+    By April 1997, increased competition began to take its toll on PictureTel and its second quarter financial results were significantly below both the company's plan and analysts' expectations.  On July 15, 1997, PictureTel announced that "unexpectedly soft demand" had resulted in operating losses and a revenue performance more than $20 million under budget.  PictureTel's reported revenue and net loss for the quarter were, respectively, $112.2 million and $3 million.  It lost $0.09 per share as compared to analyst estimates of net income of $0.09 per share.  Without the improperly recorded revenue, PictureTel would have reported a loss per share of $0.12 for the second quarter of 1997, an amount $0.21 per share below analysts' expectations. 
+
+     4.   PictureTel's Restatements  
+
+    In August 1997, Strauss' successor in the CFO position began investigating the reasons for the large accounts receivable balances owed by certain customers, including El Camino.  After further investigation, the new CFO contacted PictureTel's outside auditors and related his concerns.  During the next four weeks, the outside auditors and PictureTel investigated and analyzed numerous transactions dating back to the third quarter of 1996, and on September 19, 1997, PictureTel announced that it would restate revenues.  In January 1998, PictureTel restated its financial results revealing that revenues and profits had been overstated, and losses understated, by $17.8 million for these fiscal periods. 
+
+    The following chart compares PictureTel's initial and restated financial results: 
+  
+       PictureTel Corp. Restatement 8  Revenue Summary (thousands)    
+     Period   
+   Reported   
+   Restated   
+   Variance   
+   Variance (%)      QE 9/28/96
+  $127,926 
+ $120,785 
+ $7,141 
+ 5.9%    QE 12/31/96 
+ $146,281 
+ $138,695
+ 
+ $7,586
+ 
+ 5.5%
+    YE 12/31/96
+ 
+ $504,952
+ 
+ $490,225
+ 
+ $14,727
+ 
+ 3.0%
+    QE 3/29/97
+ 
+ $123,618
+ 
+ $121,935
+ 
+ $1,683
+ 
+ 1.4%
+    QE 6/29/97
+ 
+ $119,304
+ 
+ $117,966
+ 
+ $1,338
+ 
+ 1.1%
+      
+    Net Income Summary (thousands)                        
+     
+ 
+   Reported  
+ 
+   Restated  
+ 
+   Variance  
+ 
+   Variance (%)  
+    QE 9/28/96
+ 
+ $9,600 
+ 
+ $6,884 
+ 
+ $2,716 
+ 
+ 39.5%
+    QE 12/31/96
+ 
+ $10,021 
+ 
+ $8,680 
+ 
+ $1,341 
+ 
+ 15.4%
+    YE 12/31/96
+ 
+ $36,229 
+ 
+ $32,172 
+ 
+ $4,057 
+ 
+ 12.6%
+    QE 3/29/97
+ 
+ $2,494 
+ 
+ $2,011 
+ 
+ $483 
+ 
+ 24.0%
+    QE 6/29/97
+ 
+ ($3,671)
+ 
+ ($4,900)
+ 
+ $1,229 
+ 
+ 25.1%     D.  VIOLATIONS  
+
+     1.  PictureTel Violated Section 13(a) of the Exchange Act and Rules 12b-20,   13a-1 and 13a-13 thereunder.   
+
+    Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 require issuers of registered securities to file annual and quarterly reports with the Commission.  It is implicit in this requirement that the information provided be accurate.   See     SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975) (filing misleading periodic reports violates the federal securities laws);    SEC v. IMC International, Inc. , 384 F. Supp. 889, 893 (N.D. Tex. 1974) (Exchange Act reporting provisions are satisfied only by filing complete, accurate reports).  Regulation S-X similarly requires that financial statements filed with the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with GAAP.   See   Peritus Software Services, Inc. , Exchange Act Rel. No. 42673, 2000 SEC LEXIS 724 (April 13, 2000) (settled proceedings). Otherwise, such statements will be presumed to be misleading or inaccurate.  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that statements made in them are not materially misleading.  No showing of scienter is necessary to establish a violation of Section 13(a) or Rule 12b-20.   See   SEC v. Savoy Industries, Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978);   SEC v. Wills , 472 F. Supp.1250, 1268 (D.D.C. 1978).
+
+    PictureTel filed Forms 10-K and 10-Q for the year ended December 31, 1996 and the quarters ended September 28, 1996, March 29, 1997, and June 29, 1997 that materially misstated the company's revenues by 1% to 6% and net income by 12% to 40%.  PictureTel improperly reported record profits for the last half of 1996.  In addition, its reported results for the first two quarters of 1997, including its earnings per share, appeared much better than they actually were.  The misstatements were quantitatively material because they significantly overstated net income.  They were qualitatively material because they allowed PictureTel to falsely report results that exceeded analysts' expectations during the relevant periods in 1996 and in 1997.  Accordingly, PictureTel committed or caused violations of Section 13(a) of the Exchange Act and Rules12b-20, 13a-1 and 13a-13 thereunder.
+
+     2.   PictureTel Violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act  
+
+    Section 13(b)(2)(A) of the Exchange Act states in pertinent part that every reporting company must make and keep books, records and accounts that accurately and fairly reflect the issuer's transactions.  Section 13(b)(2)(B) requires the issuer to establish and maintain a system of internal accounting controls which provides reasonable assurances that its transactions are recorded and financial statements are prepared in conformity with GAAP.  These provisions have been interpreted to require an issuer to employ and supervise reliable personnel, to ensure that transactions are executed asauthorized, and to segregate accounting functions, and design procedures to prevent errors and irregularities.     SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 750 (N.D. Ga. 1983). Sections 13(b)(2)(A) and 13(b)(2)(B) do not require a showing of scienter.   Id.    at 751.
+
+    PictureTel violated Section 13(b)(2)(A) of the Exchange Act by failing, as an issuer, to maintain accurate records of its revenues and net income due to the overstatements of its revenues and net income as well as understatements of losses.  PictureTel's inaccurate records were not isolated or unique instances because they were improperly maintained for four reporting periods between September 28, 1996 and June 29, 1997.  In addition, PictureTel violated Section 13(b)(2)(B) of the Exchange Act by failing to implement procedures reasonably designed to prevent accounting irregularities.  Among other things, it failed adequately to segregate sales and accounting functions, failed to ensure that proper reviews and checks were in place to ensure that financial improprieties did not occur, and failed to ensure that its transactions were reported in accordance with its own policies and with GAAP.  
+
+    Many of PictureTel's internal controls and record keeping violations resulted from Strauss's failures to carry out his responsibilities as CFO.  Strauss removed important separations between corporate departments,   delegated too much authority to others, and reduced the time and effort he spent supervising the finance and reporting function of PictureTel.  As CFO, Strauss's actions and failures to act are properly imputed to PictureTel.   In re Sunbeam Litigation , 89 F. Supp. 2d 1326, 1340 (S.D. Fla. 1999) (conduct of corporate officers may be imputed to corporation).   See   also   SEC v. Manor Nursing , 458 F.2d 1092, 1089 n.3 (2d Cir. 1972).  Accordingly, as a result of the conduct of its former employees and others, PictureTel failed to maintain books, records, and accounts which, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets and failed to maintain a system of internal accounting controls sufficient to permit the preparation of financial statements in conformity with GAAP.  PictureTel thereby committed or caused violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
+
+     3.  Strauss Violated Sections 13(b)(5) and Rule 13b2-1 of the Exchange Act  
+
+    Section 13(b)(5) prohibits any person from knowingly circumventing or knowingly failing to implement a system of internal accounting controls, or knowingly falsifying any book, record or account described in Section 13(b)(2).  By its terms, Section 13(b)(5) requires that a person act with scienter. This section enables the Commission to address conduct that undermines the integrity of the books and records and internal controls of an issuer.
+
+    Strauss committed or caused violations of Section 13(b)(5) by failing to implement a system of internal accounting controls because he made organizational changes which resulted in material control weaknesses at PictureTel.  As the company's CFO, Strauss placed the Sales Controller in a positionresponsible for negotiating and developing new business, determining which transactions should be recognized as revenue, and approving credit and collections decisions.  By virtue of this conduct, Strauss eliminated the segregation of duties which is fundamental to internal controls, and vested too much authority in the Sales Controller.   See ,  e.g. ,  Marsh & McClennan Companies, Inc. , Exchange Act Rel. No. 24023 (January 22, 1987), 1987 SEC LEXIS 2743 at 16 (respondent issuer materially understated assets and liabilities in Forms 10-K and 10-Q and violated internal controls provisions of securities laws because, among other things, it failed to establish an "effective separation of functions" between the person who made investments in repurchase agreements and the person who recorded the transactions) (settled proceeding).   See   also  Codification of Statements on Auditing Standards ("AU") §319 (control procedures which provide reasonable assurances that any person will not be in a position to both perpetrate and conceal errors or irregularities include the segregation of duties between persons assigned responsibility for authorizing transactions and recording transactions).  By conflating responsibilities within the Sales Controller's control, Strauss established the opportunity for the Sales Controller to both perpetuate and conceal errors or irregularities.  
+
+    Further, Strauss knew that the Sales Controller, on at least one occasion, failed to follow company policy requiring legal department review of non-standard sales contracts.  He also knew that by early January 1997, PictureTel's chief accounting officer and a company attorney were concerned about the propriety of revenue recognition on two of the Sales Controller's transactions. Despite this knowledge, Strauss took no steps to ensure that PictureTel's internal accounting controls were sufficient to detect any errors or irregularities.  Accordingly, Strauss committed or caused violations of Section 13(b)(5) of the Exchange Act.  Further, as a result of the changes Strauss made to the finance department's organizational structure and his failure to ensure that the Sales Controller's activities were subject to appropriate control and review, the Sales Controller was able to record revenue for the DOJ transaction, a purported sale that was based upon fictitious paperwork and resulted in inaccurate books and records.  Strauss's conduct enabled the Sales Controller to circumvent internal controls and utilize false documents to record revenue.  Similarly, during the 1997 first quarter review, Strauss's passive reliance upon the Sales Controller's misrepresentations about the contingency on the Dealer's purchase order enabled the Sales Controller to further evade the company's internal controls and improperly record $2.2 million of revenue.  Strauss thereby committed or caused violations of Rule 13b2-1.   See  ,   e.g. ,  SEC v. Hiebert , Exchange Act Rel. No. 16729 (September 27, 2000), 2000 WL 1425452 (CFO violated antifraud provisions and Rule 13b2-1 by failing to adequately review documents supporting fictitious sale and failing to supervise accounting staff) (settled civil injunctive action);  Paul Thomas Fink , Exchange Act Rel. No.  42199 (December 3, 1999), 1999 WL 1221656 (CFO violated antifraud provisions and Rule 13b2-1 by permitting the recording of undocumented and fictitious revenue) (settled proceeding).  
+
+     4.    Strauss Caused PictureTel's Violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1 and 13a-13  
+
+    Strauss's conduct also caused PictureTel's violations of the books and records and issuer reporting provisions of the Exchange Act.  Strauss also caused PictureTel to violate the internal controls provisions of the Exchange Act through his changes to the finance department which vested enormous, unchecked authority in the Sales Controller over revenue recognition and credit and collections. Further, despite his awareness of warning signs regarding the Sales Controller's conduct, Strauss took inadequate steps to investigate the Sales Controller's decisions regarding revenue recognition.  In this way, Strauss caused PictureTel's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+  I V. 
+
+    In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by PictureTel and cooperation afforded the Commission staff by PictureTel.
+
+   V. 
+
+    In view of the foregoing, the Commission deems it appropriate to accept the Offers submitted by PictureTel and Strauss and to impose the cease-and-desist order agreed to in the Offers.
+
+    Accordingly,  IT IS ORDERED , pursuant to Section 21C of the Exchange Act, that PictureTel cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; and
+
+     IT IS FURTHER ORDERED , pursuant to Section 21C of the Exchange Act, that Strauss cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+    By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+
+                J:\OCCregional\NERO\Boston\PictureTel\AP Package materials\FINAL.2.PCTL.STRAUSS.combined.order.3.11.02.wpd
+    Footnotes 
+     1       The findings herein are made pursuant to PictureTel's and Strauss's Offers of Settlement and are not binding on any other person or entity in this or any other proceeding. 
+
+      2       Simultaneously with the institution of these proceedings, the Commission is filing a civil injunctive action against the Sales Controller for his alleged violations of the antifraud provisions of the federal securities laws.
+
+      3       Simultaneously with the filing of this Order, the Commission is entering an order based on Dodge's offer of settlement finding that Dodge caused the Sales Controller's violations of the antifraud provisions of the Exchange Act and caused PictureTel's violations of the books and records provisions of the Exchange Act and ordering him to cease-and-desist from further violations of the federal securities laws.
+
+      4       PictureTel's revenue recognition policy required the company to recognize revenue from product sales upon shipment or upon completion of all significant obligations, whichever occurred later. This policy was in accordance with GAAP.  Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises requires that revenue be recognized when it is both realized and earned.  Revenue is realized when products are exchanged for cash or claims to cash.  Revenue is earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues.
+
+      5       On January 3, 1997, a procurement agent acting on behalf of the DOJ gave PictureTel its own purchase order for $1.2 million of videoconferencing equipment.  This was a genuine order and  reflected cash payment terms.  In January 1997, PictureTel  issued a credit memo to El  Camino but, inappropriately, did not reverse the $1.2 million of revenue recorded in December 1996.  
+
+      6       Bill and hold sales are subject to stringent accounting criteria in order to be recognized as revenue by the seller, including that the buyer, not the seller, must request that the transaction be on a bill and hold basis; the buyer must have a substantial business purpose for ordering the goods on a bill and hold basis; and the risks of ownership must pass to the buyer.  Other relevant criteria include whether the seller has modified its normal billing and credit terms for the buyer and the seller's past practices on bill and hold transactions.   See   Stewart Parness , Exchange Act Rel. No. 23507  (August 5, 1986), 1986 SEC LEXIS 1051 (settled proceedings).   See   also   Sunbeam Corp. , Exchange Act Rel. No. 44305 (May 15, 2001), 2001 SEC LEXIS 931, at *17 (settled proceedings). 
+
+      8       The company's reported numbers differ from those in the original filings because all numbers include an acquisition that was accounted for under the pooling-of-interests method.    
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diff --git a/raw/aaer/2002/AAER-1537.txt b/raw/aaer/2002/AAER-1537.txt
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--- /dev/null
+++ b/raw/aaer/2002/AAER-1537.txt
@@ -0,0 +1,1525 @@
+
+
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+              David T. Dodge
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+        David T. Dodge
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+ Securities Exchange Act of 1934
+ Release No.  45666 / March 28, 2002
+  Accounting and Auditing Enforcement
+ Release No.  1537 / March 28, 2002
+  Administrative Proceeding
+ File No.   3-10744
+
+         In the matter of      
+   David T. Dodge,    
+       Respondent.    
+     
+    : : : : : : : :   
+             Order Instituting Proceedings,
+ Making Findings, and Imposing
+          Cease-and-Desist Order       I. 
+
+    The Securities and Exchange Commission (the "Commission") deems it appropriate that cease-and-desist proceedings be, and they hereby are, instituted against David T. Dodge ("Dodge") pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act"). 
+
+   II. 
+
+    In anticipation of the institution of these proceedings, Dodge has submitted an Offer of Settlement (the "Offer") 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, except those findings pertaining to the jurisdiction of the Commission over Dodge and the subject matter of these proceedings, which Dodge admits, Dodge consents to the issuance of this Order Instituting Proceedings, Making Findings, and Imposing Cease-and-Desist Order (the "Order"), the entry of the findings and the cease-and-desist order set forth below.
+
+   III. 
+
+    On the basis of this Order and the Offer submitted by Dodge, the Commission makes the following findings: 1 
+
+   A.    Respondent and Related Parties  
+
+     1.   Respondent  
+
+      Dodge  , 45, of Northbrook, Illinois, was the general manager of El Camino Resources Ltd.'s ("El Camino") vendor leasing division during the time period at issue here.  Dodge was primarily responsible for managing El Camino's relationship with PictureTel.
+
+     2.   Related Parties  
+
+      PictureTel Corp.   ("PictureTel" or the "Company") is a Delaware corporation, headquartered in Andover, Massachusetts, that designs, manufactures and markets videoconferencing systems.  At all relevant times, PictureTel's shares were traded on the NASDAQ national market system.  Until October 19, 2001, PictureTel's shares were registered with the Commission pursuant to Section 12(g) of the Exchange Act.  On October 18, 2001, PictureTel was acquired by another company.  It is currently operating as a separate division of the acquiring company and retains the PictureTel name.
+
+      El Camino   is a privately-held company headquartered in Woodland Hills, California, which served as PictureTel's leasing agent.  At all times relevant to this matter, El Camino's leasing division, located in Chicago, accounted for approximately 5% of its revenues. Transactions with PictureTel represented approximately 80-90% of El Camino's leasing business during 1996-97.  El Camino is currently being liquidated.
+
+   B.   Summary  
+
+    This matter concerns Dodge's participation in a scheme by Len Guida ("Guida"), PictureTel's former sales controller, 2  to inflate PictureTel's revenue.  From September 1996through March 1997, Dodge assisted Guida by issuing or approving purchase orders in several purported sales transactions totaling approximately $10 million.  The transactions were not valid sales because Dodge and Guida negotiated side agreements providing that Dodge's employer, El Camino, had no obligation to pay PictureTel unless the goods involved in the transactions were sold through to end users.  As evidenced by contemporaneous memoranda, Dodge was reckless in not knowing that Guida was entering into the transactions to inflate PictureTel's revenue. During PictureTel's 1996 audit, in March 1997, Dodge assisted Guida's efforts to conceal the scheme by telling the company's outside auditors that El Camino owed and intended to pay for the transactions, which represented part of a $6.4 million accounts receivable balance for 1996. In January 1998, PictureTel restated its financial results for the periods ended September 28, 1996 through June 29, 1997, reversing $17.8 million in previously-recognized revenue. Accordingly, Dodge caused Guida's violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and he caused PictureTel's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+   C.   Facts  
+
+     1.   Dodge's Participation in PictureTel's Improper Revenue Recognition  
+
+    During the second half of 1996 and the first quarter of 1997, Dodge negotiated transactions totaling more than $10 million with Guida, which resulted in significant overstatements of PictureTel's revenue and income.  In some of these transactions, instead of using the standard master lease agreement that governed most of the El Camino-PictureTel transactions, Dodge and Guida entered into non-standard agreements which did not obligate El Camino to pay PictureTel until the products were sold through to end users.  These non-standard transactions were complex and El Camino did not act in its customary role as PictureTel's leasing agent.  Although Dodge submitted purchase orders in connection with these purported sales, he and Guida also negotiated side agreements which provided that El Camino did not have to pay PictureTel unless third party end users agreed to pay for the equipment.  Most of the products were never sold to end users and instead remained in storage at either a third party warehouse in which PictureTel leased space or at warehouses owned by El Camino.  Despite the absence of a firm commitment to pay, PictureTel improperly recorded these purported sales as revenues in violation of GAAP.  Dodge was reckless in not knowing that when he participated in these transactions, they were done to enable PictureTel to recognize revenue.
+
+    Representative examples of El Camino transactions negotiated by Dodge that resulted in improper revenue recognition by PictureTel include the following:
+
+     The Try-Buy Transaction   
+
+    On September 26, 1996, Guida and Dodge negotiated an agreement whereby El Camino purported to purchase approximately $1.1 million of videoconferencing equipment from PictureTel.  Under the contract, El Camino agreed to attempt to sell the goods in Europe by arranging for prospective end users to try the equipment for up to six months.  The end users could then either purchase, lease or return the goods ("Try-Buy").  El Camino had no obligation to pay PictureTel for the goods at the end of the trial period unless and until a sale to an end-user occurred.  Despite this contingency, during the third quarter of 1996, PictureTel improperly recognized $1.1 million of revenue from Try-Buy transactions.  In a February 1997 internal El Camino memorandum, Dodge acknowledged that PictureTel requested the unusual terms of the Try-Buy agreement because, among other reasons, it "needed revenue for the third quarter" of 1996, and that PictureTel's outside auditors had questioned the open-ended payment terms contained in El Camino's purchase order.  In August 1997, Dodge also told Guida's successor that PictureTel had needed revenue at the time of the Try-Buy order and that Guida had asked Dodge to "step up" and help the company by placing the order.
+
+     The Hotel Chain Transactions   
+
+    Dodge caused El Camino to become involved in a transaction that Guida had originally negotiated with a third-party, thinly-capitalized reseller ("Reseller").  Under the original terms of the agreement, which was executed September 27, 1996, the Reseller was to buy 113 used videoconferencing systems from PictureTel to install at major hotels.  During the fall of 1996, the terms of the original agreement were modified so that instead of a direct sale between PictureTel and the Reseller,  El Camino purchased the 113 units from PictureTel and leased them to the Reseller.  Guida and Dodge agreed that El Camino would not have to pay for the systems until it received lease payments from the Reseller.  The Reseller, in turn, was not obligated to pay El Camino unless it received fees from users at the hotels.  Dodge was reckless in not knowing that El Camino's role in the transaction was for the purpose of assisting Guida and PictureTel to recognize revenue.  During the fourth quarter of 1996, Dodge prepared an internal memorandum stating that El Camino had "issued P.O. [purchase order]   to PictureTel in order to book revenue."  During the third quarter and fourth quarter of 1996, PictureTel recognized, respectively, $1.52 million of revenue and $1.97 million of revenue from the Reseller transactions, despite the fact that El Camino did not have a firm obligation to pay for the equipment. 
+
+     The Department of Justice Transaction   
+
+    During the fourth quarter of 1996, PictureTel was negotiating a sale of $1.2 million of videoconferencing equipment to the Department of Justice ("DOJ").  On December 31, 1996, the last day of the quarter and the fiscal year, PictureTel, through Guida, obtained a purchase order from El Camino for the purchase of $1.2 million of videoconferencing equipment, purportedly for lease to the DOJ.  Dodge authorized a member of his staff to issue the purchase order.  The purchase order did not represent a  bona fide  order for goods.  Prior to December 31, 1996, ElCamino had never been involved in the negotiations for the DOJ's purchase of equipment from PictureTel.  In fact, the DOJ's general procurement contract did not permit lease financing of the goods.  PictureTel improperly recognized $1.2 million in revenue from this transaction for the year ended December 31, 1996. 3  
+
+     2.    Dodge's Statements to PictureTel's Auditors  
+
+    In late March 1997, PictureTel's outside auditors, along with Guida, telephoned Dodge to confirm El Camino's $6.4 million accounts receivable balance from 1996.  Dodge verbally assured the auditors that the balance would be paid by El Camino and was merely delayed by paperwork.  Dodge's statements were misleading because El Camino did not have a firm commitment to pay PictureTel for, among others, the Try-Buy and Reseller transactions, which comprised a substantial portion of the $6.4 million accounts receivable balance. 
+
+   D.   Dodge's Violations  
+
+     1.  Dodge Caused Guida's Violations of the Exchange Act  
+
+    Dodge caused Guida's violations of Sections 10(b) and 13(b)(5) of  the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder by engaging in a series of transactions that enabled Guida to fraudulently inflate PictureTel's revenues.  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder proscribe the making of materially false and misleading statements "in connection with the purchase or sale of any security."  Violations of Section 10(b) and Rule 10b-5 occur when an issuer makes material misstatements in press releases, registration statements, prospectuses, or periodic reports filed with the Commission and trading thereafter occurs in the issuer's securities.     Basic, Inc. v. Levinson  ,  485 U.S. 224, 231-232 (1988);   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833 (2d Cir. 1968),  cert. denied , 394 U.S. 976 (1969).  In addition, to establish liability for violations of Section 10(b) and Rule 10b-5, the Commission must prove that a person acted with scienter.   See   Aaron v. SEC , 446 U.S. 680, 686 n.5 (1980). Recklessness satisfies the scienter requirement.   See ,  e.g. ,  Rolf v. Blyth Eastman Dillon & Co. , 570 F.2d 38, 46 (2d Cir.),  cert. denied , 439 U.S. 1039 (1978).  Section 13(b)(5) of the Exchange Act prohibits any person from knowingly circumventing internal accounting controls or knowingly falsifying any book, record or account described in Section 13(b)(2).  Section 13(b)(5) allows the Commission to address conduct that undermines the integrity of the books and records and internal controls of an issuer.  Rule 13b2-1 prohibits any person from falsifying or causing the falsification of any books, records, or accounts subject to Section 13(b)(2)(A).   InformixCorp. , Exchange Act Rel. No. 42326 (January 11, 2000), 2000 SEC LEXIS 34.  Rule 13b2-2 prohibits officers and directors from making or causing to be made materially false or misleading statements to an accountant in connection with an audit or examination or the preparation of any document or report to be filed with the Commission.   See  ,   e.g. ,  Beth A. Morris and Steven H. Grant , Exchange Act Rel. No. 42587 (March 29, 2000), 2000 SEC LEXIS 577.
+
+    Pursuant to Section 21C of the Exchange Act, a person "causes" a violation where he or she commits an act or omission that the person knew or should have known would contribute to such violation.  The evidence indicates that Dodge acted recklessly in causing El Camino to enter into transactions for the purpose of assisting Guida to improperly book revenues.
+
+    Dodge caused Guida's violations because he issued or approved purchase orders for several purported sales, including the Try-Buy, DOJ and Reseller transactions, which enabled PictureTel to improperly recognize revenue.  In addition, Dodge caused Guida's violations because he failed to disclose to PictureTel's outside auditors that El Camino did not have a firm commitment to pay for a significant portion of orders that comprised El Camino's accounts receivable balance with PictureTel at the end of 1996.  
+
+    Dodge also was reckless in not knowing that these transactions were done to assist Guida's scheme.  In his February 1997 memorandum concerning the Try-Buy transaction, Dodge acknowledged that PictureTel had requested unusual payment terms because the company needed revenue for the third quarter of 1996; also, he knew that PictureTel's outside auditors had questioned the open-ended payment terms contained in El Camino's Try-Buy purchase order.  In addition, Dodge acknowledged in a memorandum that El Camino had placed the purchase order to enable PictureTel to "book revenue" for the third quarter of 1996.  Further, Dodge issued the DOJ purchase order to PictureTel on the last day of PictureTel's 1996 fiscal year, despite the fact that El Camino had not been involved in any of the negotiations between PictureTel and DOJ and despite the fact that DOJ lacked the authority and intent to use lease financing from El Camino for its acquisition of videoconferencing equipment.
+
+    When Dodge was questioned by PictureTel's outside auditors about El Camino's accounts receivable balance in March 1997, he failed to acknowledge that El Camino did not have a firm commitment to pay for goods associated with, among others, the Try-Buy or Reseller transactions.  At the time he spoke with the auditors, Dodge also knew from Guida that the auditors had questioned the open-ended payment terms relating to the Try-Buy transaction. Through these acts, Dodge caused Guida's violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder.   See     Ronald G. Davies  ,  Exchange Act Rel. No. 42987 (June 28, 2000), 2000 WL 854288 (customer who, among other things, executed side agreements and made misleading responses to audit inquiries caused company's violations of antifraud and reporting provisions) (settled proceedings).   
+
+     2.  Dodge Caused PictureTel's Issuer Reporting Violations of the Exchange Act  
+
+    Dodge caused PictureTel's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 require issuers of registered securities to file annual and quarterly reports with the Commission.  The information provided in those reports must be accurate.   See     SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975);    SEC v. IMC International, Inc. , 384 F. Supp. 889, 893 (N.D. Tex. 1974).  Similarly, Regulation S-X requires that financial statements filed with the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with generally accepted accounting principles.  Otherwise, such statements will be presumed to be misleading or inaccurate.  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that statements made in them are not materially misleading.  No showing of scienter is necessary to establish a violation of Section 13(a) or Rule 12b-20.   See     SEC v. Savoy Industries, Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978);   SEC v. Wills , 472 F. Supp.1250, 1268 (D.D.C. 1978).  Section 13(b)(2)(A) of the Exchange Act requires every reporting company to make and keep books, records and accounts that accurately and fairly reflect the issuer's transactions.   SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 750 (N.D. Ga. 1983).  A violation of Section 13(b)(2)(A) does not require a showing of scienter.   Id.    at 751.
+
+    Dodge's conduct relating to the sales transactions and communications with PictureTel's outside auditors enabled Guida to record revenue improperly, thereby causing the company's financial statements and books and records to be materially inaccurate.  Accordingly, Dodge caused PictureTel's violations of the periodic reporting and books and records provisions of the Exchange Act.   See     Ronald G. Davies  ,  above. 
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Dodge and to impose the cease-and-desist order agreed to in the Offer.
+
+    Accordingly,  IT IS ORDERED , pursuant to Section 21C of the Exchange Act, that Dodge cease and desist from committing or causing any violation and any future violation of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.   
+
+    By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+
+    Footnotes 
+     1       The findings herein are made pursuant to Dodge's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 
+
+      2          Simultaneous with the institution of these proceedings, the Commission is filing a civil injunctive action against Guida for his violations of the securities laws.  In addition, the Commission is instituting and simultaneously settling cease-and-desist proceedings against PictureTel and Les B. Strauss based on their violations of the issuer periodic reporting, record-keeping and internal controls provisions of the securities laws in connection with the financial misstatements discussed herein. 
+
+      3       On January 3, 1997, a procurement agent acting on behalf of the DOJ gave PictureTel its own purchase order for $1.2 million of videoconferencing equipment.  This was a genuine order and  reflected cash payment terms.  In January 1997, PictureTel  issued a credit memo to El  Camino but, inappropriately, did not reverse the $1.2 million of revenue recorded in December 1996.      
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+              David A. Thatcher
+           
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+        David A. Thatcher
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  45683 / April 2, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1539 / April 2, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10747
+
+        In the Matter of 
+  DAVID A. THATCHER,    
+  Respondent.   
+     
+  : : : : : : :   
+   ORDER INSTITUTING A 
+      PUBLIC PROCEEDING AND
+  OPINION AND ORDER
+      PURSUANT TO RULE 102(e)
+  OF THE COMMISSION'S
+     RULES OF PRACTICE     I. 
+
+
+  The Securities and Exchange Commission deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted against Respondent David A. Thatcher (Thatcher) pursuant to Rule 102(e) of the Commission's Rules of Practice.  1     II. 
+
+  In anticipation of the institution of this proceeding, Thatcher has submitted an Offer of Settlement (Offer), which the Commission has determined to accept.  Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, Thatcher consents to the issuance of this Order, the entry of the findings, and the imposition of the sanction set forth below without admitting or denying the findings or conclusions contained herein except that he admits: (1) the Commission's jurisdiction over him and the subject matter of this proceeding; and (2) the entry of the permanent injunction against him described in Section III.C. below.
+
+   III. 
+
+    The Commission makes the following findings:  2     A. Respondent 
+
+  David A. Thatcher, age 46, resides in Rancho Santa Fe, California.  He was president of Critical Path, Inc. from January 31, 2000, until he left the company in February 2001.  For part of that period, from approximately December 6, 2000, until approximately January 3, 2001, Thatcher was also Critical Path's acting chief financial officer.  He was a member of Critical Path's board of directors from May 1997 until March 1998, and again from May 1998 through November 1998.  From December 1998 until January 2000, Thatcher was Critical Path's executive vice-president, secretary, and chief financial officer.  As chief financial officer, he signed Critical Path's Forms 10-Q for the first three fiscal quarters of 1999.  Throughout his employment at Critical Path he was licensed as a CPA (inactive) in California.  
+
+   B. Critical Path 
+
+  Critical Path, Inc., a California corporation with principal offices in San Francisco, is a provider of Internet messaging infrastructure products and services.  The company was formed in February 1997 and conducted its initial public offering in March 1999.  Its common stock trades on the Nasdaq Stock Market and is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (Exchange Act).
+
+   C. Facts 
+
+    By judgment of the United States District Court for the Northern District of California, Thatcher has been permanently enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-13 thereunder.  The Court also barred Thatcher for five years from serving as an officer or director of any issuer that has a class of securities registered with the Commission or that is required to file reports with the Commission and ordered him to pay a civil penalty in the amount of $110,000.   SEC v. David A. Thatcher and Timothy J. Ganley , Civil Action No. C-02-0621 (SBA) (N.D. Cal. March 28, 2002). 
+
+
+
+    The Commission's complaint, filed on February 5, 2002, alleged, among other things, the following:
+
+  For two successive fiscal quarters in late 2000, Thatcher and other Critical Path 
+employees caused Critical Path to materially overstate its revenue, and materially understate its 
+loss, in contravention of Generally Accepted Accounting Principles.  Thatcher, along with others, 
+negotiated a barter agreement that he knew should not have been, but was, recorded as revenue, and concealed a side letter to another agreement to avoid Critical Path's internal accounting controls.  Along with other Critical Path officers, he directed Critical Path personnel to enter into sales agreements that he knew, or was reckless in not knowing, were either contingent or spurious, and that he knew should not have been, but were, recorded as revenue.  In addition, he and other Critical Path officers directed Critical Path personnel to backdate agreements that as a result were prematurely recognized as revenue.  On April 5, 2001, Critical Path restated its financial results for the third quarter and revised its results for the fourth quarter and full year 2000.  By engaging in this conduct, Thatcher violated the antifraud provisions of the federal securities laws and the books and records and internal accounting control provisions of the Exchange Act.  Thatcher also aided and abetted Critical Path's violations of the periodic reporting, books and records, and internal accounting control provisions of the federal securities laws. 
+
+  IV. 
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the following sanction agreed to in Thatcher's Offer.
+
+  Accordingly, IT IS HEREBY ORDERED that, effective immediately, Thatcher is suspended from appearing or practicing before the Commission as an accountant.
+
+    By the Commission.
+
+  Jonathan G. Katz
+ Secretary
+
+    Footnotes 
+     1       Rule 102(e)(3)(i), in relevant part, provides that the Commission may suspend from appearing or practicing before it any accountant who by name has been permanently enjoined, by a court of competent jurisdiction in an action brought by the Commission, from violating any provision of the federal securities laws or the rules and regulations thereunder.  17 C.F.R. §201.102(e)(3)(i).
+
+      2      The findings herein are not binding on anyone other than Thatcher.    
+
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diff --git a/raw/aaer/2002/AAER-1540.txt b/raw/aaer/2002/AAER-1540.txt
new file mode 100644
index 0000000000000000000000000000000000000000..53d374b855de5f0561e33df721255e99cad1610f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1540.txt
@@ -0,0 +1,1378 @@
+
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+ 
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+   
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+     SEC.gov | Miko Leung (a/k/a Leung Ming Kang) and Sit Wa Weung 
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+              Miko Leung (a/k/a Leung Ming Kang) and Sit Wa Weung
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Miko Leung (a/k/a Leung Ming Kang) and Sit Wa Weung
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+             
+
+ Litigation Release No.  17458 / April 4, 2002
+
+  Accounting and Auditing Release No. 1540  / April 4, 2002
+
+   Securities and Exchange Commission v. Miko Leung (a/k/a Leung Ming Kang) and Sit Wa Leung , Civil Action No. 98-0233 (TFH) (D. D.C.) (March 26, 2002)
+
+   UNITED STATES DISTRICT COURT ENTERS $33 MILLION DEFAULT JUDGMENT AGAINST DEFENDANTS MIKO LEUNG AND SIT WA LEUNG 
+
+  On March 26, 2002, the United States District Court for the District of Columbia entered final judgments by default against defendants Miko and Sit Wa Leung.   The Honorable Thomas F. Hogan, United States District Court Judge, ordered Miko and Sit Wa Leung to pay, jointly and severally, $16.24 million disgorgement plus prejudgment interest of $17.235 million.  In addition, Judge Hogan ordered each defendant to pay a $100,000 civil money penalty, permanently enjoined each of them from future violations of the antifraud and other provisions of the federal securities laws, and barred both defendants from acting as officers or directors of public companies.
+
+  The Commission filed its complaint on January 29, 1998, alleging that-between 1990 and 1993-Miko Leung, the former chairman and president of MTC Electronic Technologies, Inc.-whose common stock traded on Nasdaq-and his brother Sit Wa Leung, the former secretary and a board member of MTC, engaged in a false disclosure and accounting fraud scheme that culminated in a "pump and dump" stock manipulation.  The Commission's complaint further alleged that the Leung brothers unjustly enriched themselves by more than $16 million by selling MTC stock, including approximately 1.5 million shares they had stolen from MTC.  
+
+  The defendants eluded service of process for three years and, on February 6, 2001, the court granted the Commission's motion to serve them by publication notice in Hong Kong.  After the Commission served the defendants, they failed to answer the complaint.
+
+  The court found that by virtue of their failure to defend, the defendants are deemed to have admitted the allegations in the Commission's complaint, and found that they violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5.   The court also found that, in addition to his violations of the antifraud provisions of the federal securities laws, defendant Miko Leung violated Exchange Act Section 13(b)(5) and Exchange Act Rules 13b2-1 and 13b2-2.
+
+   See also  Litigation Release No.  15631  (January 29, 1998).  
+  
+
+ 
+
+  
+       SEC Complaint  in this matter.  
+
+  
+ 
+
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diff --git a/raw/aaer/2002/AAER-1541.txt b/raw/aaer/2002/AAER-1541.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a904d88077e344c9066ad373bfa992516a1dfaf8
--- /dev/null
+++ b/raw/aaer/2002/AAER-1541.txt
@@ -0,0 +1,1374 @@
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+              J. Donald Nichols, Jeb L. Hughes, and C. Sheldon Whittelsey
+           
+     
+ 
+
+   
+
+     
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+      
+             
+        J. Donald Nichols, Jeb L. Hughes, and C. Sheldon Whittelsey
+       
+
+             
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+
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+                   
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+    
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+
+ Litigation Release No.     17456   /   April 3, 2002
+
+  Accounting And Auditing Enforcement Release No.  1541 / April 3, 2002
+
+   Securities and Exchange Commission v. J. Donald Nichols, Jeb L. Hughes, and C. Sheldon Whittelsey, IV,  Civil Action No. 1:02-CV-478 (NDGA March 19, 2002) 
+
+    The Securities and Exchange Commission ("Commission") announced today that the Honorable Jack T. Camp, United States District Judge for the Northern District of Georgia, entered Final Judgments of Permanent Injunction and Other Relief Against Defendants J. Donald Nichols ("Nichols"), Jeb L. Hughes ("Hughes") and C. Sheldon Whittelsey, IV ("Whittelsey"), restraining and enjoining them from further violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 13b2-2 and 14a-9 thereunder. 
+
+   Nichols, Hughes, and Whittelsey consented to the entries of the judgments without admitting or denying any of the allegations of the Commission's complaint.  Further, the Court ordered civil penalties against Nichols, Hughes, and Whittelsey in the amounts of $110,000, $60,000, and $60,000, respectively.  The Court further ordered that Hughes and Whittelsey be barred from acting as an officer or director of any issuer having a class of securities registered with the Commission.   
+
+  On February 20, 2002, the Commission alleged in its complaint that the three defendants, all former officers of JDN Realty Corporation, a public company, arranged for cash and property to be transferred to Hughes and Whittelsey from third parties who sold real estate to JDN Realty. Nichols, Hughes, and Whittelsey failed to inform JDN Realty's accounting department of this compensation arrangement, and they also failed to disclose certain other related-party transactions. As a result, JDN Realty's public filings failed to disclose the executive officer compensation and related-party transactions, and by not properly accounting for the compensation, JDN Realty materially misstated its 1994 through 1997 annual financial statements and two quarterly financial statements in 1998. 
+
+  See also:  L. R.  17366   (February 20, 2002).
+  
+
+ 
+
+  
+       SEC Complaint  in this matter.  
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diff --git a/raw/aaer/2002/AAER-1543.txt b/raw/aaer/2002/AAER-1543.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4d4c29ff8282b8e48460e78efdc5c9a4485a65a6
--- /dev/null
+++ b/raw/aaer/2002/AAER-1543.txt
@@ -0,0 +1,1590 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Teltran International Group, Ltd. 
+     
+     
+     
+     
+     
+     
+     
+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Teltran International Group, Ltd.
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Teltran International Group, Ltd.
+       
+
+             
+   
+
+
+        
+                   
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+  
+    
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+
+   
+
+             
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+
+ Securities Act of 1933
+ Release No.  8093 /  April 22, 2002
+  Securities Exchange Act of 1934
+ Release No.   45796  /  April 22, 2002
+  Accounting and Auditing Enforcement
+ Release No.  1543  /  April 22, 2002
+  Administrative Proceeding
+ File No.   3-10761
+
+         In the Matter of     
+   TELTRAN INTERNATIONAL   
+   GROUP, LTD.,     
+         Respondent.   
+     
+    : : : : : :   
+   ORDER INSTITUTING PROCEEDINGS
+ PURSUANT TO SECTION 8A OF THE
+ SECURITIES ACT OF 1933 AND SECTION
+ 21C OF THE SECURITIES EXCHANGE ACT
+ OF 1934, MAKING FINDINGS AND
+ IMPOSING A CEASE-AND-DESIST ORDER      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative 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") to determine whether Teltran International Group, Ltd. ("Teltran") violated or caused violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.  1     II. 
+
+    In anticipation of the institution of these administrative proceedings, Teltran has submitted an Offer of Settlement 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 prior to a hearing and without admitting or denying the findings set forth herein, except as to jurisdiction over it and over the subject matter of these proceedings, which Teltran admits, Teltran consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing A Cease-and-Desist Order ("Order").  The Commission has determined that it is appropriate to accept Teltran's Offer of Settlement, and accordingly is issuing this Order.
+
+   III. 
+
+    FACTS  
+
+    Based on the foregoing, the Commission finds that:  2    A.  Respondent and Responsible Officer 
+
+  Teltran, a Manhattan-based telecommunications company, provided Internet telephony, 1-900 services and traditional carrier services in the United States and abroad.  During the relevant time period, Teltran also operated a website at www.Teltran.com.  Public trading started in 1996 and Teltran became a reporting company with the Commission in March 1999.  Teltran's common stock is currently quoted in the "pink sheets" after having been removed from the OTC Bulletin Board in July 2000.  During the relevant time period, Teltran's stock traded at a high of $15.688 per share. Teltran's shares are currently quoted at about $.05 per share.  
+
+  Byron Lerner   ("Lerner"), age 57, resides in New York and has been the Chairman, President and Chief Executive Officer of Teltran since June 1997.  
+
+  B.  Summary 
+
+  During its fiscal year ended December 31, 1999, Teltran materially overstated its revenues and earnings contrary to Generally Accepted Accounting Principles ("GAAP").  The company incorrectly recognized revenue by recording its purchase of ChannelNet Ltd. ("CNET") on its books as of June 1, 1999, when in fact, it did not acquire CNET until August 6, 1999.   The incorrect financial results were reported in various periodic reports filed with the Commission and disseminated to the investing public during 1999 and 2000.  
+
+  Teltran also disseminated misleading revenue, earnings per share and stock price projections, as well as misleading information concerning its chances for being listed on the American Stock Exchange ("AMEX").  Specifically, in May 1999, Teltran began projecting 1999 revenues of $30 million and earnings per share of $.30.  Teltran repeated these projections throughout the year and made false and misleading statements concerning its prospects for 1999 after it became known that the projections would not be met.  During 1999, Teltran also republished analyst reports on its Internet website that projected that Teltran's stock price would increase from about $10 to $75 per share and that Teltran would earn $2 - $5 per share in 2000.  These reports also stated that Teltran would be listed on AMEX "imminently" and that Teltran's stock price would massively increase when it began trading on AMEX.  Teltran knew or had reason to know that there was no reasonable basis for these projections, and the company misled investors by republishing the analyst reports on its website. 
+
+  C.  The ChannelNet Acquisition 
+
+  On May 7, 1999, Teltran issued a press release announcing that it had entered into a letter of intent to acquire CNET, a U.K. company owned by Barclay Brydon ("Barclay"), a British company headquartered in London.  The press release stated that CNET specialized in internet telephony services and that the transaction was scheduled to close on June 1, 1999.  The acquisition was designed to enhance Teltran's internet telephony capability abroad and help Teltran meet its revenue and earnings targets for 1999 and 2000.  
+
+  By June 1, 1999, despite each side's interest in completing the deal, they had not agreed upon certain material terms of the sale.  Consequently, no contract was executed as of that date.  By July 1, 1999, the parties still had not finalized all material terms of the deal, and had not executed a written contract.  On July 15, 1999, Teltran and Barclay executed a written contract.  However, the contract specifically stated that Teltran had not completed its due diligence review and permitted Teltran to terminate the agreement.  The contract also provided that the parties would enter into other related agreements, including an agreement for the purchase of Atlantic Corporation ("Atlantic"), which was another company owned by Barclay, and an agreement for the purchase of the assets needed to run the businesses.  
+
+
+
+  During the next month, the lawyers for both sides resolved most of the open issues and, on August 16, 1999 the CNET acquisition was completed.  At the closing, the parties also executed a contract for the purchase of Atlantic and the related equipment.  Despite the fact that Teltran and Barclay had not executed a binding contract until July 15, 1999 and the acquisition did not close until August 16, 1999, Teltran recorded the acquisition of CNET, for accounting purposes, as of June 1, 1999.  3    D.  Relevant Accounting Principle 
+
+  Under Accounting Principles Board Opinion No. 16, "Business Combinations," a company may book an acquisition earlier than the closing date only if the buyer had "effective control" of the target company by the earlier date.  As set forth above, Teltran did not obtain effective control of CNET until the closing of the CNET acquisition on August 16, 1999.  As a result, Teltran could not record the CNET acquisition as of June 1, 1999, and in doing so, Teltran improperly added to its reported results CNET's pre-acquisition results from operations for June, July and part of August 1999.  4    E.  Teltran's Public Filings 
+
+  On August 19, 1999, Teltran filed its Form 10-QSB for the quarter ended June 30, 1999.  Lerner signed the Form 10-QSB as President, CEO and Principal Financial and Accounting Officer.  In this filing, Teltran reported revenues of $456,720 and $540,179 for the three-month and six-month periods ended June 30, 1999, respectively.   If Teltran had used the correct date for the CNET acquisition, revenue for these periods would have been $99,881 and $183,340, or 78% and 64% lower, respectively.
+
+  On November 8, 1999, Teltran filed its Form 10-Q for the quarter ended September 30, 1999.  Lerner signed the Form 10-Q as President, CEO and Principal Financial and Accounting Officer.  In this filing, Teltran reported revenues of $2,267,570 and $2,807,749 for the three-month and nine-month periods ended September 30, 1999, respectively.  If Teltran had used the correct date for the CNET acquisition, revenues for these periods would have been $366,277 and $549,617, or 83% and 80% lower, respectively.  The Form 10-Q also failed to disclose that the revenues were generated due to consolidating the CNET acquisition as of June 1, 1999 and characterized the revenues as being derived from internet telephony, when, in fact, the revenues were predominantly generated from 1-900 services.    On April 12, 2000, Teltran filed its Form 10-K for the year ended December 31, 1999.  Lerner signed the Form 10-K as President, CEO and Director.  In this filing, Teltran reported revenues of $2,453,189 for the year-ended December 31, 1999.  If Teltran had used the correct date for the CNET acquisition, revenues for the year would have been $1,041,815, or 58% lower.  The MD&A section of the Form 10-K also stated that the reason for the increase was due to "the generation of additional VOIP sales of our international telecommunications network."  This misrepresented the increase in revenues as coming from VOIP (internet telephony services) rather than 1-900 services.  5    F.  Teltran's Press Releases 
+
+    For the second quarter of 1999, Teltran issued a press release entitled "Teltran Breaks Even In Second Quarter.  Preliminary Estimates Show July Revenues at $1 Million."  The press release, published on August 16, 1999, quoted Lerner as stating: "We are very pleased with the progress that the company has made in the second quarter as evidenced by our steadily increasing revenue base.  These figures show that Teltran International is clearly on the threshold of profitability and early third quarter numbers substantiate that fact."  The press release added that preliminary figures showed Teltran generated $1 million of revenue during July.  The press release also quoted Lerner as stating, "This one-month figure nearly doubles all revenues for the first half of the year and is indicative of increased traffic from ongoing operations and contracts.  We remain confident that we are on schedule to reach or exceed all previously announced projections."  
+
+  However, the press release failed to mention that Teltran achieved these results only because it had consolidated the CNET acquisition as of June 1, 1999 and that, without using this effective date, Teltran would not have had $1 million in revenues for July 1999.  The press release also implied that the steadily increasing revenue base and telephony traffic resulted from actions brought about by Teltran; in fact, most of the revenues were from consolidating the CNET acquisition as of June 1, 1999.
+
+  For the third quarter of 1999, Teltran issued a press release entitled, in part, "Company Reports Earnings Per Share of 5 Cents" and "Revenues Increase Nearly 500% During The Third Quarter."  The press release, published on November 4, 1999, stated that Teltran had achieved strong, across-the-board growth, particularly from its expanding presence in broadband and Internet related services such as VOIP.  The release quoted Lerner as stating: "revenues have dramatically increased each quarter reflecting increased demand for our products" and "we believe the quarter-to-quarter growth that has been reported thus far in 1999 reflects the direction in which the company is headed and we are confident this trend will continue as additional locations come online in the fourth quarter."  This earnings release did not disclose that the revenues were generated due to consolidating the CNET acquisition as of June 1, 1999, and, like the Form 10-Q, falsely characterized the revenues as internet telephony related, when in fact, the revenues were predominantly generated from 1-900 services.    G.  Teltran's Internet Postings 
+
+    In April 1999, Teltran started an Internet website at www.teltran.com.  Teltran included an investor-relations section on this site to provide shareholders and potential investors with information about the company, including all of Teltran's press releases and favorable reports written by third parties.
+
+    Between July and October 1999, Teltran republished several reports written by Stockreporter.de, an online stock newsletter based in Germany, on the investor-relations section of its website.  At the bottom of each report Teltran also included a hyperlink to the Stockreporter.de website, www.stockreporter.de.  The reports also contained disclaimers indicating that Stockreporter.de had created the reports on an unsolicited basis for no compensation, and noted that Stockreporter.de would accept "no claim for any kind of warranty." 
+
+    Nonetheless, by posting them on its website, Teltran adopted the Stockreporter.de reports.  Several of these reports included false and misleading statements concerning the status of Teltran's AMEX application.  For example, on July 12, 1999, Teltran published a Stockreporter.de report on its website announcing that Teltran would be listed on the AMEX or NASDAQ "at the latest the end of September."  A subsequent report was posted by Teltran on its website, entitled, in part, "Stockreporter.de discovers that Teltran is finally going to be listed at the major American Stock Exchange."  The report stated that, "being listed on AMEX will massively influence the share price in a positive way" and noted interest in Teltran from institutional investors.  On August 18, 1999, Teltran republished another report written by the Stockreporter.de.  This report reiterated a strong buy recommendation due, in part, to Teltran's "imminent" listing on AMEX.
+
+
+
+  However, at the time Teltran republished these Stockreporter.de reports, Teltran did not meet AMEX's listing guidelines and had not received a favorable preliminary listing eligibility opinion.  As a result, Teltran could not have been listed unless AMEX officials granted a waiver of its listing criteria.  Such waivers had historically been granted to only about one-third of the companies needing one.  Nonetheless, Teltran did not qualify the Stockreporter.de statements and materially misrepresented its potential listing status with AMEX. 
+
+
+
+  The Stockreporter.de reports also contained stock price and earnings per share projections for fiscal 2000.  For example, on July 6, 1999, Teltran republished a report entitled "Stockreporter.de analyzed huge new profit potentials for Teltran (TLTG) with a new price target of 60$ - 75$."  On October 5, 1999, Teltran also republished a Stockreporter.de report estimating earnings per share of  $2 - $5 for fiscal 2000.  However, Teltran had no reasonable basis to support either of these projections.
+
+  H.  Teltran's Earnings Guidance For 1999 
+
+    In early 1999, Teltran began issuing press releases predicting that Teltran would generate $30 million in revenue and earn $.30 per share for 1999.  One press release, dated March 24, 1999, quoted Lerner as stating "[w]ith our current contracts and others we have out for signature, it appears that my previous projection of $30 million in revenue with an earnings per share of $.30 will easily be met, if not exceeded."  Another press release, dated April 23, 1999, quoted Lerner as stating "I am very comfortable with the 1999 and 2000 revenue and earnings projections published in the report as we fully expect to achieve our earnings per share estimate of $.30 for 1999 and $.65 for 2000."
+
+    On May 14, 1999, Teltran issued in its first quarter earnings release, which stated "we remain confident that we will meet or exceed our 1999 earnings projections of $.30 per share."  Teltran reiterated this guidance on May 25, 1999, when it announced that the company had received another "strong buy" recommendation from Stock-Tipper.com, and stated "we feel that TLTG can achieve revenue growth of $30 million and earn .30/share for 1999 (coming from zero growth)." 
+
+  Despite numerous setbacks and delays in implementing its Internet telephony contracts, on August 16, 1999, Teltran issued an earnings release for the quarter ended June 30, 1999, that quoted Lerner as stating "we remain confident that we are on schedule to reach or exceed all previously announced projections."  The next day, Teltran republished on its website a Stockreporter.de. report containing an interview between Stockreporter.de and Lerner, during which Lerner was asked if he was going to increase his $.30 earnings per share estimate for 1999.  The release quoted Lerner as stating that he preferred to remain conservative in his estimates, but the possibility of exceeding them existed. 
+
+
+
+  In September 1999, Teltran's investor-relations department e-mailed investors information confirming previous statements that had been made by Lerner.  For example, on September 9, 1999, Teltran's investor-relations manager stated in an e-mail, "our projection was for 30 cents per share in 1999 and we continue to stand behind it."  On September 16, 1999, the investor-relations manager also stated in an e-mail, "Teltran continues to stand behind all previously announced projections including earnings of 30 cents per share this year and $1 per share next year."  As late as November 8, 1999, the investor-relations manager told an investor that "At present we still expect to meet all projections."    
+
+  In mid-November 1999, Lerner found out that WorldCom, the owner of Ozemail, was selling its Internet telephony network to ITXC Corp. ("ITXC").  Because of this sale, Teltran could not continue to transmit calls because it had to modify its Internet telephony gateways to work on ITXC's system, which resulted in a delay of several months before it could recommence processing calls.   
+
+  On November 29, 1999, Teltran issued a press release stating that CNET would run 3.5 million minutes of calls per month with Norweb Telecom beginning in December 1999.  The next day, Teltran's investor-relations manager sent an e-mail about the ITXC deal to investors and told one of them that "there is no cause for concern.  The effect is only positive for Teltran."  In addition, on December 6, 1999, Teltran issued a press release stating that the ITXC acquisition of Ozemail "immediately accelerates Teltran's opportunities."  It was not until March 23, 2000, when Teltran announced revenues of only $5.6 million for the year-ended December 31, 1999, that Teltran disclosed that the equipment and network transition resulted in a 60 to 90 day period where the equipment was operating at limited capacity. 
+
+  Despite these statements and assurances, by June 30 and September 30, 1999, Teltran had only reported revenues of $540,179 and $2,807,749, respectively, more than $25 million short of its $30 million revenue projection.  Teltran also continued to publish its 1999 earnings guidance on its Internet website until April 2000.  
+
+
+
+  I.  Teltran's Deficient Internal Controls 
+
+  During 1999, Teltran had no system to evaluate the collectibility of its accounts receivable balances.  In fact, nobody from Teltran examined the receivables to determine whether they were collectible.  Teltran's deficient internal controls resulted in a double-booked accounts receivable of $796,134 during the quarter ended September 30, 1999.  
+
+   IV. 
+
+    LEGAL ANALYSIS  
+
+  A.  Violations of the Antifraud Provisions 
+
+  Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit materially false or misleading statements or omissions made in connection with the offer or sale, or purchase or sale, of any security.  An issuer violates these provisions by, intentionally or with reckless disregard for the truth, making material misstatements or omissions in Commission filings.   SEC v. Great American Industries , 407 F.2d 453 (2d Cir.),  cert.   denied , 395 U.S. 920 (1968);  SEC v. Geotek , 426 F. Supp. 715 (N.D. Cal. 1976),  affirmed , 590 F.2d 785 (9th Cir. 1979).  Scienter is required for a violation of the antifraud provisions,   Aaron v. SEC , 446 U.S. 680, 691 (1980), which the Supreme Court has defined as "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).  The scienter of a company's management is imputed to the company.   See  ,   e.g .,    SEC v. Manor Nursing Centers , 458 F.2d 1082 (2d Cir. 1972).  Recklessness generally satisfies the scienter requirement.   Rolf v. Blyth Eastman Dillon & Co. , 570 F.2d 38, 44 (2d Cir. 1978);  cert.   denied , 439 U.S. 1039 (1978);  SEC v. Blavin , 760 F.2d 706, 711 (6 th  Cir. 1985).
+
+    1.  ChannelNet 
+
+    Teltran violated the antifraud provisions by knowingly, or recklessly, misrepresenting reported revenues in its June 30, 1999 and September 30, 1999 Forms 10-Q and in its December 31, 1999 Form 10-K.  Teltran also disseminated earnings press releases for those quarters that contained materially false and misleading statements about its reported revenues.  
+
+    2.  Statements on Teltran's Internet Website 
+
+    Under certain circumstances an issuer that disseminates false or misleading third party reports may adopt the contents of those reports and be fully liable for the misstatements contained in them, even if it had no role whatsoever in the preparation of the report.  If an issuer knows, or is reckless in not knowing, that the information it distributes is false or misleading, it cannot be insulated from liability because management was not actively involved in the preparation of that information.  Adoption occurs "when a company conveys the suggestion that the analysts' forecasts are accurate or at least in accordance with its views."   In re Cypress Semiconductors  ,  891 F. Supp .  1369, 1377 (N.D. Cal. 1995),  aff'd   sub   nom .  Eisenstadt v. Allen , 1997 U.S. App. LEXIS 9587 (9th Cir. 1997).   See   also   Use of Electronic Media , 65 FR 25843, 25849 (May 4, 2000).
+
+                As set forth above, Teltran republished and adopted several analyst reports that contained materially false or misleading statements.  As a result, Teltran violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
+
+    3.  Teltran's Earnings Guidance for 1999 
+
+    As set forth above, beginning early in the first quarter of 1999 and continuing through December 1999, Teltran issued numerous public statements concerning prospects for 1999.  However, by June 30 and September 30, 1999, Teltran had only reported revenues of $540,179 and $2,807,749, respectively, more than $25 million short of its $30 million revenue projection.  Consequently, Teltran made false and misleading statements, and, as a result, violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
+
+
+
+  B.  Teltran Violated the Reporting Provisions of the Exchange Act 
+
+  Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13 require issuers with securities registered under Section 12 of the Exchange Act to file annual and quarterly reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.   See ,  e.g. ,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert.   denied , 440 U.S. 913 (1979).  Exchange Act Rule 12b-20 further requires that such reports contain any additional information necessary to ensure that the required statements in the reports are not, under the circumstances, materially misleading.  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).  Financial statements in a Commission filing that do not comply with GAAP are presumed to be misleading.  Regulation S-X, 17 C.F.R. 210.4-01(a)(1).
+
+    As described above, Teltran filed annual and quarterly reports with the Commission that materially overstated Teltran's revenues.  As a result, Teltran violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+  C.  Teltran Violated the Record-Keeping and Internal Controls Provisions of the Exchange Act 
+
+  Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets.  Section 13(b)(2)(B) of the Exchange Act requires such registrants to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain the accountability of assets.  
+
+    As described above, Teltran failed to keep accurate books and records, and its internal accounting controls were inadequate.  Among other things, Teltran recorded the CNET acquisition prior to the date the transaction occurred and, therefore, failed to ensure that revenue recognition was in conformity with GAAP.  As a result, Teltran violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
+
+   V. 
+
+    FINDINGS  
+
+    Based on the foregoing, the Commission finds that Teltran violated Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.
+
+   VI. 
+
+    ORDER  
+
+  Accordingly,  IT IS HEREBY ORDERED  that Teltran:
+
+  Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, cease and desist from committing or causing any violation and any future violation of, Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.
+
+    By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+
+    Footnotes 
+     1      This matter is related to  SEC v. Byron R. Lerner , Case Number 1:02CV00748 (D.D.C.) (April 22, 2002). 
+
+      2      The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.   
+
+      3      Although a contract for the purchase of Atlantic was executed on August 16, 1999, the transaction never closed.  Approximately 10% of the revenues recorded by Teltran as of June 1, 1999 were from Atlantic.  
+
+      4      In June 1999, Teltran submitted a listing application to the AMEX.  In connection with its review of Teltran's application, the AMEX asked to see Teltran's financial results for the second and third quarters of 1999. 
+
+      5       Based upon the Division of Enforcement's investigation, Teltran restated its June 30 and September 30, 1999 Forms 10-Q and December 31, 1999 Form 10-K to reflect the CNET acquisition on August 16, 1999.        
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diff --git a/raw/aaer/2002/AAER-1544.txt b/raw/aaer/2002/AAER-1544.txt
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@@ -0,0 +1,1367 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Byron Robert Lerner 
+     
+     
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+The Commission announced today the filing of a settled civil action against Byron Lerner, Chairman and Chief Executive Officer of Teltran International Group, Ltd. ("Teltran").  The Commission's complaint alleges that Lerner caused Teltran to materially overstate its reported financial results during its fiscal year ended December 31, 1999 and to make other materially false and misleading statements.  Specifically, the Commission's complaint alleges that during 1999, Teltran entered into a contract to acquire Channelnet Limited, a company located in the United Kingdom.  The contract was signed on July 15, 1999 and the transaction closed on August 16, 1999.  Teltran, however, recorded the acquisition as of June 1, 1999, before Teltran had effective control of Channelnet.  The use of the earlier effective date was not in conformity with generally accepted accounting principles and caused Teltran to materially overstate its reported revenues in its June 30 and September 30, 1999 Forms 10-Q and December 31, 1999 Form 10-K. 
+ 
+The complaint also alleges that during 1999, Teltran projected that it would generate $30 million in revenue and earn $.30 per share for the year.  Teltran made false and misleading statements concerning its prospects for 1999 after it became known that it would not meet its projections.  During 1999, Teltran also adopted analyst reports by republishing them on its Internet website.  Certain reports contained baseless stock price and earnings per share projections and misleading statements concerning Teltran's chances for obtaining a listing on the American Stock Exchange.  Finally, the Commission's complaint alleges that, during the relevant time period, Lerner obtained an improper benefit of approximately $78,000 by selling Teltran stock.  
+ 
+Lerner consented, without admitting or denying the Commission's allegations, to be permanently enjoined from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder, and pay disgorgement and prejudgment interest of $87,500 and a $50,000 civil penalty. 
+ 
+In a separate administrative proceeding, Teltran, without admitting or denying the Commission's findings, consented to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  (  In the Matter of Teltran International Group, Ltd.  , Administrative Proceeding File No. 3- 10761). 
+ 
+The Commission also instituted public administrative proceedings pursuant to Rule 102(e) of its Rules of Practice to determine whether Michael R. Drogin, CPA, engaged in improper professional conduct in the performance of his audit of Teltran for the year ended December 31, 1999, by failing to comply with professional auditing standards.  A hearing will be held before an Administrative Law Judge to determine whether the staff's allegations in the Order Instituting Public Administrative Proceedings are true, to provide Drogin an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate.  (  In the Matter of Michael R. Drogin, CPA  , Administrative Proceeding File No. 10762). 
+
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diff --git a/raw/aaer/2002/AAER-1545.txt b/raw/aaer/2002/AAER-1545.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9d7f85cd7c7e7ad7e482168fac854719322d301e
--- /dev/null
+++ b/raw/aaer/2002/AAER-1545.txt
@@ -0,0 +1,1436 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Michael R. Drogin, CPA 
+     
+     
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+     
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+     
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+              Michael R. Drogin, CPA
+           
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+        Michael R. Drogin, CPA
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+ Securities Exchange Act of 1934
+ Release No.  45797 /  April 22, 2002
+  Accounting and Auditing Enforcement
+ Release No.  1545  / April 22, 2002
+  Administrative Proceeding File No.  3-10762
+  IN THE MATTER OF MICHAEL R. DROGIN, CPA
+
+  The Securities and Exchange Commission announced today that it has instituted public administrative proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice to determine whether Michael R. Drogin, CPA, engaged in improper professional conduct in the performance of his audit of Teltran International Group, Ltd. ("Teltran") for the year ended December 31, 1999.  Drogin is a Certified Public Accountant licensed in New York and New Jersey.  Drogin is also a partner with the accounting firm Liebman Goldberg & Drogin, LLP which is located in Garden City, New York.  
+
+  The Division of Enforcement and the Office of the Chief Accountant allege that Drogin failed to comply with professional auditing standards in connection with his audit of Teltran.  During 1999, Teltran entered into a contract to acquire Channelnet Limited, a company located in the United Kingdom.  The contract was signed on July 15, 1999 and the transaction closed on August 16, 1999.  Drogin allowed Teltran to record the acquisition as of June 1, 1999, before Teltran had effective control of Channelnet.  The use of the earlier effective date was not in conformity with generally accepted accounting principles and caused Teltran to materially overstate its reported revenues in its June 30 and September 30, 1999 Forms 10-Q and December 31, 1999 Form 10-K.  
+
+  The staff alleges that Drogin failed to obtain sufficient competent evidence justifying Teltran's consolidation of Channelnet as of June 1, 1999 and that Drogin did not comply with professional auditing standards by failing to: (1) maintain an attitude of professional skepticism; (2) render an accurate audit report; and (3) exercise due professional care. 
+  
+A hearing will be held before an Administrative Law Judge to determine whether the staff's allegations in the Order Instituting Public Administrative Proceedings are true, to provide Drogin an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate.
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diff --git a/raw/aaer/2002/AAER-1546.txt b/raw/aaer/2002/AAER-1546.txt
new file mode 100644
index 0000000000000000000000000000000000000000..dc99b001cdff5b5cc4df521a0cdb02924b990b71
--- /dev/null
+++ b/raw/aaer/2002/AAER-1546.txt
@@ -0,0 +1,1373 @@
+
+
+ 
+ 
+   
+     
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+     SEC.gov | Patrick Quinlan, Lee Wells, Keith Pietila, Alexander Ajemian, John O'Leary, Cheryl Swain and Kevin Lasky 
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+              Patrick Quinlan, Lee Wells, Keith Pietila, Alexander Ajemian, John O'Leary, Cheryl Swain and Kevin Lasky
+           
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+        Patrick Quinlan, Lee Wells, Keith Pietila, Alexander Ajemian, John O'Leary, Cheryl Swain and Kevin Lasky
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+ Litigation Release No.    17484 / April 23, 2002     
+  Accounting and Auditing Enforcement Release No.  1546  
+
+  SECURITIES AND EXCHANGE COMMISSION V. PATRICK QUINLAN, LEE WELLS, KEITH PIETILA, ALEXANDER AJEMIAN, JOHN O'LEARY, CHERYL SWAIN AND KEVIN LASKY, United States District Court for the Eastern District Of Michigan, Case No. 02-60082 (Judge Battani) (April 23, 2002)
+
+  The Securities and Exchange Commission ("Commission") announced that it filed a Complaint today in the United States District Court for the Eastern District of Michigan against seven former executives of MCA Financial Corporation ("MCA").  The defendants are Patrick Quinlan, MCA's former CEO and Chairman of the Board of Directors, Lee Wells, MCA's former President and Chief Operating Officer and member of the Board of Directors, Keith Pietila, MCA's former Chief Financial Officer and Chief Operating Officer, Alexander Ajemian, MCA's former Controller and Treasurer, John O'Leary, MCA's former Senior Vice President of Corporate Finance, Cheryl Swain, MCA's former Vice President of Marketing Syndication and Kevin Lasky, MCA's former Vice President of Portfolio Management.
+
+  MCA was a mortgage banking company headquartered in Southfield and Troy, Michigan.  The Complaint alleges that MCA sold two different types of securities and engaged in a fraudulent scheme with regard to both.  First, the Complaint alleges that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials.  The Complaint alleges that, as a result, investors lost at least $49 million.  Second, the Complaint alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission.  The Complaint further alleges that MCA materially inflated its assets, income and equity by improperly: (1) recognizing gains on sale of real estate to related parties; (2) valuing certain mortgages held for resale; (3) failing to disclose related party mortgages held for resale; (4) failing to write down uncollectible related party receivables; and (5) failing to disclose MCA's potential liability in connection with the fraudulent sale of the securitized interests in pools of mortgage loans.  The Complaint alleges that as a result, investors in the debentures lost all $19 million invested.
+
+  The Complaint alleges that all seven defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws as a result of their conduct in connection with MCA's fraudulent sale of securities.  In addition, the Complaint alleges that Quinlan, Wells, Pietila, Ajemian and O'Leary violated, or aided and abetted violations of, the periodic reporting and corporate record-keeping provisions of the federal securities laws.   
+
+  The Complaint seeks, among other things, injunctive relief and civil penalties against all seven defendants.  In addition, the Complaint seeks to bar Quinlan, Wells, Pietila and Ajemian from acting as an officer and director of a public company in the future.
+
+  Criminal proceedings already have been instituted with respect to several of the defendants in the Commission's Complaint.  Ajemian and Pietila have pled guilty to counts of mail fraud and making false statements to the Commission.  Swain has pled guilty to one count of mail fraud.  In addition, the Michigan Attorney General's Office has filed state felony securities fraud charges against Quinlan, Wells, Pietila and Ajemian.
+
+  The Commission wishes to thank the Office of the United States Attorney for the Eastern District of Michigan for its assistance and cooperation in this matter.
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diff --git a/raw/aaer/2002/AAER-1547.txt b/raw/aaer/2002/AAER-1547.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d4110d0130396a473544bdfed3c4a75da944cbd1
--- /dev/null
+++ b/raw/aaer/2002/AAER-1547.txt
@@ -0,0 +1,1482 @@
+
+
+ 
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+     SEC.gov | Kenneth W. Haver, CPA 
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+              Kenneth W. Haver, CPA
+           
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+        Kenneth W. Haver, CPA
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  45814 / April 24, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1547 / April 24, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10764
+
+        In the Matter of    
+  KENNETH W. HAVER, CPA  
+      Respondent   
+     
+  : : : : : :   
+   ORDER INSTITUTING PUBLIC
+    PROCEEDINGS AND FINDINGS
+AND ORDER PURSUANT TO RULE
+ 102(e) OF THE COMMISSION'S 
+ RULES OF PRACTICE     I.
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Kenneth W. Haver ("Haver"), a certified public accountant, pursuant to Rule 102(e)(3) of the Commission's Rule of Practice.  1    II.
+
+    In anticipation of the institution of these public administrative proceedings, Haver has submitted an Offer of Settlement which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings, except that Haver admits to the Commission's finding that a Final Judgment of Permanent Injunction ("Final Judgment") has been entered against him as set forth in Section III.C., and Haver admits the jurisdiction of the Commission over himself and over the subject matter of this proceeding, Haver consents to the entry of this Order Instituting Public Proceedings and Opinion and Order Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").
+
+  III.
+
+    On the basis of this Order and Haver's Offer of Settlement, the Commission makes the following findings:
+
+      Kenneth Haver, age 43, is a resident of Akron, Ohio, and was the chief financial officer of Telxon Corporation ("Telxon") until February 1999.  Haver is and has been a certified public accountant licensed to practice in the State of Ohio. Haver has practiced before the Commission within the meaning of Rule 102(f) of the Commission's Rules of Practice in connection with the preparation of Telxon's financial statements and other documents.
+
+       Telxon is a Delaware corporation that manufactures hand held computing devices and related systems.  During the relevant time period, Telxon's headquarters were in Akron, Ohio, and its common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and listed on the NASDAQ national stock trading system.  
+
+       On March 5, 2002, the Commission filed a complaint against Haver in  Securities and Exchange Commission v. Kenneth W. Haver , ("SEC v. Haver"), in the United States District Court for the Northern District of Ohio, Civil Action No. 5:02 CV 414.  On March 13, 2002, Haver consented to the entry of the Final Judgment against him in  SEC v. Haver , without admitting or denying the allegations in the complaint, except as to jurisdiction, which Haver admitted. On April 9, 2002, the United States District Court for the Northern District of Ohio entered the Final Judgment, which permanently enjoins Haver from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and13b2-1 promulgated thereunder, and further enjoins him from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+       The Commission's complaint in  SEC v. Haver  alleges, among other things, that during the quarter ended September 30, 1998, Haver participated in a fraudulent revenue recognition scheme at Telxon that materially inflated Telxon's revenues and profits.  Haver caused Telxon to recognize revenue that was not in conformity with Generally Accepted Accounting Principles in connection with three significant transactions.  The inflated revenues and profits were reported in Telxon's Form 10-Q for the quarter ended September 30, 1998 and caused the financial statements in that document to be materially false and misleading.  According to the complaint, Haver knew, or was reckless in not knowing, that the financial statements incorporated into Telxon's Form 10-Q for the quarter ended September 30, 1998, which was signed by Haver and filed with the Commission, were materially false and misleading as a result of his conduct. 
+   IV.
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement submitted by Haver and accordingly,
+
+    IT IS HEREBY ORDERED, effectively immediately, that:
+
+      Haver is suspended from appearing or practicing before the Commission as an accountant.
+
+       After five years from the date of this Order, Haver may request that the Commission consider his reinstatement by submitting an application (attention:  Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+
+     a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy that Haver's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or 
+
+           an independent accountant.  Such an application must satisfy the Commission that:
+
+     Haver or the firm with which he is associated is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); 
+
+             Haver or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+             as long as Haver appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+         The Commission's review of an application by Haver to resume appearing or practicing before it may include consideration of, in addition to the matters referenced above, any other matters relating to Haver's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+   By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  ______________________
+      1     Paragraph (3) of Rule 102(e) provides, in relevant part, that:
+
+ ...(i) The Commission, with due regard to the public interest...may...suspend from appearing or practicing before it any...accountant...who has been by name...permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.     
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diff --git a/raw/aaer/2002/AAER-1548.txt b/raw/aaer/2002/AAER-1548.txt
new file mode 100644
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+ Litigation Release No.  17489 / April 24, 2002
+
+  Accounting and Auditing Enforcement Release No. 1548 / April 24, 2002
+
+   SEC v. Kenneth W. Haver , U.S. District Court for the Northern District of Ohio, Akron Division, Docket No. 5:02CV414
+
+  FINAL JUDGMENT ENTERED AGAINST FORMER TELXON CFO KENNETH HAVER
+
+  The Securities and Exchange Commission today announced that the Honorable James Gwin of the United States District Court for the Northern District of Ohio has entered a Final Judgment against Kenneth W. Haver, the former Chief Financial Officer of Telxon Corp.  In its complaint, filed March 5, 2002, the Commission alleged that Haver, age 43, of Akron, Ohio, caused Telxon to recognize revenue improperly in the fall of 1998, and that Haver failed to properly account for several other prior transactions.  On March 13, 2002, Haver consented, without admitting or denying the allegations of the complaint, to the entry of the Final Judgment, which permanently enjoins Haver from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder, and further enjoins him from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and orders him to pay a civil penalty of $75,000.  Haver, an inactive CPA licensed in Ohio, also consented to the entry of an order under the Commission's Rule of Practice 102(e) which will suspend him from appearing or practicing before the Commission as an accountant for five years.  Prior to being acquired by another company in December 2000, Telxon was a leading manufacturer of hand held computers and related systems.
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diff --git a/raw/aaer/2002/AAER-1549.txt b/raw/aaer/2002/AAER-1549.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a9732abc9d1c9c7a82e3b10f5b7df781038d522c
--- /dev/null
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+              G. Matthias Heinzelmann, III
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+        G. Matthias Heinzelmann, III
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+
+ LITIGATION RELEASE NO. 17491  /  April 25, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1549 /  April 25, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION V. G. MATTHIAS HEINZELMANN, III,  Civil Action No. 4:02-CV-0403-A, United States District Court for the Northern District of Texas, Fort Worth Division. 
+
+    On April 25, 2002, the Commission filed a civil injunctive action against G. Matthias Heinzelmann, of Fort Worth, Texas, alleging that he perpetrated a financial fraud while president and a director of Surety Capital Corporation ("Surety Capital"), a Fort Worth based reporting company whose sole asset is a wholly-owned subsidiary, Surety Bank, N.A., ("Surety Bank").  The Commission charges that from 1996 through September 1999, Heinzelmann engaged in an elaborate scheme to hide loan losses in Surety Bank's insurance premium finance ("IPF") division, which had a material impact on the parent company -- Surety Capital's - financial statements included in its Forms 10-K and 10-Q.  Specifically, the Company overstated its pre-tax income by 7% in 1996, and understated its pre-tax losses by 16% in 1997 and 97% in 1998.  Further, Surety Capital failed to file its Form 10-Q for the period ending September 30, 1999.  Also, because of the misstatements, Surety Capital failed to make and keep books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets.  Surety Capital also failed to maintain an adequate system of internal financial controls with respect to the accounting at Surety Bank over its IPF Division.  
+
+
+  The Commission's complaint charges that Heinzelmann violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and seeks a permanent injunction, officer and director bar and a third-tier civil money penalty.
+
+  The Commission simultaneously instituted settled administrative cease-and-desist proceedings against Surety Capital for violations of the reporting, internal controls and books and records provisions of the Exchange Act.
+  
+
+ 
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+       SEC Complaint  in this matter.  
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diff --git a/raw/aaer/2002/AAER-1550.txt b/raw/aaer/2002/AAER-1550.txt
new file mode 100644
index 0000000000000000000000000000000000000000..babdc5e27baf3701aeb0cd75834a12d41056fe22
--- /dev/null
+++ b/raw/aaer/2002/AAER-1550.txt
@@ -0,0 +1,1485 @@
+
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+ 
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+     SEC.gov | Surety Capital Corporation 
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+              Surety Capital Corporation
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+        Surety Capital Corporation
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  45826 / April 25, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1550 / April 25, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10769
+
+         In the Matter of    
+   Surety Capital Corporation,     
+     Respondent.    
+     
+    : : : : : :   
+   ORDER INSTITUTING 
+        PROCEEDINGS, MAKING FINDINGS,
+ AND IMPOSING A CEASE-AND-DESIST ORDER      I. 
+
+     The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings against Surety Capital Corporation ("Surety Capital" or "Respondent") be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+    In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement ("Offer") 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except that Respondent admits the Commission's jurisdiction over it and over the subject matter of these proceedings, Respondent has consented to the entry of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order ("Order").
+
+     II. 
+
+    On the basis of this Order and the Offer submitted by Respondent, the Commission finds:  1      Respondent  
+
+  A. Surety Capital is a Delaware corporation headquartered in Fort Worth, Texas, whose shares are registered with the Commission under Section 12(g) of the Exchange Act and are quoted on the National Quotation Service's Pink Sheets under the symbol "SRYP."  During the relevant period discussed herein, Surety Capital's common stock was traded on the American Stock Exchange.  Surety Capital is a bank holding company with one subsidiary, Surety Bank, National Association ("Surety Bank").  During the relevant period, G. Matthias Heinzelmann, III was the president and a director of Surety Capital.  Heinzelmann was also executive vice president and a director of Surety Bank, and manager of Surety Bank's Insurance Premium Finance ("IPF") division.    
+
+      G. Matthias Heinzelmann, III Manipulates Surety Capital's Reported Income  
+
+  B. Surety Bank provides retail and commercial banking services to its customers, and specializes in premium finance lending through its IPF division to businesses and individuals who are unable to pay their insurance policy premiums up front.  Surety Bank policy requires IPF loans to be charged off once they are over 180 days past due.  Charged-off loans are accounted for in Surety Bank's allowance for loan losses.  Provisions (additions) to the allowance for loan losses are expenses and deducted from Surety Bank's gross income.    
+
+
+
+  C. From 1996 through the third quarter of 1999, Heinzelmann diverted refunds due to IPF loan customers to reduce or eliminate delinquent balances in unrelated IPF loan accounts. Heinzelmann deliberately concealed the diverted refunds through improper journal entries and adjustments.  In August 1999, Surety Bank's internal auditor detected unusual journal entries in the IPF division and questioned Heinzelmann.  Heinzelmann was unable to explain the transactions, and resigned shortly thereafter.  2      Effect of Heinzelmann's Wrongdoing  
+
+  D. In September 1999, shortly following the discovery of Heinzelmann's diversions of customer refunds, Surety Capital launched an investigation into IPF loan accounts and premium refunds and, ultimately, recorded previously unrecognized losses, including interest, of $2,780,000.  The losses were recognized as adjustments to prior years beginning in the first quarter of 1996 and extending through the fourth quarter of 1999.  Specifically, the losses totaled $180,000 in 1996, $837,000 in 1997, $1,261,000 in 1998, and $502,000 in 1999.  
+
+      Surety Capital's Reporting and Internal Control Failures  
+
+  E. As a result of Heinzelmann's actions, Surety Capital included false financial statements in its Forms 10-K and 10-Q for its 1996 through 1998 fiscal years, and its Forms 10-Q for the first two quarters of 1999.  Specifically, Surety Capital's financial statements in its Forms 10-K and 10-Q materially overstated its pre-tax income in 1996, and materially understated its pre-tax losses in 1997 and 1998.  In addition, Surety Capital failed to file its Form 10-Q for the period ending September 30, 1999.  Also, because of the misstatements, Surety Capital failed to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets.  
+
+  F. From the first quarter of 1996 through the third quarter of 1999, Surety Capital failed to maintain an adequate system of internal financial controls with respect to the accounting at Surety Bank over which Heinzelmann had direct control and responsibility.  Specifically, Surety Capital failed to implement a system of controls adequate to prevent and detect the diversion of premium refunds in Surety Bank's IPF division.  Prior to the discovery of Heinzelmann's diversion of customer refunds, Surety Capital received indications of possible account reconciliation and computer security problems in the IPF division.  Nevertheless, Surety Capital failed to increase its scrutiny of Surety Bank's IPF division.    
+
+      Surety Capital's Cooperation  
+
+    G. In determining to accept Surety Capital's offer, the Commission considered (i) the
+
+  cooperation that Surety Capital afforded the Commission staff; (ii) remedial efforts taken by Surety Capital to strengthen its internal operating procedures in the areas where the misconduct occurred; and (iii) the fact that the current Board of Directors and senior management are not composed of individuals who held those positions during the relevant time.  
+
+      Conclusion  
+
+  H. As a result of the foregoing, Surety Capital violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  
+
+   III. 
+
+    In view of the foregoing the Commission deems it appropriate to impose the sanctions agreed to in Respondent's Offer.
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent Surety Capital cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  
+
+  By the Commission.
+
+              Jonathan G. Katz
+             Secretary 
+  _______________________
+        1      The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.      2     On April 25, 2002, the Commission filed a civil lawsuit against Heinzelmann alleging that he violated or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder.  Litigation Release No. 17491 (April 25, 2002).    
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diff --git a/raw/aaer/2002/AAER-1551.txt b/raw/aaer/2002/AAER-1551.txt
new file mode 100644
index 0000000000000000000000000000000000000000..59f6d341ee934b0c9d8d3ee115f4ac6fb607e91d
--- /dev/null
+++ b/raw/aaer/2002/AAER-1551.txt
@@ -0,0 +1,1531 @@
+
+
+ 
+ 
+   
+     
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+ 
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+     
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+     SEC.gov | Serologicals Corporation, Inc. 
+     
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+       
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No.  45852 / May 1, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.    1551 / May 1, 2002
+
+  ADMINISTRATIVE PROCEEDING 
+File No.  3-10773
+
+  
+
+         In the Matter of    
+    Serologicals Corporation, Inc.
+    Respondent.                                                 
+     
+    : : : : : :   
+   
+ORDER INSTITUTING PUBLIC
+PROCEEDINGS PURSUANT TO
+SECTION 21C OF THE SECURITIES
+EXCHANGE ACT OF 1934, MAKINGFINDINGS AND IMPOSING CEASE-
+AND-DESIST ORDER
+     I.
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Serologicals Corporation ("Serologicals" or "the Company").
+
+  In anticipation of the institution of these proceedings, Serologicals has submitted an Offer of Settlement, which Offer the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100  et seq. , Serologicals admits the jurisdiction of the Commission over it and the subject matter of these administrative proceedings and consents to the entry of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"), without admitting or denying the Commission's findings, except as for those contained in paragraph III.A. below, which are admitted.
+
+  II.
+
+  Accordingly, IT IS HEREBY ORDERED THAT proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted.  
+
+III.
+
+  On the basis of this Order and the Offer of Settlement by Serologicals, the Commission makes the following findings  1  :
+
+   BACKGROUND 
+
+  A. During all relevant times, Serologicals was an Atlanta-based supplier of specialty human antibodies and other blood-related products and services to various healthcare companies.  The Company's securities were registered with the Commission pursuant to Section 12(g) of the Exchange Act.  
+
+  SEROLOGICALS IMPROPERLY RECOGNIZED REVENUE FROM BILL-AND-HOLD SALES 
+
+  B. On December 29, 1998 Serologicals acquired from a large, international healthcare company the Pentex Blood Proteins Division ("Pentex"), which Serologicals renamed Serologicals Proteins.  This subsidiary supplied a broad line of purified animal and human blood proteins to biopharmaceutical companies.  
+
+  C. During 1999, Serologicals Proteins continued a bill-and-hold relationship with one of its largest customers that had originated at Pentex in 1997.  Pursuant to this relationship, Serologicals Proteins improperly recognized revenue when it invoiced the customer and prior to actually shipping the product.  2    As the arrangement existed in 1999, Serological Proteins periodically sent pre-purchase product samples to the customer for testing.  If the customer did not reject a sample within ten to twelve weeks after receipt, Serologicals Proteins automatically sent an invoice to the customer for the bulk product from which that sample came--referred to as a "Lot"--and recognized a sale of the Lot.  
+
+  D. Serologicals Proteins' practice of recognizing revenue when it sent an invoice to the customer failed to comply with GAAP because the risks and rewards of ownership of the Lots had not yet passed to the customer.   See   In re Stewart Parness , AAER No. 108 (August 5, 1986), 36 SEC Docket 395.  Here, the customer retained the right to reject any pre-purchase product sample and obtain a full refund after paying an invoice if the sample did not satisfy the customer's acceptance criteria.  Also, the customer never specified a fixed delivery schedule for the Lots and did not make a fixed commitment to purchase any particular Lot.  Moreover, until the customer requested shipment, Serologicals Proteins stored the Lots at a warehouse where it leased space.  Finally, the customer's purchase orders specified "F.O.B. Shipping," suggesting that the risk of loss did not shift to the customer until the goods were delivered to the shipper.   See  U.C.C. § 2-319(1) (2000).  
+
+  E. Including improper revenue from Serologicals Proteins' bill-and-hold sales caused Serologicals to overstate its consolidated net income by $316,000 in the second quarter of 1999 and understate its net loss by $401,000 in the third quarter of 1999.   
+
+  SEROLOGICALS IMPROPERLY RECOGNIZED REVENUE WHEN TITLE TO THE GOODS HAD NOT PASSED TO THE CUSTOMER 
+
+  F.  Serologicals failed to comply with GAAP by recognizing $213,000 in net income from a sale of blood products during the third quarter of 1999 because title to those goods had not yet passed to the customer.  Serologicals sent an invoice to the customer and recognized the sale while the goods were being held at a warehouse where Serologicals leased space.  At that time, the warehouse personnel were preparing the goods for shipment, but the customer's designated shipper had not yet taken possession of those goods.  Because title to those goods would not pass until the shipper took possession, Serologicals prematurely recognized revenue from this sale.  Moreover, before the shipper took possession of these goods, the customer informed Serologicals that it would not accept them until Serologicals resolved certain quality assurance issues.  
+
+  SEROLOGICALS IMPROPERLY UNDERSTATED VARIOUS EXPENSES
+
+  G. During the first, second and third quarters of 1999, Serologicals understated its cost of goods sold because it failed to accurately reconcile its plasma inventory on hand with the plasma inventory reported on its books; Serologicals had less actual inventory on hand than it recorded. Consequently, Serologicals overstated its net income by $343,000 and $38,000 in the first and second quarters of 1999, respectively, and understated its net loss by $107,000 in the third quarter of 1999.
+
+  H. In addition, Serologicals failed to accurately record depreciation expenses during 1999 because it did not reclassify certain assets as permanent after completing construction of those assets.  Serologicals also failed to record expenses for contributions to Serologicals Proteins' pension fund during the first quarter of 1999; instead they incorrectly accounted for those contributions as part of the purchase price for Pentex.  Combined, these understated expenses caused Serologicals to overstate net income by $131,000 and $62,000 in the first and second quarters of 1999, respectively, and understate its net loss by $61,000 in the third quarter of 1999.
+
+  SEROLOGICALS LACKED SUFFICIENT INTERNAL ACCOUNTING CONTROLS
+
+  I. During 1999, Serologicals failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (1) its financial statements were prepared in conformity with GAAP and (2) transactions were executed in accordance with management's general or specific authorization.  
+
+  J. Serologicals lacked procedures to reveal Serologicals Proteins' improper recognition of revenue from bill-and-hold sales.  For example, in January 1999, Serologicals Proteins issued two credit memos to reverse certain sales that represented approximately seventeen percent of Serologicals Proteins' outstanding accounts receivable as of December 31, 1998.  Each memo stated that the customer rejected the product before it was shipped, clearly indicating that Serologicals Proteins had improperly recognized revenue prior to shipment.  Serologicals, however, had no policy at the time that required such credit memos to be sent to Serologicals' accounting department.  Such a policy would have alerted Serologicals to Serologicals Proteins' improper revenue recognition practice, notwithstanding the seller's representation, made in connection with the sale of Pentex, that Pentex's financial statements were prepared in accordance with GAAP.
+
+  K. In June 1999, Serologicals distributed a new policy that required certain conditions be met before the company would permit bill-and-hold transactions.  Although the accounting personnel at Serologicals Proteins received this policy, they made no effort to implement it and Serologicals took no steps to determine whether Serologicals Proteins was in compliance with the policy, which it was not.  
+
+  L. Serologicals also lacked procedures in 1999 to ensure that it accurately reconciled the plasma inventory on hand with the plasma inventory reported on its books.  Serologicals discovered a discrepancy between these amounts during its 1998 year end inventory count and corrected its financial statements prior to filing its 1998 Form 10-K.  Because Serologicals' outside auditors viewed the discrepancy as significant, they recommended in early 1999 that Serologicals re-evaluate its inventory reconciliation procedures to prevent this problem from reoccurring.  Despite this recommendation, Serologicals made no changes to its inventory reconciliation procedures during 1999, and due to problems with its vendor did not timely implement in 1999 as planned a new computer system designed in part to improve inventory tracking.  Because Serologicals failed to improve its inventory reconciliation procedures during 1999, at the end of that year Serologicals again discovered a discrepancy between the plasma inventory on hand and the plasma inventory reported on its books. 
+
+  SEROLOGICALS' INACCURATE FILINGS WITH THE COMMISSION AND LATER RESTATEMENTS
+
+  M. On May 12, 1999, Serologicals filed its Form 10-Q for the first quarter of 1999 with the Commission.  Therein, Serologicals inaccurately reported net income of $4.55 million for the quarter.  Serologicals' actual net income during the first quarter was $4.08 million, or 11.2 percent less than the amount initially reported.  The material overstatement of net income resulted from    (a) improper inventory reconciliation, causing costs of goods sold to be understated and (b) the failure to record depreciation and pension expenses.   
+
+  N. On August 11, 1999, Serologicals filed its Form 10-Q for the second quarter of 1999 with the Commission.  Therein, Serologicals inaccurately reported net income of $2.81 million for the quarter.  Serologicals' actual net income during the second quarter was $2.39 million, or 17.4 percent less than the amount initially reported.  The material overstatement of net income resulted from (a) improper recognition of revenue from bill-and-hold sales, (b) improper inventory reconciliation, and (c) the failure to record depreciation expenses.    
+
+  O. On November 12, 1999 Serologicals filed its Form 10-Q for the third quarter of 1999 with the Commission.  Therein, Serologicals inaccurately reported a net loss of $5.99 million for the quarter.  Serologicals' actual net loss during the third quarter was $6.78 million, or 11.6 percent more than the loss initially reported.  The material understatement of Serologicals' net loss resulted from (a) improper recognition of revenue from bill-and-hold sales, (b) improper recognition of revenue from a sale where title had not passed to the customer, (c) improper inventory reconciliation, and (d) the failure to record depreciation expenses.    
+
+  P. On April 10, 2000, Serologicals publicly released its 1999 year-end financial results together with the restated results for the first three quarters of 1999.  The restatements corrected the revenue from the improper bill-and-hold sales, the improper recognition of the sale during the third quarter of 1999, and the understated cost of goods sold, depreciation and pension expenses.  The restatement materially reduced the Company's net income for the first and second quarters of 1999 and materially increased the net loss reported for the third quarter of 1999. 
+
+  VIOLATIONS OF THE FEDERAL SECURITIES LAWS
+
+  Q. Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of registered securities to file with the Commission quarterly reports prepared in conformity with the requirements of the Commission's rules and regulations.  Courts have held that it is implicit in this requirement that the information provided be accurate and contain no material misrepresentations or omissions.   See ,  e.g .,  SEC v. Savoy Industries, Inc ., 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that the statements made in them are not materially misleading.  No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 12b-20 and 13a-13.   Savoy Industries , 587 F.2d at 1167;  Tenex Corp. , Exchange Act Rel. No. 41312 (April 20, 1999), 69 SEC Docket 1814, 1834 n. 11.  A violation occurs when a materially false statement is filed.   SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).
+
+  R. Section 13(b)(2)(A) of the Exchange Act requires issuers of securities to make and keep books, records and accounts which accurately and fairly reflect their transactions and the dispositions of their assets.  Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing to be falsified any book, record or account subject to Section 13(b)(2)(A).  No showing of scienter is necessary to establish a violation of Section 13(b)(2)(A) or Rule 13b2-1.  SEC v. World Wide Coin Investments, Ltd. , 567 F. Supp. 724, 749 (N.D.Ga.1983);  Joseph E. Williams , Exchange Act Rel. No. 42412 (Feb. 10, 2000), 71 S.E.C. Docket 1770, 1776. 
+
+  S. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are executed in accordance with management's authorization and that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain accountability for assets.  No showing of scienter is necessary to show a violation of Section 13(b)(2)(B).   SEC v. World Wide Coin Investments, Ltd. , 567 F. Supp. at 751.
+
+  T. By the acts and omissions alleged in paragraphs III.B through III.P, Serologicals violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-13 and 13b2-1 thereunder.  Serologicals violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 by filing Forms 10-Q for the first, second and third quarters of 1999 which contained materially misleading information regarding its financial performance.  Serologicals violated Section 13(b)(2)(A) of the Exchange Act by failing to keep books, records, and accounts that accurately recorded its transactions and assets for the first, second and third quarters of 1999.  Serologicals also violated Rule 13b2-1 by falsely recording transactions and revenue in its books, records and accounts during 1999.  Finally, Serologicals violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that its transactions were (1) executed in accordance with management's authorization and (2) recorded as necessary to permit the preparation of financial statements in conformity with GAAP.  
+
+  IV.
+
+  In view of the foregoing, the Commission deems it appropriate to accept Serologicals' Offer of Settlement.  In determining to accept the Offer, the Commission considered the cooperation Serologicals afforded the Commission staff.
+
+  ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act that Serologicals cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-13, and 13b2-1 thereunder.
+
+  By the Commission.
+
+  Jonathan G. Katz 
+
+Secretary
+
+
+  Footnotes 
+  1    The findings herein are made pursuant to Serologicals' Offer of Settlement and are not binding on any other person or entity named in this or any other proceeding.
+
+   2    A bill-and-hold transaction is generally a practice whereby a customer agrees to purchase goods but the seller retains physical possession until the customer requests shipment to designated locations.   There are very limited circumstances under Generally Accepted Accounting Principles ("GAAP") that permit a seller to recognize revenue from a bill-and-hold transaction prior to shipping the goods, none of which were applicable in this instance.
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No.   45853 / May 1, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.    1552 / May 1, 2002
+
+  ADMINISTRATIVE PROCEEDING 
+File No.  3-10774
+
+         In the Matter of    
+   Michael A. Kolberg and 
+Dale E. Huizenga,                                                                      
+
+    Respondent.                                                 
+     
+    : : : : : :   
+   
+ORDER INSTITUTING PUBLIC
+PROCEEDINGS PURSUANT TO
+SECTION 21C OF THE SECURITIES
+EXCHANGE ACT OF 1934, MAKINGFINDINGS AND IMPOSING CEASE-
+AND-DESIST ORDER
+     I.
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Michael A. Kolberg ("Kolberg") and Dale E. Huizenga  ("Huizenga").
+
+  In anticipation of the institution of these proceedings, Kolberg and Huizenga have submitted Offers of Settlement, which Offers the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100  et seq. , Respondents admit the jurisdiction of the Commission over them and the subject matter of these administrative proceedings and consent to the entry of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"), without admitting or denying the Commission's findings, except as for those contained in paragraphs III.A. and B. below, which are admitted.
+
+  II.
+
+  Accordingly, IT IS HEREBY ORDERED THAT proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted.
+
+  III.
+
+  On the basis of this Order and the Offers of Settlement by Kolberg and Huizenga, the Commission makes the following findings  1  :
+
+   FACTS 
+
+  A. During all relevant times, Kolberg was the plant accountant for a supplier of a broad line of purified animal and human blood proteins to biopharmaceutical companies ("the Subsidiary").  The Subsidiary is located in Kankakee, Illinois and was acquired in December 1998 by an Atlanta-based supplier of specialty human antibodies and other blood-related products and services ("the Company").  The Company's securities are registered with the Commission pursuant to Section 12(g) of the Exchange Act.
+
+  B. During all relevant times, Huizenga was the Subsidiary's manager of finance and human resources and Kolberg's immediate supervisor.   
+
+  C. As the plant accountant, Kolberg was responsible beginning in 1999 for providing the Company with periodic sales data for the Subsidiary and ensuring that this accounting data that he provided conformed to Generally Accepted Accounting Principles ("GAAP").  Kolberg knew that the Company would include this data in its consolidated books, records and accounts and in the financial statements that the Company filed with the Commission.    
+
+  D. During 1999, Kolberg knew of a bill-and-hold arrangement that the Subsidiary had with its largest customer under which the Subsidiary recognized revenue when it sent an invoice to the customer and prior to actually shipping its product.  2    Recognizing revenue from such transactions failed to comply with GAAP, as Kolberg should have realized, because the risks and rewards of ownership of the goods in question did not pass to the customer when the Subsidiary invoiced the customer for the goods.  Nevertheless, Kolberg determined that such revenue recognition satisfied GAAP.  Thus, during 1999, Kolberg provided the Company with monthly sales data for the Subsidiary that included improper revenue from bill-and-hold transactions.  
+
+  E. In June 1999, the Company's director of accounting provided Huizenga with a copy of a new written policy regarding bill-and-hold sales and instructed Huizenga to review and implement that policy at the Subsidiary.  This policy required certain conditions be met before the Company would permit bill-and-hold transactions.  The transactions between the Subsidiary and its largest customer failed to satisfy several of these requirements. 
+
+  F. Although Huizenga knew of the bill-and-hold arrangement between the Subsidiary and its largest customer, he never reviewed the Company's new bill-and-hold policy and made no effort to implement or enforce that policy at the Subsidiary.  Consequently, Huizenga did not alert anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated the Company's new policy.  
+
+  G.  Kolberg received and reviewed the Company's new bill-and-hold policy sometime during the third quarter of 1999.  Although Kolberg should have known that the Subsidiary's bill-and-hold arrangement violated that policy, he failed to reach this conclusion.  Consequently, Kolberg never alerted anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated the Company's new policy.  
+
+  H. On August 11, 1999, the Company filed its Form 10-Q for the second quarter of 1999 with the Commission.  Therein, the Company overstated its net income by 12.7 percent, or $316,000, due to the improper recognition of revenue from the bill-and-hold arrangement at the Subsidiary.   
+
+  I. On November 12, 1999 the Company filed its Form 10-Q for the third quarter of 1999 with the Commission.  Therein, the Company understated its net loss by 6.3 percent, or $401,000, due to the improper recognition of revenue from the bill-and-hold arrangement at the Subsidiary.  
+
+  J. On April 10, 2000, the Company publicly released its 1999 year-end financial results together with the restated results for the first three quarters of 1999.  The restatements corrected, among other things, the revenue from the improper bill-and-hold sales and materially reduced the Company's net income for the second quarter of 1999 and materially increased the net loss reported for the third quarter of 1999.
+
+   VIOLATIONS OF THE FEDERAL SECURITIES LAWS 
+
+  K. Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of registered securities to file with the Commission quarterly reports prepared in conformity with the requirements of the Commission's rules and regulations.  Courts have held that it is implicit in this requirement that the information provided be accurate and contain no material misrepresentations or omissions.   See ,  e.g .,  SEC v. Savoy Industries, Inc ., 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that the statements made in them are not materially misleading.  No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 12b-20 and 13a-13.   Savoy Industries , 587 F.2d at 1167;  Tenex Corp., et al. , Exchange Act Rel. No. 41312 (April 20, 1999), 69 SEC Docket 1814, 1834 n. 11.  A violation occurs when a materially false statement is filed.   SEC v. Kalvex, Inc ., 425 F. Supp. 310, 316 (S.D.N.Y. 1975).
+
+  L. Section 13(b)(2)(A) of the Exchange Act requires issuers of securities to make and keep books, records and accounts which accurately and fairly reflect their transactions and the dispositions of their assets.  Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing to be falsified any book, record or account subject to Section 13(b)(2)(A).   No showing of scienter is necessary to establish a violation of Section 13(b)(2)(A) or Rule 13b2-1.  SEC v. World Wide Coin Investments, Ltd. , 567 F. Supp. 724, 749 (N.D.Ga.1983);  Joseph E. Williams , Exchange Act Rel. No. 42412 (Feb. 10, 2000), 71 S.E.C. Docket 1770, 1776. 
+
+  M. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are executed in accordance with management's authorization and that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain accountability for assets.  No showing of scienter is necessary to show a violation of Section 13(b)(2)(B).   SEC v. World Wide Coin Investments, Ltd. , 567 F. Supp. at 751.
+
+  N. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg violated Rule 13b2-1 of the Exchange Act.  Kolberg was responsible for providing the Subsidiary's sales data to the Company.  Kolberg knew that the Company would include the sales data that he provided in the Company's books, records and accounts.  Kolberg also knew that the sales data he provided to the Company included revenue recognized from bill-and-hold transactions, and should have known that this revenue failed to comply with GAAP.  The improper revenue from the bill-and-hold transactions caused the Company's books, records and accounts to overstate net income.  Thus, Kolberg's actions caused the Company's books, records and accounts to be false.  
+
+  O. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg caused the Company to violate Section 13(b)(2)(A) of the Exchange Act.  Kolberg was responsible for providing the Subsidiary's sales data to the Company.  Kolberg knew that the Company would include the sales data that he provided in the Company's books, records and accounts.  Kolberg also knew that the sales data he provided to the Company included revenue recognized from bill-and-hold transactions, and should have known that this revenue failed to comply with GAAP.  The improper revenue from the bill-and-hold transactions caused the Company's books, records and accounts to overstate net income.  Thus, Kolberg's actions caused the Company's books, records and accounts to be false.
+
+  P. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg caused the Company to violate Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  Kolberg was responsible for providing the Subsidiary's sales data to the Company.  Kolberg knew that the Company would include the sales data that he provided in the financial statements that the Company filed with the Commission.  Kolberg also knew that the sales data he provided to the Company included revenue recognized from bill-and-hold transactions, and should have known that this revenue failed to comply with GAAP.  The improper revenue from the bill-and-hold transactions caused the Company to materially overstate its net income in the financial statements filed with the Company's second quarter 1999 Form 10-Q and materially understate its net loss in the financial statements filed with the Company's third quarter 1999 Form 10-Q.  Thus, Kolberg's actions caused the financial statements that the Company filed with second and third quarter 1999 Form 10-Qs to be materially false.
+
+  Q. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg caused the Company to violate Section 13(b)(2)(B) of the Exchange Act.  Kolberg received and reviewed the  Company's new bill-and-hold policy.  Although he should have known that the Subsidiary's bill-and-hold transactions violated this policy, Kolberg failed to reach this conclusion.  Thus, Kolberg did not enforce the new policy at the Subsidiary or alert anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated the new policy.
+
+  R. By the acts and omissions alleged in paragraphs III.C. through III.J., Huizenga caused the Company to violate Section 13(b)(2)(B) of the Exchange Act.  The Company's director of accounting gave Huizenga the Company's new policy regarding bill-and-hold sales and instructed him to review it and implement it at the Subsidiary.  Huizenga ignored these instructions and never reviewed or implemented this policy at the Subsidiary.  Huizenga also failed to alert anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated Company policy.  
+
+  IV.
+
+  In view of the foregoing, the Commission deems it appropriate to accept Kolberg's and Huizenga's Offers of Settlement.  In determining to accept the Offers, the Commission considered the cooperation Kolberg and Huizenga afforded the Commission staff.
+
+  ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act that Kolberg cease and desist from committing any violation and any future violation of Rule 13b2-1 of the Exchange Act and causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-13, and 13b2-1 thereunder.
+
+  IT IS FURTHER ORDERED, pursuant to Section 21C of the Exchange Act that Huizenga cease and desist from causing any violation and any future violation of Section 13(b)(2)(B) of the Exchange Act.
+
+  By the Commission.
+  Jonathan G. Katz 
+Secretary
+
+
+
+  Footnotes 
+
+  1    The findings herein are made pursuant to Kolberg's and Huizenga's Offers of Settlement and are not binding on any other person or entity named in this or any other proceeding.
+
+   2    A bill-and-hold transaction is generally a practice whereby a customer agrees to purchase goods but the seller retains physical possession until the customer requests shipment to designated locations.   There are very limited circumstances under GAAP that permit a seller to recognize revenue from a bill-and-hold transaction prior to shipping the goods, none of which were applicable in this instance.
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+              Carl E. Putnam, Donald C. Welchko, John P. Figurelli, Daryl T. Spinell, Ronald M. Bandyk, and Renee L. LeVault
+           
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+ Litigation Release No.  17504 / May 6, 2002
+
+  Accounting and Auditing Enforcement Release No.  1554 / May 6, 2002
+
+  SEC Sues Former Executives and Other Employees of Anicom, Inc. for Financial Fraud
+
+   Securities and Exchange Commission v. Carl E. Putnam, Donald C. Welchko, John P. Figurelli, Daryl T. Spinell, Ronald M. Bandyk, and Renee L. LeVault  (United States District Court for the Northern District of Illinois No. 02C 3235).
+
+  On May 6, 2002, the Securities and Exchange Commission filed a civil enforcement action alleging that from January 1, 1998 through March 30, 2000 six Anicom, Inc. executives and other employees carried out a massive financial fraud at the now-bankrupt company.  In the suit, filed in federal court in the Northern District of Illinois, the Commission alleged that during this period, the defendants falsely reported millions of dollars of non-existent sales, including sales to a fictitious customer, and used other fraudulent techniques to inflate Anicom's revenues by over $38 million and net income by over $20 million.  To conceal the fraud, certain of the defendants lied to Anicom's outside auditors, lied to the Audit Committee of Anicom's Board of Directors in an internal investigation, and withheld information from the Commission's staff.  When aspects of the fraud were eventually revealed to the public, Anicom's shareholders lost more than $80 million.
+
+  The Commission's complaint alleged that the fraud had two distinct aspects.  First, President and Chief Executive Officer Carl E. Putnam, along with Vice President of Sales Daryl T. Spinell, Chief Operating Officer John P. Figurelli, and Billing Manager Renee L. LeVault improperly recognized numerous sales that inflated reported revenues and net profits.  Additionally, Chief Financial Officer Donald C. Welchko, with assistance from Figurelli, LeVault, and Vice President of Accounting Ronald M. Bandyk, C.P.A., and with at least Putnam's knowledge, caused Anicom in 1999 to improperly recognize over $11.7 million in sales to a fictitious customer called SCL Integration in order to minimize the effect on income of writing off earlier improper sales.  Second, Welchko and Bandyk engaged in fraud by entering journal entries that improperly charged certain expenses to an inadvertently created reserve account and a Restructuring Charge, unjustifiably inflated purchase rebates accrued, and accelerated the recognition of sales between reporting periods.
+
+  The Commission also alleged that in 1999 Putnam and Welchko misled two investigations into allegations of improper sales at Anicom.  In October 1999, Putnam and Welchko directed an employee to lie about his knowledge of improper sales during an internal investigation into allegations of sales misconduct.  At the time, Putnam told the employee that Anicom was doing the internal investigation just in case the SEC came calling.  In December 1999, the Commission requested that Anicom voluntarily produce information related to sales credits issued in 1999.  Welchko instructed an Anicom employee to compile the responsive data but to remove all sales credits relating to SCL Integration.  As a result, Anicom produced the requested information to the Commission having removed all evidence of the fictitious customer.
+
+   Defendants 
+
+  The Commission's complaint named the following defendants:
+
+   Carl E. Putnam , age 52, resides in Naperville, Illinois.  Putnam had overall responsibility for Anicom's sales.  He became Anicom's President in 1993, a Director in 1994, and was made Chief Executive Officer in September 1999.  Putnam signed Anicom's annual report, and participated in making public statements about that and other reports filed with the Commission.  On July 18, 2000, the Board of Directors placed him on administrative leave.  On September 11, 2000, he resigned all positions.
+
+   Donald C. Welchko , age 47, resides in Willow Springs, Illinois.  Welchko had overall responsibility for Anicom's accounting and finance functions.  In 1995, he became Anicom's Chief Financial Officer, and in 1998 was made a Director and an Audit Committee member.  Welchko participated in preparing Anicom's annual and quarterly reports filed with the Commission.  He also signed Anicom's annual and quarterly reports, and participated in making public statements about those reports.  On July 18, 2000, the Board placed him on administrative leave.  On September 11, 2000, he resigned all positions.
+
+  The complaint also names the following people as defendants.   John P. Figurelli , 54, a resident of Libertyville, Illinois, was Anicom's Chief Operating Officer.   Daryl T. Spinell , 38, a resident of Naperville, Illinois, was Anicom's Vice President of Sales.   Ronald M. Bandyk , 37, a resident of LaGrange, Illinois, was Anicom's Vice President of Accounting.   Renee L. LeVault , 33, a resident of Huntley, Illinois, managed Anicom's Billing Department.
+
+   Anicom, Inc. 
+
+  Prior to its January 2001 bankruptcy, Anicom was a wire and cable distribution company that employed nearly 1,200 people nationwide and was based in Rosemont, Illinois.
+
+   The Commission Seeks Permanent Injunctions, Civil Monetary Penalties, Disgorgement of Ill-Gotten Gains, and Officer and Directors Bars 
+
+  In its complaint, the Commission alleged that the defendants' conduct violated the antifraud, periodic reporting, record keeping, internal controls, and lying to the auditors provisions of the federal securities laws.  Accordingly, the Commission requests that the court issue a final judgment of permanent injunction and other relief, enjoining them from violating Sections 17(a)(1) and (3) of the Securities Act of 1933, Sections 10(b), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 promulgated thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 promulgated thereunder.  The Commission seeks civil monetary penalties from each of the defendants, and disgorgement of ill-gotten gains from Putnam, Welchko, Figurelli, Bandyk, and Spinell.  The Commission also seeks an order permanently barring Putnam, Welchko, Figurelli, Spinell, and Bandyk from acting as officers and directors of any public company.
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diff --git a/raw/aaer/2002/AAER-1555.txt b/raw/aaer/2002/AAER-1555.txt
new file mode 100644
index 0000000000000000000000000000000000000000..756b6b72212687723a94fb2616a81deb7433aa2e
--- /dev/null
+++ b/raw/aaer/2002/AAER-1555.txt
@@ -0,0 +1,1595 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Edison Schools, Inc. 
+     
+     
+     
+     
+     
+     
+     
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+           
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+        Edison Schools, Inc.
+       
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+
+ Securities Exchange Act of 1934 
+Release No.     45925 / May 14, 2002  
+  Accounting and Auditing Enforcement
+ Release No.     1555 / May 14, 2002
+  Administrative Proceeding 
+File No.  3-10781
+  
+      In the Matter of
+  Edison Schools, Inc.,
+  Respondent.
+     
+  : : : : : : :   
+ ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 21C, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER
+     I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate to institute cease-and-desist proceedings against Respondent Edison Schools, Inc., ("Respondent" or "Edison") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+   II. 
+
+  In anticipation of the institution of these proceedings, Edison has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying any of the findings contained herein, except as to the jurisdiction of the Commission over it and over the subject matter of these proceedings, which are admitted, Edison consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").  The Commission has determined that it is appropriate to accept the Offer of Edison and accordingly is issuing this Order. 
+
+  Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted.
+
+   III .
+
+  On the basis of the foregoing, the Commission finds  1   that:
+
+  A.  Edison Schools, Inc. , a Delaware corporation with headquarters in New York City, manages elementary and secondary public schools under contracts with school districts and charter school boards located in 22 states and Washington, D.C.  From its IPO on November 17, 1999, to the present, Edison's common stock has been registered pursuant to Section 12(g) of the Exchange Act and is quoted on the NASDAQ.
+
+   Overview 
+
+  B. Edison has filed reports with the Commission that have not disclosed certain information regarding Edison's business operations.  Specifically, Edison has not disclosed that a portion of its reported revenues included payments that did not reach  Edison and were made by school districts to teachers and other providers of services in Edison's schools.  Certain filings have contained additional erroneous information, which is described at greater length below.   Finally, Edison has not implemented an adequate system of internal controls, and has maintained books and records that contained certain inaccuracies. 
+
+  C. Edison is restating certain items and reclassifying its past financial statements in accordance with recent accounting literature, and will be ordered to comply with certain undertakings.  Among other things, Edison will be ordered to comply with its undertaking to establish an internal audit function, a function that did not previously exist at the company. 
+
+   Facts 
+
+  D. Edison manages approximately 130 schools under agreements with 62 school boards and charter holders.  In exchange for implementing Edison's program and agreeing to Edison's management, which includes unique curriculum and teaching methods and a longer school day and year, schools pay a fee, averaging approximately $6,500 for each student enrolled in one of its schools. ("Per Pupil Fee").  Management agreements entered into between Edison and school boards or charterholders usually state that Edison is responsible for paying the costs of running the schools from Per Pupil Fees.  Thus, with the exception of the three school districts referred to in paragraph Q, Edison's margin under the management agreements is the net of Per Pupil Fees less the costs of operating the schools.
+
+  E. Teachers in Edison schools are generally employees of the districts in which they teach, and, in 40% of Edison's schools, members of bargaining units that have collective bargaining agreements with districts.  Edison and the districts agree that teachers assigned to Edison's schools will adhere to Edison's program and management systems, and, among other things, receive compensation that reflects the additional hours of instruction it requires, as well, as in some cases, other stipends, performance-based incentives, and stock options reflecting the additional responsibilities of teachers in Edison's schools.  In many cases, particularly where non-charter schools are concerned, teachers are paid directly by school districts.
+
+  F. In some districts, Edison is responsible for paying expenses for non-instructional services, such as food, transportation and custodial help ("non-instructional expenses").  Where Edison bears this responsibility, Edison either pays vendors and other service providers (including the districts themselves) directly, or "buys back" the services from the districts, which directly pay the vendors.  
+
+  G.  District-Paid Expenses  - The teacher salaries and non-instructional expenses paid directly by districts (collectively "District-Paid Expenses") comprise a substantial portion of the expense of operating Edison schools.  These funds never reach Edison, but are expended by districts directly and then deducted from the districts' remittances to Edison. 
+
+  H.  Accounting Treatment of District-Paid Expenses -  Under Generally Accepted Accounting Principles ("GAAP"), expenses paid on behalf of an issuer, in which case the issuer is the primary obligor for the expenses, should be considered as the issuer's expenses.  In such circumstances, revenues must be presented on a gross basis, to include these expenses.  Issue 99-19, " Reporting Revenue Gross as a Principal versus Net as an Agent ," prepared by the Emerging Issues Task Force of the Financial Accounting Standards Board ("EITF 99-19"), as clarified by Topic D-103, which will become effective as EITF 01-14 for Edison's quarter ended on March 31, 2002 ("D-103").  Under this recent accounting guidance, Edison must report revenue on a gross basis to include those District-Paid Expenses for which it is the "primary obligor" for the expense.  Where Edison is not the primary obligor for the expenses, Edison must report revenues on a net basis to exclude such expenses. The choice between treatment of revenues on a gross or net basis does not affect net income.
+
+  I.  Edison's Revenues -  Throughout its existence, Edison has included all District-Paid Expenses in its reported revenues and in its reported operating expenses.   In other words, Edison has counted as revenue the full amounts that districts are obligated under the management agreements to pay as Per Pupil Fees (collectively, "Per Pupil Funding").  In its filings with the Commission, Edison did not disclose that there was any off-set from Per Pupil Funding for District-Paid Expenses.
+
+   Edison's Non-Disclosure of District-Paid Expenses 
+
+  J. Edison records as revenue the total amount of Per Pupil Funding as calculated at the beginning of the year, spreading it  pro rata  over eleven months of its fiscal year, which ends on June 30.  (No revenue is booked for July.)  Changes in enrollment result in monthly adjustments.  Edison records as Direct-Site Expenses both the expenses it pays directly and the District-Paid Expenses.  At year end, Edison reconciles recorded revenue with cash received.  The ratio of District-Paid Expenses to Edison's reported revenues is reflected in the chart below:
+
+     
+      
+   
+   
+   
+  First Six Months     (in millions) 
+ 1999 
+ 2000 
+ 2001 
+ 2001 
+ 2002    Revenues 
+ 133 
+ 225 
+ 376 
+ 167 
+ 231    District Paid Expenses 
+ 64 
+ 100 
+ 154 
+ 72 
+ 108
+    K. In its filings with the Commission, Edison has not disclosed the existence and amounts of these District-Paid Expenses.  Instead, Edison has inaccurately stated in its Management Discussion & Analysis that it "receives" all Per Pupil Funding.  In its most recent Form 10-Q, Edison disclosed, for the first time, that 
+
+  [W]e generally arrange for teachers in our contract schools to be paid by clients on our behalf.  Where such arrangements exist, the client deducts the amounts they have expended on our behalf from the amount owed to us when remitting payment.
+ 
+ Edison has never disclosed the amounts of these District-Paid Expenses.
+
+  L. The significance of Edison's non-disclosure of these off-sets in prior periods is demonstrated by the facts concerning two of Edison's clients, one of its oldest, and one of its most recent.  Edison reported significant amounts of gross revenue for providing educational services to districts that pay Edison little cash, if any.  
+
+  M. For example, "District A" paid Edison no cash at all in FY 2001, under an agreement with Edison that allows the district to withhold payment each year until the point at which all revenues due under the management agreement exceed District-Paid Expenses.  Edison is then entitled to any surplus.  In FY 2001, there was no surplus, according to District A, because the expenses paid to operate Edison's schools exceeded the amount of Per Pupil Fees due Edison under the management agreement.  Based on these circumstances (which are the basis of an ongoing dispute between Edison and the district), District A made no payments at all to Edison.   Notwithstanding the agreement allowing District A to withhold payment until the point at which there was a surplus due, Edison invoiced District A monthly in FY 2001 for the Per Pupil Fees specified in its management agreement with the district.  These invoices totaled approximately $7.5 million.  Edison recorded the entire amount invoiced, $7.5 million, as gross revenue for FY 2001, also recording expenses of $8 million.   
+
+  N. A second district, "District B," has paid Edison only $400,000 in FY 2002, even though Edison has recorded over $17 million in revenues from District B for the first two quarters of FY 2002, along with over $18 million in expenses.  District B's agreement with Edison differs from that of District A, in that District B agreed to make quarterly payments to Edison of the net amount they projected would be due for the year, assuming a certain level of enrollment and after subtracting District-Paid Expenses.  Before the start of the school year, Edison and District B agreed that the net amount due for the year would be $1.6 million, entitling Edison to quarterly payments of $400,000.  For the first quarter of 2002, District B paid the $400,000 due under this agreement.  For that quarter, Edison's revenues of approximately $97 million included over $8 million in revenue from District B.   (Reported expenses of $109 million included over $7 million in District-Paid Expenses related to District B.)  During the second quarter of 2002, District B determined not to pay Edison any amounts for the second, third and fourth quarters, because it became clear that actual enrollment in Edison's schools in District B was below projected enrollment, and annual projected revenues were therefore less than projected District-Paid Expenses.  For the second quarter of FY 2002, when Edison received no cash payments from District B, Edison reported revenues from District B of over $9 million and over $11 million in expenses.  
+
+  O. The examples of District A and District B demonstrate that revenues reported as total Per Pupil Funding do not fully describe the realities of Edison's operations.  For example, Edison's revenues for its second quarter of 2002 were $133 million.  Of this, over $11 million represented revenues to which Edison was contractually entitled from District A and District B, but little or none of which will result in cash payments Edison can expect to receive.  (Correspondingly, the company recorded an equal amount of direct-site expense that it will not have to pay in cash.)  Furthermore, Edison has additional expenses related to both districts, stemming from start-up costs and capital expenditures, such as for computers and textbooks. 
+
+   Reclassifications 
+
+  P. Following an expedited review by its independent auditor, which took place within the context of an inquiry by the Commission staff into the company's accounting for District-Paid Expenses, and in light of recent clarifications of GAAP (described in paragraph H,  supra ), Edison has concluded that revenues should be reported on a net basis, to exclude District-Paid Expenses that relate to (a) salaries of teachers in seven districts, and (b) payments for non-instructional services in numerous districts.  Revenues and expenses related to these categories will be reclassified on a net basis for past periods, and will be presented on a net basis beginning with Edison's third quarter of 2002.  
+
+  Q.  Fixed-Fee Arrangements : Edison's arrangements for three clients provide for a fixed fee to Edison, and grant Edison less control over the teachers than in other districts.  Revenues for these three districts should have been reported net of certain costs.  Edison has also concluded that revenues from a fourth district were improperly recorded in fiscal year 2002 because there is no written agreement setting forth the terms, although an oral agreement exists.  As a result of both conclusions, Edison will reclassify revenues and expenses by the following amounts:  3 rd  quarter 2001: $1.3 million; 4 th  quarter 2001: $1.4 million; 1 st  quarter 2002: $1.7 million, and 2 nd  quarter 2002: $5.0 million. The total downward adjustment for revenues and expenses in FY 2001 relating to these changes is approximately $2.7 million.  
+
+  R.  Teachers' salaries:   In three districts, management agreements provide that the districts retain a level of control over teachers' compensation to the extent that Edison cannot be considered a "primary obligor" for that expense.  The revenues from these districts will be reclassified net of District-Paid Expenses relating to teachers salaries, with revenues reduced by the following amounts:  FY 2000: $2.2 million; FY 2001: $4.3 million; 1 st  quarter 2002: $1.1 million; 2 nd  quarter 2002: $1.5 million.
+
+  S.  Non-instructional services :  Edison has agreements with numerous districts providing that it "buys back" from districts services provided by districts such as for transportation, food and custodial needs.  Edison is not the primary obligor for the expense of these services.  The revenues from a number of districts will be reclassified on a net basis, with revenues reduced by the following amounts: FY 1998: $3.8 million; FY 1999: $7.7 million; FY 2000; $13.4 million; FY 2001: $17.6 million; 1 st  quarter 2002: $4.6 million; 2 nd  quarter 2002: $11.1 million.
+
+  T. None of these reclassifications has any effect on Edison's reported income, as the change from gross to net treatment for these items involves a corresponding reduction in expenses as well.  In each of its years as a public company, Edison has reported substantial losses, which remain unchanged.  The aggregate effect of the reclassifications is as follows:
+  
+      
+ 1998 
+ 1999 
+ 2000 
+ 2001 
+ 1 st  quarter 2002 
+ 2 nd  quarter 2002    Reported revenues 
+ 69,407 
+        132,762  
+       224,578  
+        375,818  
+  97,267 
+ 133,342    Revenues after reclassifications 
+ 65,630 
+        125,085  
+       208,972  
+        350,508  
+ 89,745 
+ 115,637    In order to improve its disclosure, both prospectively and historically, Edison will also disclose the amounts of District-Paid Expenses, and disclose that Edison receives Per Pupil Funding net of District-Paid Expenses.  
+
+   Restatements 
+
+  U. Edison should have accelerated losses relating to two agreements with districts (including District A) because the company expected that over the life of the contracts there would be a total of $2.4 million in losses.  Under GAAP, losses should be recorded as soon as the losses are probable and estimable, which was in the first quarter of 2001.  (SFAS No. 5, "Accounting for Contingencies"  ¶8.)  Instead, Edison reported revenue and offsetting expenses for both districts in each quarter of 2001 and 2002.  Edison is restating its first and third quarters of FY 2001 to reflect appropriate timing for the recognition of these losses.  
+
+  V. The review of accounting practices by the company and its independent auditor has led Edison to restate two items that were originally accounted for incorrectly.  First, the company improperly accounted for proceeds of a warrant purchased by a philanthropic organization as permanent equity.  This item should have been recorded as a liability.   Edison will restate past balance sheets to reflect a liability of approximately $2.5 million on its opening balance sheet for fiscal 1999, declining over time to approximately $600,000 at December 31, 2001.  Second, the company did not properly account for the severance agreement of a senior company officer providing for the payment of $2.5 million, which was entered into in 1992.  The company will restate its balances sheets and adjust retained earnings to reflect this liability, which has increased to $3 million because of amendments to the agreement.
+
+   Internal Controls 
+
+  W. Edison's accounting system has not kept pace with its rate of growth or the challenge of tracking amounts owed by 62 school districts in 22 states.  While the company has improved its procedures in some respects, Edison does not have in place an adequate accounting system for billing school districts for net amounts owed to Edison.  The company's usual practice, which generally accords with the management agreements, has been to bill districts monthly on a gross basis, demanding payment of the proportionate amount of per pupil funding agreed upon before the commencement of the school year.  Until recently, none of the invoices set forth any deduction for District-Paid Expenses.  Some districts do not even receive invoices from Edison.  For example, neither of the two districts described above have received any invoices from Edison for all of FY 2002.  (District A is not invoiced because of its arrangement to withhold any payment until per pupil funding outpaces expenses; District B  invoices Edison  quarterly, after discussions with Edison's staff, demanding payment of over $140,000 for the second quarter of 2002.) 
+
+  X. Edison's inadequate control over the invoicing process and expenditure of funds by districts entails extensive discussions with districts throughout the year, resulting in a year-end reconciliation, conducted by Edison's regional business managers.  The result is an inadequate and decentralized accounting system.  Edison does not have any internal audit function to address weaknesses in its accounting system.
+
+   Edison's Cooperation 
+
+  Y. The company has cooperated fully with the Commission staff.  As part of this cooperation, Edison opened its books to the staff, made its senior officers available to the staff on a continuous basis, and devoted extensive time and resources to facilitating the review of its accounting policies and practices by its independent auditor.  
+
+   Edison's Non-disclosure of District-Paid Expenses, and 
+  Improper Accounting for the Warrant and Severance Agreement 
+  Made its Financial Reports Inaccurate 
+
+  Z. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of registered securities to file with the Commission materially accurate annual and quarterly reports.  SEC v. Savoy Indus. , 587 F.2d 1149, 1165 (D.C. Cir. 1978).  Financial statements incorporated in Commission filings must comply with Regulation S-X, which in turn requires conformity with GAAP.  The filing of a periodic report containing inaccurate information constitutes a violation of these regulations.  See   Savoy Indus. , 587 F.2d at 1165. 
+
+   Edison Violated the Record-Keeping and 
+    Internal Controls Provisions 
+
+  AA. Section 13(b)(2)(A) of the Exchange Act requires public companies such as Edison to make and keep books and records which accurately and fairly reflect its transactions and dispositions of assets. As discussed above, Edison failed to keep accurate books and records reflecting, among other things, the proper recording of accelerated losses relating to two school districts, the proceeds from the warrant and the severance payment.  Edison violated Section 13(b)(2)(A) of the Exchange Act. 
+
+  BB. Section 13(b)(2)(B) of the Exchange Act requires Edison to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability of assets. As described above, Edison's internal accounting controls were inadequate. Specifically, Edison does not have a system of internal accounting controls that maintains accountability for amounts actually due from districts.  Thus, Edison violated Section 13(b)(2)(B) of the Exchange Act.
+
+  CC. The Commission finds that Edison violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+   IV. 
+
+   ACCORDINGLY, IT IS HEREBY ORDERED , pursuant to Section 21C of the Exchange Act, that Edison:
+
+   A.  Cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; and 
+
+   B . Comply with, and take steps to effect future compliance with, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder upon the following terms and conditions which Edison has undertaken to implement:
+
+   Management Undertakings 
+
+  1.  Internal Auditor  -- Within one month of the entry of this order, Edison shall add to its management a Director of Internal Audit who shall report to the Audit Committee of the company's Board of Directors.  The Director of Internal Audit shall be an individual with appropriate qualifications and experience for the position and shall be hired after consultation with and approval by the Audit Committee.  In addition, Edison shall create an Internal Audit Department appropriate for the company's size and business.  The Director of Internal Audit shall appear before the Audit Committee at an in-person quarterly meeting to report on the activities and findings of the Internal Audit Department.
+
+  2. Edison may initially satisfy the undertaking in the prior paragraph by outsourcing the internal audit function to a qualified third-party.  During such interim period, the persons performing the internal audit function shall work full-time on the company's premises.  No less than three months from the date of this order the company shall hire a Director of Internal Audit who is a full-time employee.
+
+  3. Respondent shall require the Director of Internal Audit to prepare a report and deliver the report in one year from the date of entry of this order to the Audit Committee, with copies to the Commission and the company's independent auditor.  The report shall describe steps taken by Edison to improve the company's system of internal accounting controls following entry of this order, detailing in particular any improvements in the company's procedures for recording revenues and losses, tracking expenses and invoicing clients.
+
+  By the Commission.
+
+              Jonathan G. Katz
+             Secretary
+  ____________________________
+      1      The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in any other proceeding.    
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diff --git a/raw/aaer/2002/AAER-1556.txt b/raw/aaer/2002/AAER-1556.txt
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+              Dennis M. Gaito, CPA
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+ Securities Exchange Act of 1934 
+Release No.  45941 /  May 16, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.  1556 / May 16, 2002 
+
+ Administrative Proceeding 
+File No. 3-9904 
+
+
+     
+
+In the Matter of    
+
+DENNIS M. GAITO, CPA     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER MAKING FINDINGS, 
+ORDERING RESPONDENT TO 
+CEASE AND DESIST AND 
+IMPOSING REMEDIAL SANCTIONS    I. 
+
+ On May 19, 1999, the Securities and Exchange Commission ("Commission") instituted public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and the Commission's Rule of Practice 102(e)(1)(ii) and (iii) against Dennis M. Gaito, CPA ("Gaito" or "Respondent"). 
+
+ II. 
+
+ Gaito has submitted an Offer of Settlement ("Offer") 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 set forth herein, Gaito, by his Offer, consents to the entry of this Order Making Findings, Ordering Respondent to Cease and Desist and Imposing Remedial Sanctions ("Order"). 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds:  1   
+
+ Summary 
+
+       1.  This auditor independence case arises from the failure of Dennis M. Gaito, a former principal of Moore Stephens, P.C., to comply with the established auditor independence standards in connection with Moore Stephens' audits of the financial statements of seven publicly traded issuers for varying periods between 1992 and 1998.  Gaito's independence was impaired because:  (i) Gaito acted as a trustee that directly or indirectly owned the securities of Moore Stephens audit clients; (ii) Gaito, as trustee, loaned millions of dollars to a director and principal shareholder of one of his audit clients, in that person's capacity as trustee of a separate trust; (iii) Gaito had material investment relationships with directors and principal shareholders of several of his audit clients; and (iv) Gaito knew or was reckless in not knowing that his conduct would impair the independence of Moore Stephens. 
+
+ Respondent and Related Entities 
+
+ 2.  Dennis M. Gaito, a certified public accountant, was at all relevant times a principal of Moore Stephens, P.C., (formerly called Mortenson & Associates, P.C.), a public accounting firm with offices in New Jersey and New York.  2   
+
+ 3.  Gaito served on Moore Stephens' executive committee, and until January 1993 was also the firm's managing principal.  Gaito was the engagement or concurring partner on certain of the audits discussed in this order. 
+
+ 4.  Moore Stephens, P.C. was, at all relevant times, a member of Moore Stephens North America, Inc., a network of over 30 accounting firms, which in turn was a member of Moore Stephens International Limited, a network of over 165 accounting firms in 75 countries.  3    Neither of these networks is a party to this proceeding. 
+
+ 5.  Robert E. Brennan was the previous owner and operator of a brokerage firm known as First Jersey Securities, Inc.  4     For over 15 years, Gaito and Moore Stephens were the auditors of First Jersey.  Gaito also served Brennan in various other capacities as bank account signatory, registered agent or trustee for a variety of Brennan-related entities.  Additionally, Gaito and Moore Stephens served as Brennan's personal accountants.  5   
+
+ Facts 
+
+ Gaito as Trustee of the Brennan Children's Trusts 
+
+ 6.  On January 28, 1992, Brennan created three trusts, sometimes referred to as "the Children's Trusts," to benefit his three adult sons - the REB Trust for Robert E. Brennan, Jr., the KAB Trust for Kevin A. Brennan, and the Christopher Trust for Christopher Brennan.  In the instruments creating the three trusts, Brennan appointed Gaito and Ronald Riccio as co-trustees for each of the three trusts.  Brennan had another Moore Stephens principal (Charles E. Falk, a CPA and lawyer who provided legal services to Brennan,  see  note 3  supra ) do the legal work to set up the trusts.  Moore Stephens also maintained the accounting records for the trusts. 
+
+ 7.  Although the trust instruments empowered the co-trustees to exercise their responsibilities independently, Brennan specifically looked to Gaito, his accountant, to manage the trusts and make investment decisions, and to Riccio, his long-time friend, for the human side - to be a friend and advisor to his sons.  Gaito thereby assumed nearly complete responsibility for managing the trusts, with Brennan suggesting certain securities for purchase.  
+
+ 8.  For example, shortly after the Children's Trusts were created, Gaito had them buy securities in two "blind pool" issuers.  The blind pools then completed reverse acquisitions, and the market price of the securities rose dramatically.  After only months, the Children's Trusts recognized millions in gains on the sale of these securities.  6   
+
+ 9.  Gaito reinvested the Children's Trusts' proceeds from the sale of these blind pool securities, and by August 1992, the trusts' portfolios held securities of Airshield Composites International Corp., Crescent Capital Inc. and Taft Capital Inc.  Airshield was a Burlington, Ontario company that manufactured composite plastic truck body parts.  Crescent was a Bethesda, Maryland company that operated a fast-food franchise in the United Kingdom.  Taft was another blind pool incorporated in Delaware that was then in the process of trying to acquire a manufacturer of golf clubs and accessories.  Moore Stephens was, during the relevant period, the auditor of each of these issuers. 
+
+ 10.  In July or early August 1992, Gaito asked Angelo J. Coppolino, a Moore Stephens principal who chaired the accounting and auditing committee and was responsible for making judgments on audit independence, whether Gaito's position as trustee of trusts that invested in securities issued by audit clients would impair Moore Stephens' independence as to these clients.  On August 6, 1992, Coppolino consulted the AICPA Ethics Division, which responded that independence would indeed be impaired if a member of an audit firm, acting as trustee, purchased even one share of the securities of one of the firm's audit clients.  The AICPA Ethics Division stated that independence would be impaired in this situation even if the investment were not material, and even if the member of the firm who was the trustee signed a document formally stating that he would leave to his co-trustee all investment decisions regarding the securities of the firm's audit clients.  A summary of this consultation with the AICPA Ethics Division was included in the firm's "consultation" file. 
+
+ The Family Investment Trust - a "Receptacle" to Hold the Securities of Moore Stephens Clients 
+
+ 11.  Gaito apprised Brennan of the problem, and less than a week following the AICPA Ethics Division's clear advice concerning impairment of independence, a plan emerged to evade Moore Stephens' independence obligations.  The plan involved having Brennan create, on August 12, 1992, a new trust called the "Family Investment Trust," for the collective benefit of all three Brennan sons.  The new trust would be what Brennan termed a "receptacle for stocks that created the conflict for" Moore Stephens.  
+
+ 12.  Brennan appointed Riccio as trustee of the new trust, but Brennan could not recall ever consulting with Riccio about investments for the trust.  7    In the instrument creating the Family Investment Trust, Brennan decreed that Gaito would be the successor trustee, who would automatically be asked to take over if Riccio died or resigned.  And in a companion document executed that same day as the trust instrument, Riccio appointed Gaito as the signatory for the new trust's bank accounts. 
+
+ 13.  Gaito discussed this new arrangement with Coppolino.  Only days before, the AICPA Ethics Division had advised Coppolino that Gaito could not, as trustee, invest in the firm's audit clients.  Yet notwithstanding this negative advice, neither Coppolino nor Gaito bothered to do another consultation with the AICPA and made no reasonable inquiry before proceeding with the Family Investment Trust arrangement. 
+
+ 14.  Within weeks after creation of the Family Investment Trust, Gaito signed contracts on behalf of the three Children's Trusts to transfer their securities of Airshield, Crescent and Taft to the new Family Investment Trust.  In the case of each of these transfers of securities, the Family Investment Trust did not actually pay the Children's Trusts for the securities.  Instead, the contracts stipulated that payment would not be made for a year after the sale.  Since the Family Investment Trust did not have the financial ability to repay the loans, the Children's Trusts' economic interest in the Airshield, Crescent and Taft securities remained essentially the same as before the purported transfers of the securities. 
+
+ 15.  Around the same time that he made these arrangements for holding the Airshield, Crescent and Taft securities, Gaito as trustee of the Children's Trusts also agreed to the investment of substantial amounts of the Children's Trusts' funds in the securities of existing Moore Stephens audit clients - again using the vehicle of the Family Investment Trust as an intermediary.  Instead of having the Children's Trusts invest directly in securities of existing Moore Stephens audit clients, the Children's Trusts loaned cash to the Family Investment Trust, which invested in the securities of Moore Stephens' audit clients. 
+
+ 16.  On October 22, 1992, just two months after its formation, the Family Investment Trust made its initial purchases of securities issued by Moore Stephens audit clients International Thoroughbred Breeders, Inc. (ITB) (a New Jersey racetrack operator founded by Brennan) and Chefs International, Inc. (a New Jersey restaurant operator).  Both Brennan and Riccio were directors of ITB; Brennan was also ITB's chairman and chief executive officer.  And Brennan was principal shareholder of both ITB and Chefs. 
+
+ 17.  Riccio, the Family Investment Trust's sole trustee, had only a token involvement in the purchases of ITB and Chefs securities.  A broker made an unsolicited phone call to Riccio and advised that ITB and Chefs securities were available for purchase.  8    Riccio then discussed with Gaito where the money would come from to purchase the securities.  Gaito informed Riccio that he would loan money from the Children's Trusts to the Family Investment Trust to give it the money to purchase the securities.  Gaito personally signed each of the checks making the loans from the Children's Trusts to the Family Investment Trust.  Without these loans from the Children's Trusts, the Family Investment Trust would not have had the funds to buy the ITB and Chefs securities. 
+
+ 18.  By October 1993, Brennan donated approximately 4 million warrants of Primedex Health Systems, Inc. to the Family Investment Trust.  Primedex, based in Los  Angeles, was a provider of services related to medical imaging.  Primedex was an existing audit client of Moore Stephens.  Brennan and his then-wife also donated securities of FJS Properties Fund LP to the Family Investment Trust.  FJS Properties was a publicly held partnership that owned and operated an apartment complex in Florida.  FJS Properties, too, was an existing audit client of Moore Stephens.  During the time covered by this Order, Moore Stephens continued to audit both companies. 
+
+ Gaito as Trustee of the Children's Trusts Lends Money to the Family Investment Trust to Purchase Securities of Moore Stephens Clients 
+
+ 19.  Between October 1992 and February 1993, the Children's Trusts loaned approximately $4.1 million of trust funds, without security, to the Family Investment Trust.  During that same period, the Family Investment Trust used approximately $3.9 million of this amount to purchase ITB and Chefs securities, as well as additional Crescent securities.  Gaito personally signed the Children's Trusts checks making the loans to the Family Investment Trust to pay for these securities.  Gaito was thus fully aware that the funds loaned were actually being used to buy the securities of companies that were Moore Stephens audit clients. 
+
+ 20.  Gaito's activities on behalf of the Family Investment Trust included the following: 
+
+  10/22/92 -- Gaito issued checks from the Children's Trusts totaling $455,000 and deposited them into the Family Investment Trust account;   
+
+ 10/22/92 -- Gaito issued a check for $455,000 from the Family Investment Trust account to Hibbard Brown to buy securities of ITB and Chefs, both audit clients of Moore Stephens;   
+
+ 10/28/92 - Gaito issued checks totaling $300,000 from the Children's Trusts and had them deposited into the Family Investment Trust account;   
+
+ 10/27/92 - Gaito issued checks totaling $120,135 from the Family Investment Trust account to Hibbard Brown to buy securities of Crescent, which also was or about to become an audit client of Gaito and Moore Stephens;   
+
+ 11/5/92 - Gaito issued a check for $110,075 from the Family Investment Trust account to Hibbard Brown that was used to buy ITB securities;   
+
+ 11/10/92 - Gaito issued checks totaling $300,000 from the Children's Trusts and had them deposited into the Family Investment Trust account;   
+
+ 11/13/92 - Gaito issued a check for $204,425 from the Family Investment Trust account to Hibbard Brown to buy ITB securities;   
+
+ 12/28/92 - Gaito issued checks from the Children's Trusts totaling $150,000 and had them deposited into the Family Investment Trust account;   
+
+ 12/28/92 - Gaito issued a check for $225,000 from the Family Investment Trust account to Hibbard Brown to buy Chefs securities;   
+
+ 1/5/93 - Gaito deposited checks totaling $2,250,000 from the Children's Trusts into the Family Investment Trust account;   
+
+ 1/5/93 - Gaito issued checks totaling $2,200,639 from the Family Investment Trust account to Hibbard Brown to buy ITB securities;   
+
+ 2/25/93 - Gaito issued checks from the Children's Trusts totaling $600,000 and had them deposited into the Family Investment Trust account;   
+
+ 2/25/93 - Gaito issued a check for $562,504 from the Family Investment Trust account to Hibbard Brown to buy ITB securities.   21.  On January 23, 1998, Gaito, as trustee of the Children's Trusts, forgave all debts of the Family Investment Trust to the Children's Trusts.  9    At that time, the Family Investment Trust owed $1,000,000 to the Christopher Trust, $1,376,010 to the KAB Trust, and $1,550,000 to the REB Trust.   
+
+ The Children's Trusts' Loans to the Family Investment Trust Were Material 
+
+ 22.  A material amount of the Children's Trusts' assets consisted of loan receivables from the Family Investment Trust.  Those loans depended on the performance of the Family Investment Trust's securities holdings for repayment.  For example, as of December 31, 1993, notes receivable from the Family Investment Trust represented approximately 59% of the Christopher Trust's assets, 39% of the KAB Trust's assets, and 46% of the REB Trust's assets.  As of August 7, 1995, notes receivable from the Family Investment Trust represented approximately 40% of the Christopher Trust's assets, 42% of the KAB Trust's assets, and 49% of the REB Trust's assets. 
+
+ 23.  A material amount of the Family Investment Trust's assets came from loans from the Children's Trusts.  When the Family Investment Trust was first created, virtually all of its assets came from these loans.  In the ensuing years, the loans continued to represent a material part of the Family Investment Trust's assets. 
+
+ 24.  The Family Investment Trust's shareholdings were material to the audit clients of Moore Stephens.  For example, the Family Investment Trust beneficially owned (i) approximately 10% of ITB's outstanding securities as of January 14, 1993; (ii) approximately 7% of Chefs' outstanding securities as of December 24, 1992; (iii) approximately 21.5% of Airshield's outstanding securities as of December 31, 1992; (iv) approximately 45% of Crescent's outstanding securities as of December 31, 1993; (v) approximately 13% of Taft's outstanding securities as of December 31, 1993; (vi) approximately 9% of Primedex's outstanding securities as of October 31, 1993; and (vii) approximately 9% of FJS Properties' outstanding securities as of December 31, 1995. 
+
+ Gaito's Actions as De Facto Trustee of the Family Investment Trust 
+
+ 25.  On several occasions, Gaito acted as de facto trustee of the Family Investment Trust.  For example, on at least one occasion, Gaito entered into a written agreement to sell securities held by the Family Investment Trust (of which he was bank signatory, but not trustee) and two of the three Children's Trusts (of which he was trustee).   In addition, in June of 1997, Gaito caused one of the Children's Trusts - the KAB Trust - to pay approximately $700,000 in cash to the Family Investment Trust in return for the worthless stock of Airshield, a company that had been defunct for approximately three years.  Gaito initiated the transaction and determined the amount to be paid by the KAB Trust to the Family Investment Trust for this worthless stock.  This transaction had the effect of moving assets held in a trust vehicle purportedly for one Brennan son into a different trust vehicle benefiting all three sons.  As a result of this transaction, the KAB Trust, which was funding the support of one of the sons, ran out of money the following year. 
+
+ Issuances of Independent Auditor's Reports Misled the Public 
+
+ 26.  Gaito directly participated in Moore Stephens' audits of the financial statements of ITB, Chefs and Crescent.  For example, Gaito was the concurring partner on the audits of ITB's financial statements for ITB's fiscal years ended June 30, 1992, 1993, 1994, 1995 and 1996.  Gaito was also the concurring partner for the audits of Chefs' financial statements for the fiscal years ended January 31, 1993 and 1996.  He was also the engagement partner for the audits of Crescent's financial statements for the years ended December 31, 1993 and 1994, and the concurring partner for the audit of Crescent's financial statements for the year ended December 31, 1996. 
+
+ 27.  Moore Stephens improperly issued audit opinions for issuers during the following periods while its independence was impaired because of  Gaito's conduct: 
+
+ (i) ITB's fiscal years ended June 30, 1992, 1993, 1994, 1995 and 1996; 
+
+ (ii) Chefs' fiscal years ended January 31, 1993, 1994, 1995, 1996, and 1997; 
+
+ (iii) Crescent's fiscal years ended December 31, 1993, 1994, 1995 and 1996; 
+
+ (iv) Taft's fiscal years ended December 31, 1992 and 1993; 
+
+ (v) Airshield's fiscal year ended December 31, 1992; 
+
+ (vi) Primedex's fiscal years ended October 31, 1992, 1993, 1994, 1995, 1996, 1997 and 1998; and 
+
+ (vii) FJS Properties' fiscal years ended December 31, 1994, 1995, 1996 and 1997. 
+
+ 28.  Gaito knew or was reckless in not knowing that his independence, and the independence of Moore Stephens, was impaired with respect to the above audits.  For each of these companies, in each year in which Moore Stephens performed audit services, Gaito caused Moore Stephens to misrepresent to public shareholders and to the Commission that it was issuing a report as an "independent" auditor, when, in fact, it was not. 
+
+ Legal Analysis 
+
+ The Critical Importance of Auditor Independence 
+
+ 29.  The Supreme Court has made clear that an independent auditor "assumes a public responsibility transcending any employment relationship with the client [and] owes ultimate allegiance to the corporation's creditors and stockholders, as well as to the investing public.  This `public watchdog' function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust."   United States v. Arthur Young & Co. , 465 U.S. 805, 817-18 (1984). 
+
+ 30.  The Commission, under Sections 12 and 13(a)(2) of the Exchange Act, requires that financial statements filed with the Commission be certified by independent accountants.  During the relevant period, Regulation S-X (Rule 2-01) provided:  (i) that "the Commission will not recognize any certified public accountant ... as independent who is not in fact independent"; and (ii) that, in assessing an auditor's independence, the Commission "will give appropriate consideration to all relevant circumstances, including evidence bearing on all relationships between" the auditor and audit client.  Regulation S-X (Rule 2-02) also provides that the accountant's report must state whether the audit was conducted in accordance with GAAS (generally accepted auditing standards), which likewise requires that auditors be independent. 
+
+ 31.  The Commission and GAAS view independence as impaired where an auditor has either a direct or a material indirect financial interest in a client.  And the Commission and GAAS view both the fact and the appearance of auditor independence as essential for investors to have confidence that an audit represents a wholly unbiased examination of management's presentation of the corporate financial picture.  GAAS specifically requires auditors to "avoid situations that may lead [others] to doubt their independence." 
+
+ 32.  Gaito was aware of his independence obligations.  Each year, he initialed Moore Stephens' "Independence Compliance Confirmation," representing that he was familiar with the firm's independence policies, and that, consistent with those policies, he had engaged in no prohibited investments, transactions or relationships with audit clients.  He received and signed a memorandum listing Moore Stephens' public clients, including those involved in this proceeding. 
+
+ Gaito's Independence Was Impaired By His Financial Interest As Trustee In Audit Clients 
+
+ 33.  The Commission's Regulation S-X (Rule 2-02(b)(1)) requires an auditor's reports on a public company's financial statements to state "whether the audit was made in accordance with generally accepted auditing standards."  The second general standard of GAAS requires an auditor to be independent, and independence "shall be considered to be impaired" if, among other situations, during "the period of a professional engagement or at the time of expressing an opinion" the auditor or audit firm was "a trustee of any trust [that] had or was committed to acquire any direct or material indirect financial interest in" the audit client (AICPA Interpretation 101-1(A)(2)). 
+
+ 34.  Gaito's position as a co-trustee of the Children's Trusts impaired Moore Stephens' independence because the Children's Trusts had a direct financial interest through the "receptacle" Family Investment Trust in Moore Stephens' audit clients.   
+
+ 35.  During the period of Moore Stephens' professional engagements, the Children's Trusts continued to have an interest in Airshield, Crescent and Taft securities.  Gaito's transfer of these securities from the Children's Trusts to the Family Investment Trust pursuant to contracts that deferred payment for the securities for a year, and that gave the Children's Trusts the right to assert a security interest in some of the securities, did not substantially alter the Children's Trusts' economic interest in these securities. 
+
+ 36.  The Children's Trusts also had an interest in the ITB and Chefs securities (and additional Crescent securities) purchased in the name of the Family Investment Trust.  Gaito financed the purchases of these securities with loans from the Children's Trusts that he had deposited in the Family Investment Trust's bank account, and wrote checks (as bank signatory of that trust) for its purchases of these securities.  The Children's Trusts bore the risks involved in these investments, as the Family Investment Trust's ability to repay its loans to the Children's Trusts was largely dependent on the success of these investments.  In short, the Family Investment Trust was nothing more than a conduit for the investment of Children's Trust assets in securities of Moore Stephens audit clients. 
+
+ 37.  The Children's Trusts likewise had an interest in the Primedex and FJS securities purchased in the name of the Family Investment Trust.  Nearly half of the corpus of the Children's Trusts was invested in loans to the Family Investment Trust, and virtually all of those funds were invested in securities of Moore Stephens audit clients.  The substantial indebtedness between the trusts gave the Children's Trusts a material indirect interest in all of the Family Investment Trust's assets, and further impaired Moore Stephens' independence. 
+
+ Gaito's Independence Was Impaired Because of His Investment Relationships with Audit Clients' Directors and Officers 
+
+ 38.  In addition, auditor independence "shall be considered impaired" if the auditor or audit firm had "any joint, closely held business investment ... with any officer, director, or principal stockholder" of the audit client that was "material" in relation to the net worth of the auditor or audit firm (AICPA Interpretation 101-1(A)(3)). 
+
+ 39.  Gaito's independence was impaired by Gaito's investment relationship with Brennan, a director and/or principal shareholder of three audit clients of Moore Stephens and Gaito.  Brennan was a director, chairman, chief executive officer, principal shareholder, founder, and member of the audit committee and executive committee of ITB, a principal shareholder of Chefs, and a director and controlling partner of the general partner of FJS Properties. 
+
+ 40.  Gaito's investment relationship with Brennan was material and long-standing.  Brennan appointed Gaito as trustee to manage the Children's Trusts' assets for Brennan's adult sons.  Within months of his appointment as trustee, Gaito made millions for the trusts by investing their assets in Brennan-related blind pool offerings. 
+
+ 41.  Brennan then established the Family Investment Trust as a receptacle to invest funds of the Children's Trusts in securities of Gaito's audit clients.  Brennan appointed Gaito as successor trustee of the Family Investment Trust.  Also serving as bank signatory, Gaito loaned millions of dollars from the Children's Trusts to fund the investments in the name of the Family Investment Trust.  As events progressed, Gaito discussed investments with Brennan, and Gaito issued the checks for Family Investment Trust stock purchases. 
+
+ 42.  Gaito's independence was further impaired by Gaito's investment relationship with Riccio, also a director of two audit clients.  Riccio was a director of ITB.  At various times, Riccio was also a member of ITB's audit committee, related party transactions committee, executive compensation committee, and litigation committee. 
+
+ Separately, Riccio was a director of Primedex, another audit client of Moore Stephens.  At various times, Riccio was also a member of Primedex's audit committee and compensation committee.  Additionally, Riccio, as trustee of the Family Investment Trust, was a principal shareholder of several of Moore Stephens' audit clients. 
+
+ 43.  Gaito and Riccio had a clear and material investment relationship.  They were co-trustees of the Children's Trusts.  In this capacity, they were jointly responsible for managing millions of dollars of trust investments.  A substantial portion of these assets were invested in loans used to purchase securities of ITB and Primedex, companies of which Riccio was a director. 
+
+ 44.  Further, auditor independence "shall be considered impaired" if the auditor or audit firm had "any loan to ... any officer, director, or principal stockholder" of the audit client (AICPA Interpretation 101-1(A)(4)).  This absolute prohibition of loans is not subject to any materiality limitation.  Gaito as trustee of the Children's Trusts loaned over $4 million to Riccio as trustee of the Family Investment Trust.  Gaito personally signed the checks drawn on the Children's Trusts' accounts.  Riccio was a director of ITB, an audit client of Gaito and Moore Stephens.  Riccio was also a director of Primedex, another audit client of Gaito and Moore Stephens.  Additionally, Riccio, as trustee of the Family Investment Trust, was a principal shareholder of several of Moore Stephens' audit clients. 
+
+ 45.  Finally, Regulation S-X (Rule 2-01) states that, in determining whether an accountant is independent of a particular person, the Commission "will give appropriate consideration to all relevant circumstances, including evidence bearing on the relationships between the accountant and that person or any affiliate thereof, and will not confine itself to the relationships existing in connection with the filing of reports with the Commission." 
+
+ 46.  In this connection, the particular prohibitions contained in Regulation S-X (Rule 2-01) are stated simply as "examples" of the kinds of relationships that will be found to impair auditor independence.  AICPA Interpretation 101-1, dealing with auditor independence, likewise provides that the particular prohibitions there stated are simply "examples" and "are not intended to be all-inclusive."  And, it is a cardinal principle of auditor independence that an auditor cannot do indirectly what he or she cannot do directly.   
+
+ 47.  In this case, the long-standing and intertwined relationship that Moore Stephens and Gaito had with their audit clients through Brennan-created trusts and other ties involving Brennan created a situation in which Moore Stephens' independence in both fact and appearance was materially impaired. 
+
+ Violations 
+
+ 48.  Each of the audit reports identified above was materially false and misleading in representing that Moore Stephens was independent and that the audit accorded with GAAS.  Gaito acted with scienter in engineering the scheme that resulted in the issuance of the false audit reports, thereby willfully violating Exchange Act Section 10(b) and Exchange Act Rule 10b-5. 
+
+ 49.  The financial statements contained in the annual reports of Crescent, Taft, Airshield, Chefs, ITB, Primedex and FSJ Properties were not audited by independent accountants as required by Exchange Act Section 13(a)(2), which caused the issuers to violate Exchange Act Section 13(a) and Exchange Act Rule 13a-1.  Gaito thereby willfully aided and abetted and caused violations of Exchange Act Section 13(a) and Exchange Act Rule 13a-1, and willfully violated Rule 2-02 of Regulation S-X, which requires auditors to be independent of their clients. 
+
+ 50.  Based on the foregoing, Gaito engaged in improper professional conduct, and willfully violated, and aided and abetted the violation of, provisions of the federal securities laws and rules within the meaning of Rules 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice. 
+
+ IV. 
+
+ Accordingly, IT IS HEREBY ORDERED that Gaito cease and desist from committing or causing any violation, or any future violation, of Exchange Act Section 10(b) and Exchange Act Rule 10b-5, and Rule 2-02 of Regulation S-X, and that Gaito cease and desist from causing any violation, or any 
+future violation, of Exchange Act Section 13(a) and Exchange Act Rule 13a-1. 
+
+ IT IS HEREBY FURTHER ORDERED, effective immediately, that Gaito is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1     The findings herein are made pursuant to Gaito's Offer and are not binding on any other person or entity in this or any other proceeding. 
+
+   2     Gaito resigned from Moore Stephens in late 1999 after being indicted in a case unrelated to this proceeding.  In that unrelated case, on May 4, 2001, Gaito was convicted of money laundering, conspiracy to launder money and commit securities fraud, and witness tampering.  On November 9, 2001, Gaito was sentenced to 120 months incarceration. 
+
+   3      On, May 19, 1999, Moore Stephens and three of its principals consented to the issuance of an order censuring them and ordering them to cease and desist from future violations of the independence rules.   In the Matter of Moore Stephens, P.C. et al. , Accounting and Auditing Enforcement Release No. 1135 (May 19, 1999);  In the Matter of Charles E. Falk, CPA , Accounting and Auditing Enforcement Release No. 1134 (May 19, 1999). 
+
+   4      On June 19, 1995, a federal court ordered Brennan and First Jersey to pay over $70 million for their role in a massive and prolonged securities fraud.   SEC v. First Jersey Securities, Inc. , 890 F. Supp. 1185 (S.D.N.Y. 1995),  aff'd , 101 F.3d 1450 (2d Cir. 1996),  cert. denied , 118 S.Ct. 57 (1997).  Shortly after the trial court's ruling, Brennan filed for bankruptcy protection, and the ensuing bankruptcy examination brought to the Division's attention the auditor independence violations described below.  But for the Brennan bankruptcy, these independence violations would likely have escaped detection by law enforcement. 
+
+   5      Brennan was himself a CPA.  His license to practice public accountancy was revoked by the New Jersey Board of Accountancy on September 8, 1998, based on his violations of the federal securities laws.  On April 16, 2001, Brennan was convicted of 7 counts of bankruptcy fraud and money laundering and was subsequently sentenced to 110 months' imprisonment. 
+
+   6      During 1992, the SEC suspended trading of the stock of one of these issuers in view of questions about the adequacy and accuracy of publicly-disseminated information concerning, among other things, the identity of persons having control of the issuer and the beneficial ownership of that company's securities. 
+
+   7     At various times, all or most of the trust's assets consisted of securities of companies that were Moore Stephens clients and that also had close ties to Brennan and his related entities.  
+
+   8      The broker who phoned Riccio was Richard Brown (principal of Hibbard Brown & Co.), who shared his executive office suite in New York City with Brennan.  Brennan was the principal shareholder of both ITB and Chefs - the issuers of the stock being offered to the trust - and the creator of the trust.  Hibbard Brown, ITB, Chefs, Brennan, and the trust were all clients of Moore Stephens. 
+
+   9      At the time of the loan forgiveness, the SEC's investigation of Moore Stephens was well under way, and only a month earlier, Gaito had been questioned about the effect of the trust investments on his independence. 
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+              Legato Systems, Inc. and Stephen Wise
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+        Legato Systems, Inc. and Stephen Wise
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+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 45962 / May 20, 2002 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1557 / May 20, 2002 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-10785 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of: 
+
+			 LEGATO SYSTEMS, INC. and 
+			STEPHEN WISE, 
+
+			 Respondents. 
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			 ORDER INSTITUTING PUBLIC CEASE-AND-DESIST PROCEEDING, MAKING FINDINGS AND ISSUING A CEASE-AND-DESIST ORDER 
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that a public cease-and-desist proceeding be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Legato Systems, Inc. ("Legato" or the "Company" and Stephen Wise ("Wise") (collectively, "Respondents"). 
+
+ Accordingly, IT IS HEREBY ORDERED that a cease-and-desist proceeding against Legato and Wise be, and hereby is, instituted. 
+
+ II. 
+
+ In anticipation of the institution of this proceeding, Legato and Wise have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein except that Respondents admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, Respondents consent to the issuance of this Order Instituting Public Cease-and-Desist Proceeding, Making Findings and Issuing a Cease-and-Desist Order ("Order"). 
+
+ III. 
+
+ On the basis of this Order and the Offers, the Commission makes the following findings: 
+
+ A.  Respondents  
+
+  Legato Systems, Inc.  is a Delaware corporation headquartered in Mountain View, California that develops and markets software for managing the data-storage functions of computer networks. Legato's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is quoted on the NASDAQ Stock Market. 
+
+  Stephen Wise , 47, is a resident of Pleasanton, California. Wise was Chief Financial Officer of Legato Systems, Inc. ("Legato") from September 1996 to September 2000. 
+
+ B.  Summary  
+
+ This matter involves false financial reporting by Legato Systems, Inc. ("Legato" or the "Company"), a Mountain View, California, software developer. In May 2000, Legato restated its financial results for the first, second, and third quarters of the fiscal year ended December 31, 1999, and revised its preliminary results for the fourth quarter and fiscal year 1999 contained in a press release issued on January 19, 2000. The restatement revealed that Legato's actual revenue and net income had been overstated by $22.5 million (approximately 10%)   and $12.3 million (approximately 80%), respectively. 
+
+ Legato overstated its financial results due in large part to side agreements with customers by its former sales staff. The side agreements granted rights of return or other terms that made the sales contingent and, thus, made it improper for Legato to recognize revenue on those transactions. The former sales staff's use of side agreements was contrary to Legato policy. 
+
+ C.  Legato's Business and Its Efforts to Increase Sales During 1999  
+
+ In 1999, Legato's former management team decided to increase the sale of enterprise license agreements ("ELAs") to large business customers. Prior to 1999, Legato sold mostly "shrink wrap" software products to corporate customers. By contrast, an ELA allowed a business to install an unlimited volume of Legato software on its computer systems on a company-wide basis for a defined period of time. ELAs generated more revenue for Legato by bundling together software products for an entire company as opposed to sales of one product to a single division. In the last three quarters of the fiscal year ended December 31, 1999, the sales force responded by producing a record number of ELA transactions which were recorded as revenue, much of which was ultimately reversed. 
+
+ In order to meet their increasing sales targets for ELAs and other large dollar volume transactions, in many instances, former Legato sales executives resorted to inducing resellers to "prebuy" ELAs-purchasing a license to use software before the reseller had arranged to sell the license to an end-user. This was generally accomplished by transmitting a written side letter to the reseller providing the reseller with a right of return or rotation for the products sold to the reseller, and/or extended payment terms. Legato's sales force did not forward these side letters to the Company's finance department. Instead, the finance department generally received "clean" purchase orders or other contracts from the resellers, which did not contain any contingencies or non-standard payment terms. The finance department then recorded revenue for each of the ELA transactions. In fact, it was improper for Legato to record revenue for ELA transactions with stock-rotation rights without making reasonable estimates of potential returns. 
+
+ D.  Legato's False Periodic Reports During 1999  
+
+ 1.  Second Quarter Ended June 30, 1999  
+
+ On August 12, 1999, Legato filed with the Commission its Form 10-Q for the quarter ended June 30, 1999 which was signed by Wise. In the financial statements included in Legato's Form 10-Q, the Company reported total revenue of $62,008,000 and net income of $4,438,000 for the period. As a result of adjustments in the restatement by Legato, revenue was later reduced to $51,564,000 and the Company reported a net loss of $1,093,000. Actual revenue was overstated by approximately 20%. 
+
+ In one transaction in late June 1999, two former Legato sales executives arranged for a reseller to "pre-buy" five ELAs that were not closed with the prospective end customers before the end of the second quarter. In "pre-buying" the deals, the reseller agreed to submit purchase orders for the product on the understanding that the reseller would receive extended payment terms and the right to return the product in the event the prospective ELA sales could not be closed with end-users. Legato's former head of sales approved these terms, and the reseller sent "clean" purchase orders to Legato for the five transactions. Legato then recorded $3,313,500 in second quarter revenue from these deals, which overstated actual revenue by approximately 6%. 
+
+ Also during the second quarter, other former Legato sales personnel sent side letter emails to three other resellers involving $1,756,174 of recorded second quarter revenue, which overstated actual revenue by approximately 3%. The emails granted the resellers stock rotation rights and other terms that made it improper for Legato to recognize revenue from these transactions. The emails were not forwarded to Legato's finance department but were approved by Legato's former head of sales. 
+
+ 2.  Third Quarter Ended September 30, 1999  
+
+ On November 10, 1999, Legato filed with the Commission its Form 10-Q for the period ended September 30, 1999 which was signed by Wise. In the financial statements included in Legato's Form 10-Q, the Company reported total revenue of $71,688,000 and net income of $3,438,000 for the period. As a result of adjustments in the restatement by Legato, revenue was later reduced to $67,931,000 and the Company reported net income of $1,396,000. Actual revenue and net income had been overstated by approximately 6% and 146%, respectively. The single largest restated transaction involved the purported sale of an ELA to a reseller that specialized in sales to federal government agencies. 
+
+ During the summer of 1999, Legato approached a reseller that specialized in sales to federal government agencies with a proposal to sell a large quantity of Legato software to a government entity. The reseller had a pre-existing relationship with the entity that   would permit Legato to expedite the transaction (which required compliance with government procurement regulations). In mid-September 1999, Legato's former Vice President of North American Sales sent a proposal to the reseller. Under the terms of the proposal, the reseller would order $7 million worth of software and services from Legato, with payment due 90 days after receipt of Legato's invoice; in return, the reseller would receive a sizeable commission and become the exclusive reseller of Legato products for the government entity. The software prices that Legato offered the reseller, however, were contingent upon the parties agreeing upon and signing an acceptable "order letter" by September 30 that specified the price and payment terms for the software, with the parties thereafter negotiating a definitive reseller agreement. 
+
+ The transaction hit a stumbling block when the reseller's attorney refused to sign a draft of the order letter because it did not grant the reseller the right to cancel its obligation to pay Legato the $7 million due under the agreement if the parties did not negotiate a mutually acceptable reseller agreement within 30 days. Legato's former Executive Vice President for Sales instructed the former Legato Sales Vice President for North America to provide the reseller with a side letter providing this right of cancellation to the reseller. The side letter, which was drafted by Legato's former Vice President of North American Sales and by an employee of the reseller, stated: 
+
+ 
+ "Per our discussion the following is a clarification of the intent of the order letter dated 9-30-99 between Legato and [reseller]:  The order letter meets the GAP [sic] requirement 97-4 [sic] for revenue recognition . The order letter allows Legato to recognize revenue for our third quarter ending 9-30-99.... In the unlikely event that we do not reach "`mutually agreeable terms and conditions", [reseller] will have the right to terminate the order letter and all obligations.  This contingency may not be expressly stated in the order letter, because of the impact on revenue recognition.  However, you have my assurance that in the event that we can not [sic] reach terms we will not hold you to the commitment to pay referenced in the order letter." (emphasis added/name of reseller removed) 
+ 
+
+ Legato's former Vice President of Sales for North America signed the side letter and sent it by email and telefax to the reseller on September 29, and 30, respectively, as well as to Legato's former Executive Vice President of Sales, but he did not forward it to Legato's legal or finance departments. On September 30, after receiving the side letter, the reseller transmitted an order letter to Legato to purchase $7 million worth of software and support services-the biggest sale in Legato's history. Wise, relying on the purchase order letter, authorized Legato to recognize $5.7 million in revenue for this transaction in its third quarter. This revenue was later reversed when Legato restated its results, and the transaction was ultimately cancelled by mutual agreement between Legato and the reseller. 
+
+ 3.  Fourth Quarter Ended December 31, 1999  
+
+ On January 19, 2000, Legato issued a press release announcing the preliminary results of its fourth quarter and fiscal year ended December 31, 1999. The Company reported $71,221,000 in revenue and $3,052,000 in net income for the fourth quarter of 1999. As a result of adjustments in the restatement by Legato, revenue was later reduced to $65,127,000, and the Company reported a net loss of $359,000. Actual revenue was overstated by approximately 9%. 
+
+ (a)  Contingent Fourth Quarter Sales to Resellers  
+
+ In December 1999, as part of an effort to increase revenue for the fourth quarter, Legato's former Vice President of Sales for North America negotiated another $3 million "pre-buy" transaction to a reseller to cover five ELA transactions for end-users that were in the Legato sales forecast. These transactions were subject to a side agreement memorialized in the form of a spreadsheet that was emailed to Legato's former Vice President of Sales for North America from the reseller's Vice President of Sales. The spreadsheet modified Legato's standard "net 30" payment terms by providing that the reseller would pay $750,000 within 60 days, with the balance (approximately $2,250,000) due on payment to the reseller by the end customer. Legato's former Vice President of Sales for North America informed his immediate superior in the sales department about these special terms, but the modified payment terms were not referenced on the purchase orders transmitted by the reseller to Legato and were never provided to Legato's finance department by Legato's sales personnel. 
+
+ Also during the fourth quarter, another former Legato sales employee sent emails either granting or approving contingent payment terms for five reseller transactions that contributed approximately $1.4 million in revenue to Legato's fourth quarter results. These transactions were contingent because they permitted the reseller to rotate or return software if it could not ultimately be sold to an end-user. One email, in particular, demonstrates the salesperson's understanding of the effect of contingent terms on Legato's ability to recognize revenue on transactions with such terms: "Gentlemen's agreement to rotate within 90 days. This can't be on the P.O. as it won't allow us to recognize the revenue." The revenue from this sale was later reversed when Legato restated its results. 
+
+ (b)  Wise Fails to Take Reasonable Steps  
+ Concerning Legato's Prior Reseller Transactions  
+
+ Beginning in the third quarter and continuing in the fourth quarter of 1999, Legato's collections department experienced problems collecting from certain resellers who had purportedly purchased ELAs from Legato during the second quarter. Wise was told of serious collections problems with several Legato resellers. As it turned out, many of these resellers were refusing to pay Legato because they had entered into contingent deals for which the contingencies had not been fulfilled. Although Wise was told about the collections problems, he failed to investigate them adequately to determine whether the deals were subject to any undisclosed contingencies. Instead, in December 1999 he wrote off more than $1.5 million in receivables from these resellers. Later that same month, he authorized Legato to recognize approximately $3.4 million in new revenue on fourth quarter deals with these resellers. All of this revenue was subsequently restated due to undisclosed contingencies. 
+
+ (1) Beginning in September 1999, Wise Was Told About Collections Problems on Legato's Second Quarter 1999 Deals with Resellers 
+
+ Legato's standard payment terms were net 30 days. Thus, in August 1999, when several resellers failed to pay Legato for orders they had placed during the June 1999 quarter, Legato's accounts receivable department began contacting them. Among the resellers contacted were two firms that had ordered product from Legato in the second quarter subject to undisclosed extended payment terms and rights of return or rotation. When contacted by Legato's accounts receivable personnel in August 1999, these two resellers did not disclose the side agreements to Legato's personnel. Instead, the resellers said they would not pay until they closed deals with their end-customers, and in some cases requested authorization to return or rotate the products. Legato's accounts receivable clerks relayed these resellers' comments (as well as similar comments from other resellers) to their supervisor, who prepared collection report schedules summarizing some of these comments, which were sent to Legato's former Controller, and ultimately to Wise. 
+
+ On September 3, 1999, Legato's former Controller sent an email to Wise that summarized the collection problems with these accounts. Later that month, Legato's former Director of Revenue sent Wise an email with a Large Deals spreadsheet attachment listing all of the deals with the two resellers in a column entitled "June Deals Still Open." The former Vice President of Channel Sales also told Wise that Legato would not be paid until one of their resellers got the order from the end customer. Wise failed to take adequate action to investigate the reason for the non-payment. 
+
+ From September to November of 1999, Wise continued to receive spreadsheets on a monthly basis from the former Controller with a list of delinquencies for the second quarter transactions with the two resellers who had negotiated contingent payment terms, as well as other resellers. Wise did not make reasonable inquiries concerning these accounts. 
+
+ (2) In December 1999, Wise Approved Additional Reseller Revenue For the Fourth Quarter Without Adequately Investigating Whether the Deals Were Subject to Undisclosed Contingencies 
+
+ In December 1999, a former Legato sales executive told Wise that he was working to close five new ELA transactions through a reseller that would allow Legato to recognize $3 million in fourth quarter revenue. In response to this and other concerns about Legato's sales to resellers, and after a conversation with Legato's former CEO, Legato's former General Counsel drafted a form letter to confirm the payment terms of each reseller transaction. Wise then asked Legato's former head of sales to have the sales force transmit the letters to the resellers. The former head of sales told Wise-in late December-that the resellers who had received confirmation letters refused to sign them. Wise failed to act in a reasonable manner to insist and ensure that these letters were sent to the customers. Instead, Wise told Legato's head of sales to "vouch" for each transaction. Shortly thereafter, Legato approved several new reseller transactions for revenue recognition in the fourth quarter. Legato later reversed a total of $7.6 million in fourth quarter revenue from reseller deals due to undisclosed contingencies. 
+
+ E.  Legato's Lack of Adequate Internal Controls  
+
+ The improper recognition of revenue by Legato was made possible, in part, by the Company's poor internal controls. Aside from summarizing its revenue recognition policy in its 1998 Form 10-K, Legato did not have a formal, written policy on when the Company should recognize revenue. 
+
+ Legato's finance department also lacked many internal controls necessary to ensure that the Company's financial statements complied with GAAP. For example, Legato's accounting department (which was part of the finance department) was responsible for reviewing purchase   orders for non-standard payment terms and return rights. The accounting department, however, failed to catch a number of invoices that included extended payment terms ( i.e ., terms which exceeded Legato's standard "net 30 days" terms), notations referring to "stock rotation" rights granted to customers, and terms that provided the reseller with a right to return the software licenses for "full credit." Moreover, Legato failed to provide adequate training to its accounting department employees about the Company's revenue recognition policy or how to identify terms that might make recognition of revenue improper. 
+
+ F.  Legal Conclusions  
+
+ As described in Parts III(B) through (E) above, from the second quarter of 1999 through the end of the fiscal year ended December 31, 1999, Legato sales personnel engaged in repeated fraudulent conduct to improperly boost the Company's financial results. As a result of the fraud, Legato's financial statements for the periods ended June 30, 1999 and September 30, 1999 (which were filed with the Commission and disseminated to investors), as well as Legato's press release issued on January 19, 2000, were materially false and misleading. In addition, the Company failed to maintain books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets and failed to maintain a system of internal accounting controls sufficient to permit the preparation of financial statements in conformity with GAAP. 
+
+ Based on the foregoing, the Commission finds that Legato violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13. In addition, the Commission finds that Wise violated Section 13(b)(5) of the Exchange Act, and that Wise caused Legato's violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+
+ IV. 
+
+ In determining to accept Legato's Offer of Settlement, the Commission considered remedial acts promptly undertaken by Legato and cooperation afforded to the Commission staff. 
+
+ V. 
+
+ Based on the foregoing, the Commission deems it appropriate to accept the Offers submitted by Legato and Wise. Accordingly, IT IS HEREBY ORDERED pursuant to Section 21C of the Exchange Act that: 
+
+ (1) Legato cease and desist from committing or causing any violations or any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13; and, 
+
+ (2) Wise cease and desist from committing or causing any violations or any future violations of Section 13(b)(5) of the Exchange Act and cease and desist from causing any violations or any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+
+ By the Commission. 
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+ Jonathan G. Katz 
+Secretary  
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diff --git a/raw/aaer/2002/AAER-1558.txt b/raw/aaer/2002/AAER-1558.txt
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+++ b/raw/aaer/2002/AAER-1558.txt
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+ Securities Exchange Act of 1934
+ Release No.  45964 / May 20, 2002
+  Accounting and Auditing Enforcement
+ Release No.  1558 /  May 20, 2002
+  Administrative Proceeding
+ File No. 3-10786
+
+   SEC Institutes Proceedings Against Ernst & Young
+to Resolve Auditor Independence Allegations   
+Division of Enforcement and Office of Chief Accountant Charge Firm with 
+Violations Stemming from Joint Business Relationships with Audit Client 
+
+  On May 20, 2002, the Commission instituted public administrative proceedings against Ernst & Young LLP ("E&Y") in an auditor independence case arising from E&Y's joint business relationships with one of its audit clients.  As reflected in the order instituting the proceedings, the Commission's Division of Enforcement (the "Division") and Office of Chief Accountant ("OCA") have alleged that E&Y violated the auditor independence requirements imposed by the Commission's rules and by generally accepted auditing standards in connection with E&Y's audits of the financial statements of PeopleSoft Inc. from 1994 through 2000, which occurred during the same period as the joint business relationships.  According to the allegations made by the Division and OCA, E&Y violated Rule 2-02(b) of Commission Regulation S-X and caused PeopleSoft to file reports with the Commission throughout the relevant period that failed to include independently audited financial statements as required.  The Division and OCA are seeking an order requiring E&Y to cease and desist from committing or causing such violations, requiring E&Y to disgorge the audit fees it was paid for the audits in question, and sanctioning E&Y pursuant to Commission Rule 102(e) for engaging in improper professional conduct.  
+
+  Among other things, the Division and OCA allege that, while E&Y was serving as PeopleSoft's auditor, E&Y and PeopleSoft jointly developed and marketed a software product called "EY/GEMS for PeopleSoft," which incorporated certain components of PeopleSoft's proprietary source code into software previously developed and marketed by E&Y's tax department.  According to the allegations, E&Y sought to gain a competitive advantage by incorporating PeopleSoft's source code into its product, and agreed to pay PeopleSoft royalties ranging from 15% to 30% from each sale of the resulting product, with a guaranteed minimum royalty of $300,000.  In addition, the Division and OCA allege that, throughout the relevant period, E&Y earned hundreds of millions of dollars in consulting revenues from implementing PeopleSoft software for third parties pursuant to an "Implementation Partners Agreement" it had with PeopleSoft.  In doing so, the Division and OCA allege, E&Y closely coordinated and jointly marketed its implementation services with PeopleSoft, including reciprocal endorsements of each other, links to each other's websites, holding themselves out as "business partners" of one another, and sharing customer information, customer leads, and "target accounts."
+
+  As noted in the Commission's order, this is the second auditor independence case the Commission has commenced against E&Y.  In 1991, the Commission filed a complaint in federal court charging that E&Y, by failing to maintain its independence, caused and aided and abetted violations by two other audit clients of Exchange Act Sections 13(a) and 14(a) and Rules 12b-20, 13a-1, 14a-3, and 14a-9.  That case was settled in 1995 with E&Y consenting to a Final Order directing E&Y to comply with an undertaking to comply with applicable auditor independence standards and guidelines.  ( See  Litigation Release Nos. 12,885 (June 13, 1991) and 14,442 (March 15, 1995).)
+
+  A hearing in the present case will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true, to afford E&Y an opportunity to establish any defenses, and to determine what remedial actions or sanctions, if any, should be imposed against E&Y.
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diff --git a/raw/aaer/2002/AAER-1559.txt b/raw/aaer/2002/AAER-1559.txt
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index 0000000000000000000000000000000000000000..ee555b65fed723203429002e11e028e4f2f88154
--- /dev/null
+++ b/raw/aaer/2002/AAER-1559.txt
@@ -0,0 +1,1382 @@
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+              Reza Mikailli, Gary F. Pado and Unify Corporation
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+        Reza Mikailli, Gary F. Pado and Unify Corporation
+       
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+ Litigation Release No. 17522  /  May 20, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION v. REZA MIKAILLI, GARY F. PADO AND UNIFY CORPORATION , No. C022426 RS        
+
+  SEC BRINGS FINANCIAL FRAUD CHARGES AGAINST FORMER EXECUTIVES OF UNIFY CORPORATION
+
+  The Securities and Exchange Commission today announced that it has filed a complaint in the United States District Court for the Northern District of California against two former executives of Unify Corporation, a software company now based in Sacramento, California, that manufactures and sells database management software.  The Commission's complaint alleges fraud and other violations against former Unify CEO Gholamreza (Reza) Mikailli, 49, of Saratoga, Calif., and former CFO Gary L. Pado, 38, of Sacramento, Calif.  
+
+  The complaint alleges that from May 1999 through May 2000, Mikailli and Pado caused Unify to recognize revenue fraudulently on transactions that they knew were subject to contingencies (including rights of return or cancellation), or involved barter transactions.  Under generally accepted accounting principles (known as "GAAP"), it was improper for Unify to recognize revenue on contingent transactions so long as the contingencies existed and, thus, could nullify or impair the sale.  Also under GAAP, it was improper for Unify to recognize revenue on barter transactions because Unify's revenue was contingent on Unify's performance of its obligation to the customer.
+
+  In several instances Mikailli and Pado engaged in "roundtripping," by causing Unify to provide funds its customers needed to buy Unify products, with no reasonable expectation that the customers would ever repay the funds.  In some instances, Unify made an investment in another company, which then used most or all of the invested funds to purchase Unify product.  In others, Unify contracted for services from other companies through so-called Funded Development Agreements.  However, the companies provided no such services, and simply used funds from Unify to buy Unify product.
+
+  As a result of the fraud, Unify overstated its revenue over four fiscal quarters in amounts ranging from 61% to 150% per quarter.  During the course of the fraud, Mikailli sold all of his shares of Unify stock and received gross proceeds of approximately $8.2 million.  Mikailli illegally failed to file any reports with the Commission disclosing his stock sales during this period.
+
+  The complaint charges Mikailli and Pado with violating the antifraud, corporate reporting and books and records provisions of the federal securities laws and with lying to Unify's outside auditors (Sections 10(b), 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-13, 13b2-1 and 13b2-2 thereunder).  It also charges Mikailli with insider trading and failing to file required reports relating to sales of shares by insiders (Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder).  The complaint seeks injunctions, monetary penalties and officer and director bars against Mikailli and Pado.  In addition, the complaint seeks disgorgement from Mikailli of all amounts he received as a result of the fraud, including losses avoided by his stock sales, sales commissions he received on fraudulent transactions, and bonuses.
+
+  Also named in the complaint was Unify, for violations of the corporate reporting and bookkeeping provisions of the federal securities laws (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13-a13 thereunder).  The complaint seeks a permanent injunction against future violations, but does not allege fraud violations against Unify.  
+
+  In addition, the U.S. Attorney's Office for the Northern District of California today announced that it has charged Mikailli and Pado with criminal securities fraud, based on the fraud at Unify. 
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diff --git a/raw/aaer/2002/AAER-1560.txt b/raw/aaer/2002/AAER-1560.txt
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+ Litigation Release No. 17521 /  May 20, 2002
+
+  Accounting and Auditing Enforcement Release No. 1560 / May 20, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION v. ALAN K. ANDERSON,  United States District Court for the Northern District of California, Civil Action No. C 02-2425 JCS 
+
+  SEC Charges Former Quintus CEO With Financial Reporting Fraud
+
+  The Securities and Exchange Commission today announced fraud charges against former Quintus CEO Alan K. Anderson, 40, of Walnut Creek, Calif.  
+
+  Quintus was a Dublin, California, based developer of customer relationship management software.  According to the complaint, from December 1999 through October 2000 Anderson personally forged contracts, e-mails, purchase orders, letters, and an audit confirmation in order to boost Quintus' financial results.  Anderson created three fake transactions that ranged in value from $2 million to $7 million, for a total of $13.7 million in nonexistent sales.  In addition, Anderson caused Quintus to recognize improperly $3 million in revenue on a barter transaction, which was contingent on Quintus' agreement to purchase $4 million of product from its customer.  In each case, Anderson caused Quintus to recognize revenue in violation of generally accepted accounting principles (GAAP).
+
+  In one instance, Anderson altered a $1.5 million purchase order to make it appear that the customer had actually ordered $6 million worth of Quintus products and services.  In another, Anderson forged a contract and a purchase letter to make it appear that the a reseller had agreed to pay Quintus $7 million up-front, rather than the truth-that the reseller would pay Quintus only if the reseller was able to sell Quintus product to end users.
+
+  As a result of Anderson's fraud, Quintus overstated its revenue in three fiscal quarters in amounts ranging from 37% to 60% per quarter.  In February 2001, NASDAQ delisted Quintus' stock, and the company is now being liquidated through bankruptcy proceedings.
+
+  The complaint charges Anderson with violations of certain antifraud provisions of the federal securities laws (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder) and with lying to Quintus' outside auditors (Rule 13b2-2 of the Exchange Act).  The complaint also seeks an injunction against future violations, disgorgement of bonuses Anderson received based on the company's fraudulent financial performance, monetary penalties and an order barring Anderson from serving as an officer or director of any publicly traded company.
+
+  In addition, the U.S. Attorney's Office for the Northern District of California today announced that it has charged Anderson with one count of securities fraud, based on the fraud at Quintus.
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diff --git a/raw/aaer/2002/AAER-1561.txt b/raw/aaer/2002/AAER-1561.txt
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--- /dev/null
+++ b/raw/aaer/2002/AAER-1561.txt
@@ -0,0 +1,1374 @@
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+ Litigation Release No.  17524  /  May 21, 2002
+
+  Accounting and Auditing Enforcement Release No. 1561 / May 21, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION v. DAVID MALMSTEDT AND MARK HUETTEMAN , No. C022427 JW PVT
+
+  COMMISSION FILES FRAUD CHARGES AGAINST TWO FORMER SALES EXECUTIVES OF LEGATO SYSTEMS, INC.
+
+  The Commission announced that it has filed an action in the United States District Court for the Northern District of California against former sales executives of Legato Systems, Inc., a Mountain View, Calif. developer of data storage software.  In its Complaint, the Commission alleges fraud violations by former Legato executive vice president of worldwide sales David Malmstedt, 46, of Manhattan Beach, Calif., and former vice president of North American sales Mark Huetteman, 39, of Hinsdale, Illinois.  The complaint alleges that from May 1999 through December 2000, Malmstedt and Huetteman caused Legato fraudulently to record millions of dollars in revenue on orders that were contingent on resellers' ability to sell the product to an end customer, or on customers' rights of exchange, return or cancellation.  As a result of the fraud, Legato overstated its revenue over three fiscal quarters in amounts ranging from 6% to 20% per quarter.
+
+  In one instance, Malmstedt and Huetteman caused Legato to recognize revenue on a $7 million purchase order that was contingent on further successful negotiations between the parties.  Pursuant to this arrangement, if the negotiations broke down, the customer had the right to cancel the purchase order.  The cancellation right was set forth in a separate side letter, drafted by Huetteman, which stated in part:  "This contingency may not be expressly stated in the order letter, because of the impact on revenue recognition.  However, you have my assurance that in the event that we can not [sic] reach terms we will not hold you to the commitment to pay referenced in the order letter."
+
+  The complaint charges Malmstedt and Huetteman with violating the antifraud, corporate reporting and books and records provisions of the federal securities laws, and seeks injunctions, disgorgement of losses avoided on sales of Legato stock by Malmstedt and Huetteman during the course of the fraud, and monetary penalties.  In particular, the Commission asserts claims against defendants for violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder.  
+
+   In a related matter, the Commission issued an order instituting and simultaneously settling cease-and-desist proceedings against Legato and its former CFO, Steven Wise, 47, of Mountain View, Calif.  Legato and Wise consented to the issuance of the Commission order without admitting or denying any of its findings.  The order found that Legato violated the corporate reporting, books and records and internal controls provisions of the federal securities laws.  (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.)  In addition, the order found that Wise caused Legato's violations of these provisions, and that Wise knowingly failed to implement adequate internal accounting controls at the company.  (Section 13(b)(5) of the Exchange Act.)  The order requires Legato and Wise to cease and desist from future violations of these provisions.
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diff --git a/raw/aaer/2002/AAER-1562.txt b/raw/aaer/2002/AAER-1562.txt
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index 0000000000000000000000000000000000000000..0b566e435d28d985cfa917b3d71a19dca0fe1d21
--- /dev/null
+++ b/raw/aaer/2002/AAER-1562.txt
@@ -0,0 +1,1373 @@
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+ Litigation Release No.  17538  /  May 30, 2002
+  Accounting and Auditing Enforcement Release No.  1562 / May 30, 2002
+  SEC v. James Murphy, et al., Civ. Action No. 00cv11981-PBS (D. Mass., filed September 26, 2000)
+
+   JAMES MURPHY, FORMER CFO OF CENTENNIAL TECHNOLOGIES, ENJOINED FROM VIOLATING FEDERAL SECURITIES LAWS AND ORDERED TO PAY A CIVIL PENALTY OF $150,000 FOR HIS PARTICIPATION IN THE FINANCIAL FRAUD AT COMPANY 
+
+  The Securities and Exchange Commission announced that on April 29, 2002, the Hon. Patti B. Saris of the United States District Court for the District of Massachusetts entered a judgment enjoining James Murphy, Centennial Technologies, Inc.'s former CFO, from violating and aiding and abetting violations of the antifraud, record keeping and internal controls provisions of the federal securities laws.  Judge Saris also barred Murphy for ten years from acting as an officer or director of a public company and ordered him to pay a civil penalty of $150,000 for his participation in the financial fraud at Centennial.  
+
+  The Commission's complaint alleged that between April 1994 and December 31, 1996, Murphy and Emanuel Pinez, Centennial's former CEO, with the assistance of others, engaged in a fraudulent scheme to overstate the value of Centennial's revenues, net income, inventory, and fixed assets in public announcements and in periodic financial statements filed with the Commission.  The complaint charged Murphy with violations of §17(a) of the Securities Act, §§10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting Centennial's violations of §§13(a), 13 (b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  
+
+  For further information, please see, Litigation Release Nos.  16170 ,  15818 ,  15605 ,  15548 ,  15405 ,  15399 ,  15295 ,  15258  and  16725 .
+
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diff --git a/raw/aaer/2002/AAER-1563.txt b/raw/aaer/2002/AAER-1563.txt
new file mode 100644
index 0000000000000000000000000000000000000000..44e73fe0ab4fb3496379ca0cfadb74276bf2e8e8
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+++ b/raw/aaer/2002/AAER-1563.txt
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+              SECURITIES EXCHANGE ACT OF 1934  Release No. 46017 / June 3, 2002  ACCOUNTING AND AUDITING ENFORCEMENT  Release No. 1563 / June 3, 2002  ADMINISTRATIVE PROCEEDING  File No. 3-10789          In the Matter of  MICROSOFT CORPORATION,  Respondent.       : : : : :    ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING CEASE-AND-DESIST ORDER      I.   The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") to determine whether Microsoft Corporation ("Respondent") violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.   II.   In anticipation of the institution of these administrative proceedings, Microsoft has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept. Solely for the purposes of these proceedings, and for any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings set forth below, except as to jurisdiction of the Commission over it and over the subject matter of these proceedings, which Respondent admits, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order (the "Order"). The Commission has determined that it is appropriate to accept the Offer and accordingly is issuing this Order.   III.   Accordingly, IT IS HEREBY ORDERED, that administrative proceedings pursuant to Section 21C of the Exchange Act be, and they hereby are, instituted.   IV.     FINDINGS    On the basis of this Order and the Offer of Settlement submitted by Respondent, the Commission finds that:   A .   Respondent     Microsoft Corporation  is a Washington corporation with its principal place of business in Redmond, Washington. Since its initial public offering in 1986, Microsoft's common stock has been registered with the Commission pursuant to Section 12(g) of the Exchange Act [15 U.S.C. § 78l(g)] and is listed on the NASDAQ Stock Market, Inc. At all times relevant herein, Microsoft was required to make and file certain periodic reports with the Commission. Microsoft's principal lines of business consist of providing software for personal computers, office systems and the Internet.    1 Facts     1.  Summary    During Microsoft's fiscal years  1   ended June 30, 1995, June 30, 1996, June 30, 1997 and June 30, 1998 (the "relevant period"), Microsoft maintained undisclosed reserves, accruals, allowances and liability accounts (collectively "reserves" or "reserve accounts") that (a) were not in conformity with generally accepted accounting principles ("GAAP") to a material extent, and/or (b) lacked properly documented support and substantiation, as required by the federal securities laws. Moreover, Microsoft failed to maintain internal controls that were adequate under the federal securities laws. Specifically, during the relevant period, Microsoft maintained between approximately $200 million and $900 million in unsupported and undisclosed reserves, a significant portion of which did not comply with GAAP, which resulted in material inaccuracies in filings made by Microsoft with the Commission.   2.  Microsoft Recorded Reserves Without a Properly Documented or Substantiated Basis    At the end of each fiscal quarter, certain of Microsoft's senior financial personnel, reviewed its reserves. The controllers of the operating units of Microsoft would provide these senior financial personnel with estimates for reserves for their units. These operational reserves represented contingencies faced by each individual operating unit and were described in Microsoft's internal documents as "hard contingencies supported by analysis," "transaction-based," and "systematic." Microsoft's internal accounting policies dictated that operating-level controllers use formulas and documented analyses to estimate and calculate operating reserves each quarter. Additionally, Microsoft's stated policy was to periodically reconcile the operational reserves to the general ledger to ensure that a documented basis existed for the journal entries underlying the operational reserve balances.  By contrast, Microsoft created and maintained certain other reserves that existed only at the corporate level. These corporate reserves were not determined from factually based formulas, analysis or statistics. They were described in Microsoft's records as "based, in part, on judgment regarding the likelihood of future business events." They were also exempted from Microsoft's account reconciliation process for operational reserves described above, which was part of Microsoft's ordinary accounting procedures and was designed to ensure that there was a substantiated basis for the company's financial statements.  In addition, senior Microsoft financial personnel who reviewed reserve estimates from operating units frequently added additional amounts to the reserve estimates of the operating units, without the analysis or support that Microsoft required of its operating units. These corporate level additions were not determined from factually based formulas, analysis or statistics. Microsoft's records also described them as "based, in part, on judgment regarding the likelihood of future business events." These corporate level additions were also exempted from the company's account reconciliation process.  These senior Microsoft financial personnel did not obtain sufficient information concerning Microsoft's historical or actual experience with respect to the reserves being accrued for at the corporate level, nor did they rely on the documentation that was prepared by Microsoft's operating subsidiaries or units. Instead, they relied on their subjective judgments in making adjustments to those reserves that existed at the corporate level, without any significant factual support or analysis, and similarly made additions to the operating level reserves, without any significant factual support or analysis, such that these reserves significantly exceeded the amounts that would have been supported by the information from the operational level. As a result, these reserves did not have the documented support as required by the federal securities laws and lacked sufficient substantiation under GAAP.  Following the above-described quarterly financial review, senior financial personnel used the results of the review to prepare Microsoft's publicly filed financial statements and to cause journal entries to be made to Microsoft's general ledger reflecting the corporate level adjustments to the above-described reserves.  4.   Reserves Maintained or Used Without Proper Support or Basis    a.   Cyclical Accrual For Marketing Expenses    Marketing expenses represented the largest expense item on Microsoft's statement of operations. For management purposes, Microsoft established budgets for marketing expenses for each fiscal quarter and fiscal year. Management generally determined these budgets as a percentage of forecasted revenue.  Microsoft typically recorded budgeted marketing expenses as its reported marketing expenses when preparing its quarterly reports filed with the Commission, even though it did not have a documented factual basis for believing that its marketing budget was a reasonable estimation of its marketing expenses. In order to account for the difference between the marketing expenses recorded in its books and records, and its budgeted marketing expenses, Microsoft maintained a "marketing accrual," to which these differences were recorded. Microsoft generally budgeted quarterly marketing expenses as a substantially constant percentage of revenue and the effect of this practice was to depict marketing expense as a substantially constant percentage of revenue on a quarterly basis throughout the year. During the first three quarters of a fiscal year, recorded expenses typically were less than budgeted expenses. Microsoft treated the difference between recorded expenses and budgeted expense as incurred but unbilled expenses. At the end of each of the first three fiscal quarters, Microsoft adjusted recorded marketing expense by increasing recorded expenses to the budgeted amount. The difference between recorded expenses and budget were credited to the marketing accrual. Because Microsoft had insufficient support for recording its marketing expenses as the budgeted amount, this practice did not satisfy the requirement of GAAP that marketing expenses be recorded as and when they are actually incurred.  Microsoft's marketing accrual ( i.e.,  the account containing the difference between recorded expenses and its budgeted marketing expenses) tended to increase during the first three fiscal quarters because, during each of these quarters, the difference between recorded and budgeted marketing expenses would be added into reported expenses. At the end of each fiscal year, Microsoft reversed the marketing accrual and released it into income.  2   The following chart shows the quarterly balances of the marketing accrual.   Chart One   The marketing accrual was not documented as required by the federal securities laws and, to a significant extent, was not in conformity with GAAP. Because Microsoft did not analyze and document the use of budgeted amounts as a proxy for actual marketing expenditures, its quarterly financial statements filed with the Commission during the first three quarters of its fiscal years 1995, 1996, 1997 and 1998 did not comply with the requirements of the federal securities laws.  a.   Non-Cyclical Reserves    In addition to the annual cyclical accrual for marketing expenses, Microsoft maintained six other reserve accounts that failed to comply with the federal securities laws. These reserve accounts, along with the marketing accrual discussed above, were not in conformity with GAAP to a material extent and/or lacked properly documented support and substantiation as required by the federal securities laws.  i.   OEM Sales Reserve    Microsoft derives a significant amount of revenues from licensing agreements with manufacturers of personal computers. These manufacturers were referred to as original equipment manufacturers ("OEMs"). The OEMs installed Microsoft software on  new computers that they sold. Under the licensing agreements, the OEMs were required to report in arrears on a periodic basis the number of computers shipped with pre-installed software and the amount of net royalties due to Microsoft from the sales. In accounting for OEM revenue, Microsoft maintained certain accounts, including a so-called OEM GAAP accrual, which was accrued for earned but unbilled revenue, and a so-called OEM sales reserve.  The OEM GAAP accrual was estimated by OEM accounting specialists at the staff-level of Microsoft and was based upon forecasts having a substantial factual and analytical basis. By contrast, however, the OEM sales reserve was determined by the senior Microsoft financial personnel responsible for the corporate level reserve accounts. However, Microsoft had no substantiated basis for the corporate level OEM sales reserve or any methodology by which the balance in the OEM sales reserve was calculated. Accordingly, the OEM sales reserve was not documented as required by the federal securities laws and, to a significant extent, was not in conformity with GAAP. From time to time, as shown in Table 1, Microsoft released portions of the OEM sales reserve into income.  ii.   Accelerated Depreciation    Microsoft maintained a corporate reserve for accelerated depreciation. In fiscal years 1996 and 1997, Microsoft, for external reporting purposes, reduced the useful lives of its personal computers from three years to one year and the useful lives of its buildings from thirty years to fifteen years. These changes in depreciable lives were made because: (a) in the day-to-day management of the company, Microsoft treated personal computers as consumable supplies, and (b) buildings and related improvements were routinely gutted and refitted as groups moved freely about the Microsoft campus.  Without regard to the GAAP requirement that changes in depreciable lives of assets be accounted for  prospectively  rather than retrospectively,  3   Microsoft accounted for the impact of the new asset lives cumulatively. In other words, Microsoft accounted for its personal computers and buildings in fiscal years 1996 and 1997 as if they had always had useful lives of one and fifteen years respectively. This resulted in these assets having net book values that were less than they would have been in the absence of the changes in useful lives. The difference in value generated by the old and new useful lives was charged to depreciation expense and credited to an account that Microsoft called "accelerated depreciation."  Microsoft failed to disclose (a) the changes in asset lives and their effect, and (b) the use of the improper method of accounting for the accelerated depreciation reserve. The accelerated depreciation account was not in compliance with GAAP.  iii.   Inventory Obsolescence    Statement of Financial Accounting Standards No. 5 ("SFAS 5") requires that certain conditions exist before loss contingencies representing liabilities or asset impairments may be determined and the amount of a reserve accrued. The loss must be probable as of the balance sheet date and reasonably estimable; significantly, the loss must have occurred prior to the creation of the loss contingency and must not be in the future.  4   Furthermore, SFAS 5 prohibits the accrual of reserves for general or unspecified risks.  5   As discussed below, Microsoft did not comply with SFAS 5 because the company's senior financial personnel did not properly assess whether inventory losses had occurred, and made no effort to reasonably estimate the losses.  Microsoft maintained a corporate level reserve account for inventory obsolescence that supplemented the inventory obsolescence reserve accounts determined at the operating level. Microsoft maintained factually supported inventory reserve accounts at the operating level, where operations personnel evaluated and documented the need for such accounts. The corporate level inventory obsolescence reserve had no substantiated basis, as required by SFAS 5. This corporate reserve was not associated with any specific inventory nor was it supported by any statistical or documented analysis during the fiscal years ended June 30, 1995 through June 30, 1998. The corporate reserves, when combined with operating level reserves, caused the net book value of Microsoft's consolidated inventory to be  negative  at the end of the fiscal year ended June 30, 1997. This reserve was, to a significant extent, not in compliance with GAAP, and was not documented as required by the federal securities laws.  iv.   Impaired Long Term Assets    Microsoft maintained a corporate reserve account for the valuation of financial assets. According to internal documents, the reserve's purpose was to "allow for potential losses, upon disposition, of Microsoft's financial assets." These financial assets consisted of equity investments made in various technology companies. Microsoft amortized the cost of these financial assets with monthly charges to income without any basis for the charges. The appropriate treatment under GAAP would have been to carry the assets at cost or write down the assets to their fair value in the event that the assets had suffered other than temporary declines in fair value.  6   Microsoft did not have a proper basis under GAAP for the amounts of the monthly charges in the account during its fiscal years 1995 through 1998.  4.   Interest Rate Fluctuations    According to internal documents, the reserve account for interest income was designed to "provide for shifts in interest rates or other economic events which may adversely impact Microsoft's return on its portfolio." Adjustments to the interest income reserve were made at the "discretion" of senior financial personnel, and Microsoft did not have any factual analysis or statistical support for the balance in this account. This reserve was determined in a manner that did not comply with GAAP, and its balance and the adjustments thereto lacked a proper basis under GAAP.  7    vi.   Manufacturing Facilities    Microsoft created a reserve in 1996 because it believed that the value of certain of its manufacturing facilities would be impaired because it was taking steps to outsource certain of its manufacturing activities and dispose of its own facilities that had been engaged in this manufacturing. Microsoft established a reserve account to provide for expenses associated with the disposition of its own plant and equipment, and associated employee-related expenses. Microsoft had no analysis or other factual basis supporting the balance in this account and, consequently, could not establish whether this account pertained to probable losses arising from an event or circumstance that had already occurred or whether it pertained to losses arising from future contingencies. This account therefore was not documented as required by the federal securities laws, and the balances in the account were not determined in a manner that was in conformity with GAAP.  c.   Cumulative Balances of Non-Cyclical Reserves    The cumulative balance of the six non-cyclical reserve accounts discussed above is depicted in the chart below:   Chart Two   Moreover, the amounts of quarterly adjustments to the above described six accounts, together with the amounts of the marketing expenses accrual, are depicted below:   Table 1  is attached.  The balances and adjustments displayed in Chart Two and Table 1 above did not have the documentary support required by the federal securities laws, and a material portion thereof lacked a proper basis under GAAP.  4.   Microsoft's Filings With the Commission    As a result of the foregoing, Microsoft filed with the Commission periodic reports and other filings during fiscal years 1995, 1996, 1997, and 1998 that included, directly or by incorporation, financial statements that misrepresented Microsoft's financial results by sometimes overstating income and on other occasions understating income.  5.   Microsoft's Failure to Maintain Accurate and Complete Books and Records    In connection with its corporate reserve accounts, Microsoft failed to apply its own internal controls requiring a reconciliation of accounts to the general ledger. As noted above, the corporate reserve accounts were excepted from the company-wide policy that required all accounts be reconciled to the general ledger at least once per quarter.  Microsoft's accounting policies required the reconciliation of accounts as part of an extensive process to close the company's books each quarter. Among other things, the controllers and members of the corporate controllers' group reviewed activity in each general ledger account and reconciled the account balances to the general ledger, attaching supporting documentation for all activity and account balances. The reconciliation policy and process were part of a process designed to help ensure the accuracy and integrity of Microsoft's internally and externally reported financial information. However, Microsoft failed to include the corporate reserve accounts in this reconciliation process. As a result, Microsoft lacked an important safeguard for helping ensure that the adjustments to the corporate reserve accounts and the account balances themselves were appropriate or accurately reported in conformity with GAAP.   V.     LEGAL ANALYSIS OF VIOLATIONS OF THE EXCHANGE ACT REPORTING, RECORD KEEPING, AND INTERNAL CONTROLS PROVISIONS    Section 13(a) of the Exchange Act requires issuers of registered securities to file periodic reports with the Commission containing information prescribed by specific Commission rules. Rules 13a-1 and 13a-13 require, respectively, the filing of Forms 10-K and 10-Q. Rule 12b-20 requires, in addition to information required in periodic reports by Commission rules, such further material information as may be necessary to make the required statements not misleading. Among other things, Microsoft was required to comply with GAAP.  8    Microsoft was required to file periodic reports with the Commission during its fiscal years 1995 through 1998. These reports were required to be complete and accurate.  See   SEC v. Savoy Industries , 587 F.2d 1149, 1165 (D.C. Cir. 1978). As previously discussed, Microsoft recorded and adjusted its reserve accounts in ways not permitted under GAAP in its quarterly and annual filings. To a material extent, these reserve accounts lacked factually substantiated bases, and were therefore improper. The limited and inadequate documentation that Microsoft created with respect to these reserve accounts either did not substantiate any permitted basis for the accounts or indicated that the accounts were otherwise impermissible under GAAP. The inclusion of these reserves in Microsoft's financial statements and of the adjustments thereto in its income statements resulted in misstatements of income in certain periodic reports filed with the Commission during the relevant period, which were material. Consequently, Microsoft violated Section 13(a) and Rules 13a-1, 13a-13 and 12b-20 promulgated thereunder.  Section 13(b)(2)(A) of the Exchange Act requires issuers to "make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." "A company's `books and records' include not only general ledgers and accounting entries, but also memoranda and internal corporate reports."  In the Matter of Gibson Greetings, Inc., Ward A. Cavanaugh, and James H. Johnsen , Admin. Proc. File No. 3-8866, Release No. 34-36357, 60 SEC Docket 1401 (Oct. 11, 1995). Further, Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles. As described above, Microsoft failed to keep books and records that were in conformity with Section 13(b)(2)(A).  Microsoft also had deficient internal controls relating to the corporate reserve accounts. The documentation created by Microsoft either did not adequately explain the basis for any of the corporate reserves or adjustments made to those accounts, or indicated that they were impermissible. In fact, senior Microsoft financial personnel relied upon their undocumented, subjective judgment rather than factual analysis or statistics in establishing and adjusting the corporate reserve accounts. In addition, the corporate reserve accounts were excluded from the company-wide reconciliation process, which required that all balance sheet accounts be reconciled to the general ledger with appropriate documentation of activity.  Consequently, Microsoft violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.   VI .  Based on the foregoing, the Securities and Exchange Commission finds that Microsoft violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder.   VII.   In view of the foregoing, it is appropriate to impose the sanction specified in Respondent's Offer of Settlement.   VIII.     ORDER     ACCORDINGLY, IT IS HEREBY ORDERED THAT,  pursuant to Section 21C of the Exchange Act, Microsoft cease-and-desist from committing or causing any violations of, and committing or causing any future violations of, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 promulgated thereunder.  By the Commission.  Jonathan G. Katz  Secretary  _______________________________       1    Microsoft's fiscal year begins on July 1 and ends on June 30.      2    As a consequence of this reversal, the marketing accrual did not affect fiscal year-end results.      3     See,  APB Opinion No. 20; Accounting Changes, which requires changes in estimates (such as depreciable lives of fixed assets) to be accounted for prospectively.      4    Statement of Financial Accounting Standards No. 5, Paragraph 8.      5     Id.  at Paragraph 14.      6    Accounting Principles Board Opinion No. 18, ¶ 6a.      7    Statement of Financial Accounting Standards No. 115, &para2; 16, provides that individual securities classified as either available-for-sale or held-to-maturity shall be written down to fair value if the enterprise determines that declines in fair value are other than temporary.      8    17 C.F.R. § 210.4-01(a)(1).           
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+              Advanced Technical Products, Inc., James S. Carter, and Garrett L. Dominy
+           
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+        Advanced Technical Products, Inc., James S. Carter, and Garrett L. Dominy
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+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 46030 / June 5, 2002 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1564 / June 5, 2002 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-10790 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			  In the Matter of   
+
+			  ADVANCED TECHNICAL   
+			 PRODUCTS, INC.,   
+			 JAMES S. CARTER, and  
+			 GARRETT L. DOMINY,   
+
+			  Respondents.   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A CEASE-AND- DESIST ORDER  
+		 
+	 
+ 
+
+  I.  
+
+ The Commission deems it appropriate to institute public administrative proceedings against Advanced Technical Products, Inc. ("ATP"), James S. Carter, and Garrett L. Dominy (collectively "the Respondents") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and such proceedings are hereby instituted. 
+
+  II.  
+
+ In anticipation of the institution of these proceedings, each of the Respondents has submitted an Offer of Settlement 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 Commission's findings contained in this Order, except that the Respondents each admit that the Commission has jurisdiction over them and over the subject matter of this proceeding, the Respondents each consent to the entry of this Order.    
+
+  III.  
+
+ The Commission finds that:  1   
+
+  A. Summary  
+
+ In May 2000, ATP restated its financial results for its fiscal year ended December 31, 1998 (including all interim quarters) and for the first three quarters of its fiscal year ended December 31, 1999. The restatement was required because of a massive financial fraud orchestrated by senior management of one of ATP's wholly owned subsidiaries, Alcore, Inc. Among other things, Alcore's senior officers-one of whom was also an officer of ATP-materially overstated revenues and assets, materially understated expenses, and falsified corporate books and records. This misconduct went undetected and uncorrected in large part because ATP failed to devise and maintain adequate internal accounting controls and because Alcore personnel circumvented the controls that did exist. The fraud at Alcore caused ATP to file with the Commission six quarterly reports on Form 10-Q and one annual report on Form 10-K that materially misstated the company's consolidated financial results throughout the relevant period. It also caused ATP's books and records to be materially inaccurate throughout the relevant period.  2   
+
+ Moreover, during the period of the fraud being perpetrated at the Alcore subsidiary, ATP's management―in particular its Chief Executive Officer (Respondent Carter) and Chief Financial Officer (Respondent Dominy)―failed to take adequate corrective action in the face of several red flags suggesting a failure of internal controls and possible accounting irregularities at Alcore. As a result, the fraud at Alcore continued until January 2000, when the FBI served Alcore with a search warrant for corporate financial records. 
+
+  B. Respondents  
+
+  Advanced Technical Products, Inc.  ("ATP") is a Delaware corporation headquartered in Roswell, Georgia. Through its operating subsidiaries, ATP designs, develops, and manufactures materials and products used in aerospace and defense equipment. ATP's stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Nasdaq National Market. At all relevant times, Alcore, Inc. was one of ATP's five operating subsidiaries, and was wholly owned by ATP. During the relevant period, Alcore primarily designed and manufactured airplane components at several facilities located in Maryland, and accounted for a substantial portion of ATP's consolidated revenues and net income. After the events described herein, ATP sold most of the assets of its Alcore subsidiary to another company and liquidated the remaining assets. 
+
+  James S. Carter , age 67, is a resident of Atlanta, Georgia. Carter was ATP's President and Chief Executive Officer ("CEO"), and Chairman of its board of directors, during the relevant period. He resigned from the positions of President and CEO effective March 30, 2000, and from the position of Chairman effective June 30, 2000, but remains a member of ATP's board of directors. During the relevant period, Carter owned between 5% and 6% of ATP's outstanding common stock. 
+
+  Garrett L. Dominy , age 57, is a resident of Atlanta, Georgia. A certified public accountant, Dominy was ATP's Executive Vice President, Chief Financial Officer ("CFO"), Treasurer, and Assistant Secretary, as well as a member of ATP's board of directors during the relevant period. Effective March 30, 2000, he succeeded Carter as ATP's President and CEO, and in May 2000 he relinquished his duties as Executive Vice President, CFO, Treasurer, and Assistant Secretary. Dominy continues to serve as ATP's President and CEO, and as a member of its board of directors. During the relevant period, Dominy owned approximately 3% of Alcore's outstanding common stock. 
+
+  C. The Fraud at Alcore  
+
+ Throughout ATP's 1998 and 1999 fiscal years, personnel at the company's Alcore subsidiary-led by certain members of Alcore's senior management-engaged in a massive financial fraud through which ATP's consolidated assets and earnings were materially overstated. As a result, the financial statements included in ATP's quarterly reports on Form 10-Q for the first, second and third quarters of both its 1998 and 1999 fiscal year, and in its annual report on Form 10-K for its 1998 fiscal year, were materially false and misleading and did not comply with generally accepted accounting principles. The financial fraud at Alcore involved the systematic understatement of expenses and overstatement of assets and revenues, and was achieved primarily by improperly capitalizing expenses, improperly and prematurely recognizing revenue, overvaluing inventory, and understating costs of goods sold. The scheme stopped only when, on January 7, 2000, the FBI served Alcore with a search warrant for financial records. 
+
+ Several months later, as a direct result of the fraud at Alcore, ATP restated its financial statements for the 1998 fiscal year (including each fiscal quarter of the year) and for the first three quarters of its 1999 fiscal year. The cumulative impact of the restatement-as the table below reflects-was to reduce ATP's net income for its 1998 fiscal year from $5,687,000 (as originally reported) to $3,999,000 (as restated), and its net income for the first three quarters of its 1999 fiscal year from $4,906,000 (as originally reported) to a net  loss  of $229,000 (as restated): 
+
+  1998 Fiscal Year  
+
+  
+
+ 
+	 
+		 
+			 ($$ in 000's) 
+			 1 st  Quarter 
+			 2 nd  Quarter 
+			 3 rd  Quarter 
+			 4 th  Quarter 
+			 Total Year 
+		 
+		 
+			 Originally Reported Net Income 
+			 111 
+			 1,302 
+			 1,949 
+			 2,325 
+			 5,687 
+		 
+		 
+			 Restated Net Income 
+			 102 
+			 1,230 
+			 1,214 
+			 1,453 
+			 3,999 
+		 
+		 
+			 Percentage Overstated 
+			 8.1% 
+			 5.5% 
+			 37.7% 
+			 37.5% 
+			 29.7% 
+		 
+	 
+ 
+
+  1999 Fiscal Year - First Three Quarters  
+
+  
+
+ 
+	 
+		 
+			 ($$ in 000's) 
+			 1 st  Quarter 
+			 2 nd  Quarter 
+			 3 rd  Quarter 
+			 Total Three Quarters 
+		 
+		 
+			 Originally Reported Net Income 
+			 1,108 
+			 1,961 
+			 1,837 
+			 4,906 
+		 
+		 
+			 Restated Net Income 
+			 186 
+			 513 
+			 (928) 
+			 (229) 
+		 
+		 
+			 Percentage Overstated 
+			 83.2% 
+			 73.8% 
+			 150.5% 
+			 104.6% 
+		 
+	 
+ 
+
+ Thus, approximately 30% of ATP's reported earnings for fiscal year 1998 were overstated, and approximately 105% of its reported earnings for fiscal year 1999 were overstated. After ATP disclosed the accounting problems at Alcore in early 2000, and ultimately quantified the necessary restatements in May 2000, ATP's stock price steadily plummeted from $14 per share in early January to less than $2 per share in August 2000. 
+
+  D. Carter's and Dominy's Conduct  
+
+ During the relevant period, the fraud at Alcore became so widespread that certain signs of it could not be concealed from management of ATP, Alcore's parent company. However, ATP management―in particular Respondents Carter and Dominy―failed to take adequate corrective action in the face of red flags that suggested a failure of internal controls and possible accounting irregularities at Alcore. As a result, the company continued to file periodic reports with the Commission, and provided documentation to a potential buyer of the company,  3   that included financial statements which ATP's management knew or should have known had a high probability of material misstatement. 
+
+ For example, in July 1999, Carter and Dominy learned that a former Alcore employee had called one of ATP's outside directors and alleged improprieties in Alcore's accounting practices-a complaint that ultimately proved well-founded. Carter and Dominy failed to take appropriate follow-up action to determine the validity of this allegation. Carter and Dominy also took no definitive action to remedy problems that ATP's Controller specifically identified for them in a series of monthly memoranda throughout the second and third quarters of 1999 relating to Alcore's financial statements and reports. In July 1999, the Controller wrote that Alcore's "balance sheet classifications are in disarray . . . [with] prepaids, accounts payable and accrued expenses . . . apparently out of whack[,] possibly leading to inventory or [profit and loss] misstatements." The Controller's July 1999 memo further noted an increase in Alcore's prepaid assets account that "doesn't make sense," giving the appearance that Alcore had simply "plugged [the] account by $550[,000] to balance for the month." In his August 1999 memo, the Controller observed that Alcore "admittedly [is] deferring some costs to help boost current earnings"; and in September 1999, he wrote that Alcore's "balance sheet classification problems noted in previous months continue[,] with prepaids, cash, accounts payable and accrued expenses all contain[ing] some level of misstatement." Similarly, the Controller's July and September 1999 memoranda reflect that the same purported "system implementation problems" that Alcore claimed were causing distortions of its accounts payable and prepaid balances remained uncorrected for months. 
+
+ In October 1999, after the close of the third quarter of ATP's 1999 fiscal quarter but before the company filed its quarterly report on Form 10-Q with the Commission, Carter and Dominy also learned information about four specific Alcore sales during the quarter (totaling more than $500,000) from which Dominy concluded that the sales should not have been recorded as revenue. Instead of thoroughly investigating the matter, however, Carter and Dominy accepted Alcore management's assurances that there were no other improperly recognized sales at Alcore. They also determined to offset the improperly recorded sales against certain expenses they believed could have been capitalized during the quarter, and thus did not reverse the improperly recognized sales before filing the company's quarterly report on Form 10-Q several weeks later. 
+
+  E. Legal Analysis  
+
+ Exchange Act Section 13(a) and Exchange Act Rules 13a-1 and 13a-13 require issuers of registered securities to file annual and quarterly reports with the Commission. Exchange Act Rule 12b-20 requires that these periodic reports contain all material information necessary to make the required statements not misleading. The filing of a periodic report containing materially false or misleading information constitutes a violation of these provisions.  SEC v. Savoy Indus., Inc ., 587 F.2d 1149, 1165 (D.C. Cir. 1978). Exchange Act Section 13(b)(2)(A) requires issuers of registered securities to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets. Exchange Act Section 13(b)(2)(B) requires such issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that its transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles. Exchange Act Section 13(b)(5) provides that no person shall, among other things, knowingly fail to implement a system of internal accounting controls. 
+
+ As described above, ATP failed to devise and maintain effective internal accounting controls in violation of Exchange Act Section 13(b)(2)(B). This failure allowed officers and employees of ATP's Alcore subsidiary to perpetrate a two-year financial fraud that caused ATP to maintain materially inaccurate books, records, and accounts in violation of Exchange Act Section 13(b)(2)(A), and to file periodic reports with the Commission that included materially false and misleading financial statements in violation of Exchange Act Section 13(a) and Exchange Act Rules 12b-20, 13a-1, and 13a-13. In particular, the assets and earnings ATP reported in its quarterly reports on Form 10-Q for each quarter of both its 1998 and 1999 fiscal years, and in its annual report on Form 10-K for its 1998 fiscal year, were materially overstated. Moreover, by failing to take appropriate remedial action in the face of red flags suggesting a failure of internal controls and possible accounting irregularities at Alcore, Carter and Dominy violated Exchange Act Section 13(b)(5) and were causes of ATP's violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 
+
+  IV.  
+
+  FINDINGS  
+
+ Based on the foregoing, the Commission finds that: 
+
+ (a) ATP violated Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13; 
+
+ (b) Carter violated Exchange Act Section 13(b)(5) and was a cause of ATP's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13; and 
+
+ (c) Dominy violated Exchange Act Section 13(b)(5) and was a cause of ATP's violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 
+
+  V.  
+
+  ORDER  
+
+ Accordingly,  IT IS HEREBY ORDERED , pursuant to Exchange Act Section 21C, that: 
+
+ (a) ATP cease and desist from committing or causing any violation and any future violation of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13; 
+
+ (b) Carter cease and desist from committing or causing any violation and any future violation of Exchange Act Section 13(b)(5), and from causing any violation and any future violation of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13; and 
+
+ (c) Dominy cease and desist from committing or causing any violation and any future violation of Exchange Act Section 13(b)(5), and from causing any violation and any future violation of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ _________________________ 
+
+ 
+	 
+		 
+			   1   
+			 The findings herein are not binding on anyone other than the Respondents. 
+		 
+		 
+			   2   
+			 On July 23, 2001, the Commission sued Alcore's former Chief Executive Officer and former Chief Financial Officer for their participation in the financial fraud at Alcore.  SEC v. Edward J. Kiley and Richard N. Orzechowski , No. L-01-2146 (D. Md.) (Lit. Rel. No. 17074). The Commission charged both former officers with securities fraud in violation of Exchange Act Section 10(b) and Rule 10b-5 thereunder; with knowingly falsifying the books, records, and accounts of Alcore and ATP in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; and with misleading ATP's auditors in violation of Exchange Act Rule 13b2-2. The Commission also charged the former Chief Executive Officer with fraud in violation of Section 17(a) of the Securities Act based on his sales of ATP stock before the fraud at Alcore was publicly disclosed. The Commission's complaint sought injunctions, civil penalties, and officer-and-director bars against both defendants, along with disgorgement of the former Chief Executive Officer's profits from his unlawful sales of ATP stock. The same day, the United States Attorney's Office for the District of Maryland announced related criminal charges against both defendants. 
+		 
+		 
+			   3   
+			 ATP entered into a merger agreement with another company on September 3, 1999, and ATP's shareholders approved the merger agreement on October 21, 1999, with an expected closing of the transaction on January 31, 2000. However, the merger was ultimately aborted after the fraud at Alcore became public and ATP restated its financial results. 
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diff --git a/raw/aaer/2002/AAER-1565.txt b/raw/aaer/2002/AAER-1565.txt
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--- /dev/null
+++ b/raw/aaer/2002/AAER-1565.txt
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+              Katrina Krug, CPA
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+        Katrina Krug, CPA
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+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 46031 / June 5, 2002 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1565 / June 5, 2002 
+
+ Administrative Proceeding File No. 3-10791 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			  In the Matter of   
+
+			  KATRINA KRUG, CPA,   
+
+			  Respondent.   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER AND REMEDIAL SANCTIONS  
+		 
+	 
+ 
+
+  I.   
+
+ The Commission deems it appropriate to institute public administrative proceedings against Katrina Krug pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice,  1   and such proceedings are hereby instituted. 
+
+  II.  
+
+ In anticipation of the institution of these proceedings, Krug has submitted an Offer of Settlement ("Offer") to the Commission, 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, Krug, without admitting or denying the findings contained herein, except that she admits to the Commission's jurisdiction over her and over the subject matter of these proceedings, consents to the issuance of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing a Cease-and-Desist Order and Remedial Sanctions ("Order"). 
+
+  III.  
+
+ The Commission finds that:  2   
+
+  A. Respondent  
+
+ Respondent Katrina Krug, age 34, is a certified public accountant licensed in the State of Maryland. In May 1999, Krug began working for Alcore, Inc., then a division of Advanced Technical Products, Inc., and soon thereafter became Alcore's Controller, a position she held until May 2000. 
+
+  B. Related Issuer and Subsidiary  
+
+ Advanced Technical Products, Inc. ("ATP") is a Delaware corporation headquartered in Roswell, Georgia. Through its operating subsidiaries, ATP designs, develops, and manufactures materials and products used in aerospace and defense equipment. ATP's stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Nasdaq National Market. 
+
+ At all relevant times, Alcore, Inc. ("Alcore") was one of ATP's five operating subsidiaries, and was wholly owned by ATP. During the relevant period, Alcore primarily designed and manufactured airplane components at several facilities located in Maryland, and accounted for a substantial portion of ATP's consolidated revenues and net income. After the events described herein, ATP sold most of the assets of its Alcore subsidiary to another company and liquidated the remaining assets. 
+
+  C. The Fraud at Alcore  
+
+ Throughout ATP's 1998 and 1999 fiscal years, personnel at the company's Alcore subsidiary engaged in a massive financial fraud through which ATP's consolidated assets and earnings were materially overstated. The fraud at Alcore involved, among other things, the systematic understatement of expenses and overstatement of assets and revenues, and was achieved primarily by improperly capitalizing expenses, improperly and prematurely recognizing revenue, overvaluing inventory, and understating costs of goods sold. Throughout the relevant period, Alcore senior management routinely directed that artificial alterations be made to Alcore's income statement and balance sheet, and that auditors be misled, in furtherance of the fraudulent scheme. The scheme stopped only when, on January 7, 2000, the FBI served Alcore with a search warrant for financial records.  3   
+
+ As a result of the financial fraud at Alcore, the books, records, and accounts of Alcore and it publicly-traded parent company, ATP, were materially inaccurate throughout the relevant period. In addition, the consolidated financial statements included in ATP's quarterly reports on Form 10-Q for the first, second and third quarters of both its 1998 and 1999 fiscal years, and in its annual report on Form 10-K for its 1998 fiscal year, were materially false and misleading and did not comply with generally accepted accounting principles. 
+
+ In May 2000, as a direct result of the financial fraud at Alcore, ATP restated its financial results for its fiscal year ended December 31, 1998 (including all interim quarters) and for the first three quarters of its fiscal year ended December 31, 1999. The cumulative impact of the restatement-as the table below reflects-was to reduce ATP's net income for its 1998 fiscal year from $5,687,000 (as originally reported) to $3,999,000 (as restated), and its net income for the first three quarters of its 1999 fiscal year from $4,906,000 (as originally reported) to a net  loss  of $229,000 (as restated): 
+
+  1998 Fiscal Year  
+
+  
+
+ 
+	 
+		 
+			 ($$ in 000's) 
+			 1 st  Quarter 
+			 2 nd  Quarter 
+			 3 rd  Quarter 
+			 4 th  Quarter 
+			 Total Year 
+		 
+		 
+			 Originally Reported Net Income 
+			 111 
+			 1,302 
+			 1,949 
+			 2,325 
+			 5,687 
+		 
+		 
+			 Restated Net Income 
+			 102 
+			 1,230 
+			 1,214 
+			 1,453 
+			 3,999 
+		 
+		 
+			 Percentage Overstated 
+			 8.1% 
+			 5.5% 
+			 37.7% 
+			 37.5% 
+			 29.7% 
+		 
+	 
+ 
+
+  1999 Fiscal Year - First Three Quarters  
+
+  
+
+ 
+	 
+		 
+			 ($$ in 000's) 
+			 1 st  Quarter 
+			 2 nd  Quarter 
+			 3 rd  Quarter 
+			 Total Three Quarters 
+		 
+		 
+			 Originally Reported Net Income 
+			 1,108 
+			 1,961 
+			 1,837 
+			 4,906 
+		 
+		 
+			 Restated Net Income 
+			 186 
+			 513 
+			 (928) 
+			 (229) 
+		 
+		 
+			 Percentage Overstated 
+			 83.2% 
+			 73.8% 
+			 150.5% 
+			 104.6% 
+		 
+	 
+ 
+
+ Thus, approximately 30% of ATP's reported earnings for fiscal year 1998 were overstated, and approximately 105% of its reported earnings for fiscal year 1999 were overstated. After ATP disclosed the accounting problems at Alcore in early 2000, and ultimately quantified the necessary restatements in a public filing with the Commission in May 2000, ATP's stock price plummeted from $14 per share in early January to less than $2 per share in August 2000. 
+
+  D. Krug's Conduct  
+
+ After she joined Alcore, Krug participated in the ongoing financial fraud described above. Before Krug's arrival, Alcore's senior management had a practice in place whereby they would review Alcore's monthly financial statements and, before submitting them to ATP, artificially adjust certain accounts to arrive at desired results. On at least one occasion, Krug suggested to Alcore senior management which accounts could be artificially adjusted to arrive at desired month-end results. In addition, at the direction of Alcore's Chief Executive Officer and Chief Financial Officer, and notwithstanding her expressed reservations, Krug assisted in the preparation of Alcore financial statements that she knew were materially misstated, and that she knew would be consolidated into ATP's quarterly reports on Form 10-Q for the periods in question. In particular, Krug knew that Alcore's financial statements included improperly capitalized expenses, improperly recognized revenue, overvalued inventory, and understated costs of goods sold. ATP's books, records, and accounts were thus materially falsified, and ATP filed with the Commission false and misleading reports on Form 10-Q for the second and third quarters of ATP's 1999 fiscal year. 
+
+  E. Legal Analysis  
+
+  1. Securities Fraud   
+
+ Exchange Act Section 10(b) and Rule 10b-5 thereunder prohibit fraud in connection with the purchase or sale of any security. After joining Alcore, Krug willfully violated these provisions by assisting in the preparation of Alcore financial statements that she knew were materially misstated and that she knew would be consolidated into the financial statements that ATP would include in its public filings with the Commission. 
+
+  2. Falsification of Books and Records, Circumvention of Internal Accounting Controls, and Causation of ATP's Violations   
+
+ Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1 prohibit the falsification of corporate books, records, and accounts of any issuer of registered securities, and Section 13(b)(5) further prohibits the knowing circumvention of internal accounting controls of any such issuer. After joining Alcore, Krug willfully violated these provisions by knowingly participating in the falsification of the books and records of Alcore and ATP and by knowingly circumventing the internal accounting controls that existed at Alcore and ATP. 
+
+ In addition, Exchange Act Section 13(a) and Exchange Act Rules 12b-20 and 13a-13 required ATP to file with the Commission quarterly reports on Form 10-Q that were not materially misleading, and Exchange Act Section 13(b)(2)(A) required ATP to make and keep books, records, and accounts that accurately and fairly reflected its transactions and dispositions of assets. Krug's above-described conduct, after she joined Alcore, contributed to ATP's violations of these provisions.  4   
+
+  IV.  
+
+ Based on the foregoing, the Commission finds that Krug willfully violated Exchange Act Sections 10(b) and 13(b)(5) and Exchange Act Rules 10b-5 and 13b2-1, and was a cause of ATP's violations of Exchange Act Sections 13(a) and 13(b)(2)(A) and Exchange Act Rules 12b-20 and 13a-13. 
+
+  V.  
+
+ Accordingly, the Commission hereby accepts Krug's Offer and hereby ORDERS, effective immediately, that: 
+
+ A. pursuant to Exchange Act Section 21C, Krug cease and desist from committing or causing any violation and any future violation of Exchange Act Sections 10(b) and 13(b)(5) and Exchange Act Rules 10b-5 and 13b2-1, and cease and desist from causing any violation or future violation of Exchange Act Sections 13(a) and 13(b)(2)(A) and Exchange Act Rules 12b-20 and 13a-13; and 
+
+ B. pursuant to Rule 102(e) of the Commission's Rules of Practice: 
+
+  
+
+ 
+	 Krug is denied the privilege of appearing or practicing before the Commission as an accountant.
+	  
+	 
+	 After two years from the date of this order, Krug may request that the Commission consider her reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+	 (a) a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Krug's work in her practice before the Commission will be reviewed either by the independent audit committee of the public company for which she works or in some other acceptable manner, as long as she practices before the Commission in this capacity; and/or 
+
+	 (b) an independent accountant. Such an application must satisfy the Commission that: (i) Krug, or the firm with which she is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an equivalent body; (ii) Krug, or the firm, has received an unqualified report relating to her, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or an equivalent body; and (iii) as long as Krug appears or practices before the Commission as an independent accountant she will remain either a member of the SEC Practice Section or an equivalent body or associated with a member firm of the SEC Practice Section or an equivalent body, and will comply with all applicable SEC Practice Section requirements or the requirements of an equivalent body, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+	  
+	 
+	 The Commission's review of an application by Krug to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Krug's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+ 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ ______________________________ 
+
+ 
+	 
+		 
+			   1   
+			 Rule 102(e)(1) of the Commission's Rules of Practice provides, in pertinent part:
+			 The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter . . . (iii) to have willfully violated any provision of the Federal securities laws or the rules and regulations thereunder. 
+			 
+		 
+		 
+			   2   
+			 The findings herein are not binding on anyone other than Krug. 
+		 
+		 
+			   3   
+			 On July 23, 2001, the Commission sued Alcore's former Chief Executive Officer and former Chief Financial Officer for their participation in the financial fraud at Alcore.  SEC v. Edward J. Kiley and Richard N. Orzechowski , No. L-01-2146 (D. Md.) (Lit. Rel. No. 17074). The Commission charged both former officers with securities fraud in violation of Exchange Act Section 10(b) and Rule 10b-5 thereunder; with knowingly falsifying the books, records, and accounts of Alcore and ATP in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; and with misleading ATP's auditors in violation of Exchange Act Rule 13b2-2. The Commission also charged the former Chief Executive Officer with fraud in violation of Section 17(a) of the Securities Act based on his sales of ATP stock before the fraud at Alcore was publicly disclosed. The Commission's complaint sought injunctions, civil penalties, and officer-and-director bars against both defendants, along with disgorgement of the former Chief Executive Officer's profits from his unlawful sales of ATP stock. The same day, United States Attorney's Office for the District of Maryland announced related criminal charges against both defendants. 
+		 
+		 
+			   4   
+			 Contemporaneously with this order, the Commission has issued a separate order that, among other things, finds that ATP violated these provisions and orders ATP to cease and desist from committing such violations in the future.  See Securities   Exchange Act Rel. No. 46030, AAER No. 1564 (June 5, 2002). 
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diff --git a/raw/aaer/2002/AAER-1567.txt b/raw/aaer/2002/AAER-1567.txt
new file mode 100644
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--- /dev/null
+++ b/raw/aaer/2002/AAER-1567.txt
@@ -0,0 +1,1496 @@
+
+
+ 
+ 
+   
+     
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+     SEC.gov | James E. Slayton, CPA 
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+              James E. Slayton, CPA
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+        James E. Slayton, CPA
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+ SECURITIES ACT OF 1933
+ Release No.  8103 / June 5, 2002
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No. 46034 / June 5, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1567 / June 5, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10716
+
+         In the Matter of   
+   JAMES E. SLAYTON, CPA, 
+   Respondent.    
+     
+    : : : : : :   
+    ORDER MAKING FINDINGS AND
+  IMPOSING A CEASE-AND-DESIST
+ ORDER, AND IMPOSING SANCTIONS
+      PURSUANT TO RULE 102(e) OF THE            
+           COMMISSION'S RULES OF PRACTICE      I.
+
+    On March 6, 2002, the Securities and Exchange Commission ("Commission") instituted public administrative and cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice against James E. Slayton ("Slayton").  1    Following the institution of those proceedings, Slayton submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Slayton consents to the entry of this Order Making Findings and Imposing A Cease-and-Desist Order, and Imposing Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") without admitting or denying the findings set forth in this Order, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which are admitted.  
+
+    The Commission has determined that it is appropriate to accept Slayton's Offer and accordingly is issuing this Order.
+
+  II.
+
+    On the basis of this Order and the Offer, the Commission finds  2   the following:
+
+     James E. Slayton, age 54, is a resident of Overton, Nevada.  Slayton became licensed as a CPA in 1983, and is licensed to practice as a CPA in Ohio. 
+
+        Freestar Technologies, formerly known as Freedom Surf Inc., is a Nevada corporation located in Los Angeles, California.  Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is quoted on the OTC Bulletin Board under the symbol FSTI.
+
+        Freedom Surf engaged Slayton as its independent auditor in December 1999.  Slayton issued an audit report on the financial statements of Freedom Surf for the year ended December 15, 1999.  Those financial statements reflected assets valued at $5.18 million, consisting entirely of equipment purportedly purchased from an entity in Costa Rica.  The reported value of that equipment was supported by a fabricated appraisal, which Slayton relied upon in rendering his audit report.  In that report, Slayton stated that Freedom Surf's financial statements fairly presented its financial condition in all material respects in conformity with generally accepted accounting principles ("GAAP") and that he conducted his audit in accordance with generally accepted auditing standards ("GAAS").
+
+        Slayton failed to perform an audit and to otherwise comply with GAAS, as follows:
+
+     Slayton failed to plan his audit by preparing audit programs or conducting audit risk assessments sufficient to determine matters requiring special consideration;
+
+           Slayton failed to obtain sufficient competent evidential matter upon which to base his opinion;
+
+           Slayton failed to exercise due professional care and maintain an attitude of professional skepticism to provide reasonable assurance of detecting both material errors and fraud in the financial statements; 
+
+           in relying on the appraisal, Slayton failed to determine whether the appraiser had the skill or knowledge to perform a valid appraisal and failed to understand the assumptions and methods used by the appraiser to ensure that the appraisal supported the values included in the financial statements; and 
+
+           Slayton issued an audit report containing an opinion without performing basic audit steps to provide a basis for that opinion.
+       Freedom Surf purportedly purchased $5.18 million of equipment from a company located in Costa Rica for 969,000 shares of its common stock and a promissory note for $335,000.
+
+         Under GAAP, assets received by a corporation in return for stock must be recorded at fair value, which may be determined by reference either to the value of the assets received or the stock issued, whichever is more clearly evident.   See  Accounting Principles Board Opinion No. 16 paragraph 67 (APB 16).  As Freedom Surf was a start-up at the time, with no public trading and no history of private arms-length transactions, the value of Freedom Surf's stock was not clearly evident.  Freedom Surf, should, therefore, have determined the fair value of the assets received.  
+
+         Instead, Freedom Surf's officers devised a scheme to fabricate an appraisal falsely showing those assets to be worth over $5 million.  Consequently, Freedom Surf's financial statements were not prepared in conformity with GAAP.
+
+         Freedom Surf filed a registration statement on Form 10-SB on January 3, 2000, which included financial statements opined on by Slayton that materially overstated the company's assets.
+
+         Slayton acted knowingly or recklessly by relying on an unexecuted purchase agreement to establish the ownership of the assets and by relying on a fabricated appraisal without testing the qualifications of the appraiser or the source and nature of the information relied upon by the appraiser in issuing that appraisal.  In fact, the appraiser had no knowledge of the value of the assets except through values provided to him by Freedom Surf's vice president.
+
+         For these reasons, Slayton willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused and willfully aided and abetted Freedom Surf's violations of Section 12(g) of the Exchange Act and Rule 12b-20 thereunder.  
+
+         Thus, Slayton also recklessly engaged in improper professional conduct and willfully violated, or willfully aided and abetted the violation of, provisions of the Federal securities laws and rules, for purposes of Rule 102(e)(1)(ii) and (iii) respectively, of the Commission's Rules of Practice.
+   III.
+
+    In view of the foregoing, it is appropriate to impose the sanction agreed to in the Offer.  Accordingly, IT IS HEREBY ORDERED that:  
+      Slayton cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and cease and desist from causing any violation and any future violation of Section 12(g) of the Exchange Act and Rule 12b-20; 
+
+         effective immediately, Slayton is denied the privilege of appearing or practicing before the Commission as an accountant; and
+
+         within thirty (30) days following the entry of the Order, Slayton shall pay $3,000 in disgorgement, plus prejudgment interest of  $544.19.  Such payment shall be:  (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter that identifies James E. Slayton as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to William F. Baker, III, Associate Director, Division of Enforcement, 450 5th Street, N.W., Washington, D.C. 20549-0801.
+   By the Commission.
+
+  Jonathan G. Katz
+ Secretary
+
+  _______________________
+      1      Paragraph 1 of Rule 102(e) provides, in relevant part, that:  The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter:     . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder.
+
+      2       The findings herein are made pursuant to the Offer of Settlement of Slayton and are not binding on any other person or entity in this or any other proceeding.    
+
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diff --git a/raw/aaer/2002/AAER-1568.txt b/raw/aaer/2002/AAER-1568.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4f87913a8449cf9f8e46baa525c36c18946dc9f3
--- /dev/null
+++ b/raw/aaer/2002/AAER-1568.txt
@@ -0,0 +1,1533 @@
+
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+              John K. Bradley
+           
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+ Securities Exchange Act of 1934 
+Release No. 46035 / June 5, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No. 1568  / June 5, 2002 
+
+ Administrative Proceeding 
+File No. 3-10792 
+
+
+     
+
+In the Matter of    
+
+JOHN K. BRADLEY,     Respondent.   
+  
+ : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC 
+PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and they hereby are, instituted against John K. Bradley ("Respondent" or "Bradley") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). 
+
+ II. 
+
+ In anticipation of the institution of these public administrative proceedings, Bradley 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, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, which Bradley admits, Bradley consents to the entry of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order"). 
+
+ III. 
+Facts 
+
+ On the basis of this Order and Bradley's Offer, the Commission makes the findings set forth below:  1   
+
+ A. Respondent 
+
+ Bradley, age 40, was, at all relevant times, the Manager of Credit and Collections of Physician Computer Network, Inc. ("PCN").   
+
+ B. Issuer  
+
+ PCN was, at all relevant times, a New Jersey corporation with its principle executive offices located in Morris Plains, New Jersey.  PCN was engaged in the business of developing and distributing practice management and clinical data software for physician practice groups.  At all relevant times, PCN's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act, and traded on the NASDAQ National Market.  PCN's stock was suspended from trading in April 1998 and delisted in May 1998.  In March 2000, PCN's assets were acquired in accordance with a plan of reorganization filed by PCN in Chapter 11 bankruptcy proceedings.  PCN no longer operates as a public company. 
+
+ C. Summary 
+
+ This case involves a scheme to manipulate PCN's reported financial results.  During fiscal years 1996 and 1997, PCN's senior management fraudulently inflated the company's reported earnings by materially understating its operating expenses and overstating its revenues.  They did this by, among other things, recognizing revenue from fictitious sales to the company's resellers, improperly capitalizing software development costs and operating expenses, manipulating depreciation expense, prematurely recognizing revenue for customer support and maintenance contracts, and recognizing revenue for out-of-period sales.  To avoid detection of the scheme, PCN's senior management provided false documents and information to the company's independent auditors. 
+
+ In March 1998, after PCN's auditors discovered the accounting irregularities, PCN announced that it would restate its financial results for each of the first three quarters of 1997.  The price of PCN's stock dropped approximately 70% as a result of this announcement, falling from $4.25 per share on March 2, 1998 to $1.28 per share at the close of trading on March 3, 1998.  In April 1998, PCN announced that it would delay the release of its 1997 results and also restate its 1996 results. 
+
+ In August 1999, PCN restated its results for 1996 and for the first time issued consolidated financial statements for 1997.  According to the restatement of its 1996 results, PCN overstated its 1996 net income by $31.2 million, or 205%.  Though PCN never reported restated 1997 quarterly financial results, as a result of overstating revenue and understating operating expenses, PCN overstated its quarterly 1997 net income by an estimated $7.8 million (173%) in the first quarter, $8.6 million (195%) in the second quarter, and $9.7 million (150%) in the third quarter. 
+
+ As a result of the foregoing, PCN filed with the Commission materially false and misleading financial statements in its annual report on Form 10-K for the fiscal year ended December 31, 1996, and in its quarterly reports on Form 10-Q for the first three quarters of fiscal year 1997.  
+
+ In connection with PCN's recognition of customer support and maintenance revenue in 1996 and 1997, Bradley, at the direction of Thomas F. Wraback ("Wraback"), PCN's former Chief Financial Officer, prepared two incomplete year-end deferred revenue reports.  Bradley excluded entries from the final year-end deferred revenue reports and prepared incomplete reports, which purported to support the falsified deferred revenue entries on PCN's general ledger in 1996 and 1997.  Wraback then provided the incomplete deferred revenue reports to PCN's auditors.  Bradley knew these incomplete reports would be provided to PCN's auditors.  By virtue of this conduct, Bradley committed or caused violations of certain reporting, recordkeeping, and internal controls provisions of the federal securities laws. 
+
+ D. Deferred Revenue Acceleration 
+
+ During the relevant time, PCN had several extended contracts with its customers to provide software and hardware support and maintenance.  PCN's policy was to account for these contracts as deferred revenue, which was amortized into income each month as the company satisfied a portion of its obligations under the contracts.  However, in 1996, PCN recognized revenue from certain customer support and maintenance contracts before it had satisfied its contractual obligations, in contravention of GAAP.  These actions caused PCN's 1996 revenue to be overstated by approximately $2.5 million. 
+
+ To conceal PCN's premature recognition of customer support and maintenance revenue, Wraback directed Bradley to prepare an incomplete 1996 deferred revenue report for the company's auditors in connection with PCN's 1996 audit.  As instructed, Bradley excluded entries from the final year-end deferred revenue report and prepared an incomplete report, which purported to support the falsified deferred revenue entries on PCN's general ledger.  Wraback provided the incomplete report to PCN's auditors to support the premature recognition of customer support and maintenance revenue in 1996.  Bradley knew the incomplete report would be provided to PCN's auditors.  Bradley also knew, or should have known, that by preparing the incomplete deferred revenue report he would contribute to PCN's financial statements being materially false and misleading. 
+
+ PCN also improperly recognized revenue in 1997 from certain customer support and maintenance contracts before it had satisfied its contractual obligations, in contravention of GAAP.  These improper accounting activities caused PCN's revenue to be overstated by approximately $2.0 million in the first quarter of 1997 and approximately $1.5 million in the second quarter of 1997. 
+
+ To conceal the misconduct, Wraback directed Bradley to prepare an incomplete 1997 deferred revenue report for the company's auditors in connection with PCN's 1997 audit.  As instructed, Bradley again excluded entries from the final year-end deferred revenue report and prepared an incomplete report, which purported to support the falsified deferred revenue entries on PCN's general ledger.  Wraback then provided the incomplete report to PCN's auditors to support PCN's improper recognition of customer support and maintenance revenue in 1997.  Bradley knew the incomplete report would be provided to PCN's auditors.  Bradley also knew, or should have known, that by preparing the incomplete deferred revenue report he would contribute to PCN's financial statements being materially false and misleading.   
+
+ PCN's auditors raised questions about the inaccurate 1997 deferred revenue report.  In response, Wraback directed Bradley to prepare a second deferred revenue report, which was presented to the company's auditors in early March 1998.  Though it contained more information than the first report, this report was also incomplete.  Finally, after further inquiry from the company's auditors, Bradley prepared a complete and accurate report, which was provided to PCN's auditors in mid-to-late March 1998. 
+
+ IV. 
+Legal Discussion 
+
+ A. PCN Violated the Reporting Provisions of the Exchange Act 
+
+ Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13 require issuers with securities registered under Section 12 of the Exchange Act to file annual and quarterly reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.   See, e.g., SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Exchange Act Rule 12b-20 further requires that such reports contain any additional information necessary to ensure that the required statements in the reports are not, in light of the circumstances under which they are made, materially misleading.  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).  Financial statements in a Commission filing that do not comply with GAAP are presumed to be misleading.  Regulation S-X, 17 C.F.R. 210.4-01(a)(1).  As a result of the conduct described above, PCN violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ B. PCN Violated the Recordkeeping and Internal Controls Provisions of the Exchange Act 
+
+ Section 13(b)(2)(A) of the Exchange Act requires every Section 12 registrant to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect its transactions and disposition of assets.  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP.  As a result of the conduct described above, PCN violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.   
+
+ C. Wraback Violated Exchange Act Rule 13b2-2 
+
+ Exchange Act Rule 13b2-2 prohibits an officer or director of an issuer from (a) making or causing to be made a materially false or misleading statement or (b) omitting or causing to be omitted a statement of a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading to an accountant in connection with a required audit or the preparation or filing of a required document or report.  By providing PCN's auditors with the two falsified deferred revenue reports created by Bradley, Wraback, a PCN officer, violated Exchange Act Rule 13b2-2.   
+
+ D. Bradley Violated Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1 
+
+ Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder prohibit a person from, among other things, knowingly circumventing internal accounting controls and falsifying corporate books and records.  By falsifying two deferred revenue reports, Bradley violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder.   
+
+ E. Bradley was a Cause of PCN's and Wraback's Violations 
+
+ Section 21C of the Exchange Act provides that the Commission may order any person who is violating, has violated, or is about to violate any provision of the Exchange Act, or any rule or regulation thereunder, and any person that is, was, or would be a cause of the violation, due to an act or omission the person knew or should have known would contribute to such violation, to cease and desist from committing or causing such violation and any future violation of the same provision, rule, or regulation.  Bradley contributed to PCN's reporting, recordkeeping, and internal controls violations, and Wraback's lying to the auditors violation, when he prepared the false deferred revenue reports. 
+
+ V. 
+
+ Based on the foregoing, the Commission finds that John K. Bradley violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and was a cause of PCN's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20 and 13a-1 thereunder and Wraback's violation of Rule 13b2-2 under the Exchange Act. 
+
+ VI. 
+Order 
+
+ Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that John K. Bradley cease and desist from committing or causing any violation, and any future violation, of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and that Bradley cease and desist from causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20 and 13a-1 thereunder. 
+
+ By the Commission. 
+
+ Jonathan G. Katz  
+Secretary 
+
+ Endnotes 
+
+  1   The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding. 
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diff --git a/raw/aaer/2002/AAER-1571.txt b/raw/aaer/2002/AAER-1571.txt
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+              Korea Data Systems USA, Inc., Lap Shun (John) Hui, and Bun (Ben) Wong
+           
+     
+ 
+
+   
+
+     
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+      
+      
+             
+        Korea Data Systems USA, Inc., Lap Shun (John) Hui, and Bun (Ben) Wong
+       
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+ SECURITIES ACT OF 1933  
+Release No.    8104 / June 7, 2002    
+  SECURITIES EXCHANGE ACT OF 1934  
+Release No.   46047 / June 7, 2002     
+  ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.   1571 / June 7, 2002     
+  ADMINISTRATIVE PROCEEDING 
+File No.  3-10794
+  
+      In the Matter of
+  KOREA DATA SYSTEMS USA, INC.,  LAP SHUN (JOHN) HUI, and  BUN (BEN) WONG
+                                  Respondents.
+     
+  : : : : : :  
+ 
+ ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER
+     I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Korea Data Systems USA, Inc. ("KDS"), Lap Shun (John) Hui ("Hui"), and Bun (Ben) Wong ("Wong") (collectively "Respondents") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+
+
+  II.
+
+
+
+  In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement, which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, Respondents, without admitting or denying the findings set forth herein, except that they admit the jurisdiction of the Commission over them and over the subject matters set forth herein, consent to the issuance of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order (the "Order").
+
+
+
+  III.
+
+
+
+    On the basis of this Order and Respondents' Offers of Settlement, the Commission makes the following findings:  1     A.  Respondents 
+
+  Korea Data Systems USA, Inc. ("KDS") is a California corporation located in Garden Grove, California.  KDS was affiliated with Korea Data Systems Co. Ltd. ("KDS Korea"), a Korean computer manufacturer.  During its 1997 and 1998 fiscal years, Aura Systems, Inc. ("Aura") claims to have purchased and resold $26.5 million of KDS computer monitors.
+
+    Lap Shun Hui, age 46, also known as John Hui owns KDS and serves as its Chief Executive Officer.  Hui also controlled alleged Aura customers Micro Distribution Power Inc. ("MCDP") and FYE Trading, Inc. ("FYE") at all times relevant to this proceeding.  Hui resides in South Pasadena, California.
+
+    Bun Wong, age 40, also known as Ben Wong, is the Chief Financial Officer and Chief Operating Officer of KDS.  Wong resides in Rowland Heights, California.
+
+     B. Other Relevant Persons and Entities 
+
+    Aura Systems, Inc. ("Aura"), a Delaware corporation headquartered in El Segundo, California, formerly sold sound related and multi-media products, and now sells an induction power system for mobile power applications.  Aura's common stock is registered with the SEC pursuant to Section 12(g) of the Exchange Act and was quoted on the NASDAQ national market system until July 1999, when its stock was delisted.  Aura's stock currently trades on the over-the-counter bulletin board under the symbol "AURA."  Aura's fiscal year ends February 28.  On October 2, 1996, the SEC entered a Cease-and-Desist Order by consent against Aura and others for violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 promulgated thereunder.
+
+     C. Fiscal 1997 Computer Monitor Sales 
+
+  From at least 1996 to 1998, KDS Korea manufactured and sold two brands of computer monitors to a California computer monitor distributor then called Mag Innovision.  Mag Innovision sold one brand to its own customers; the other brand belonged to a major U.S. personal computer retailer that had a contract with Mag Innovision.  Mag Innovision placed its monitor orders directly with KDS Korea, and KDS Korea shipped the monitors directly to Mag Innovision and/or the U.S. personal computer retailer.  Aura had nothing whatsoever to do with these monitor sales.
+
+
+
+  Nonetheless, during its 1997 fiscal year, Aura fictitiously inserted itself into the monitor-sale transactions to the U.S. personal computer retailer so that Aura could falsely record revenue.  To accomplish the scheme, individuals at Aura booked fictitious sales and created and carried fictitious open accounts receivable from its alleged monitor customers.  These individuals also created or caused the creation of false documents to make it appear that Aura was a party to these computer-monitor sales from KDS Korea to Mag Innovision and the U.S. retailer.  These false documents included false Mag Innovision purchase orders and false Aura invoices to Mag Innovision.  KDS agreed to this fictional insertion of Aura into the transactions for business reasons of its own.   
+
+ 
+
+  To convince its auditors that the computer monitor receivable was legitimate and to avoid a write-off at year-end, individuals at Aura made arrangements with KDS, Hui, and Wong to have Aura record "payments" from Mag Innovision.  On at least six occasions in fiscal 1997 and 1998, at Hui's and Wong's direction, KDS accounting personnel instructed Mag Innovision to pay a combined total of $13.4 million in funds Mag Innovision owed KDS directly to Aura.  Individuals at Aura caused these transfers to be falsely booked as payments for computer monitors on Aura's books.  KDS then credited Mag Innovision on its books for the payments.  Thereafter, in several transfers from June 27, 1996 to November 3, 1997, Aura wired back to KDS virtually all of the funds Aura had received from Mag Innovision.
+
+ 
+
+  In July 1996, Aura falsely booked as payments from Mag Innovision another $1.9 million of funds Aura had received from Orchestra MultiSystems ("Orchestra"), a shell company controlled by Hui.  Hui and Wong directed those transfers from Orchestra to Aura.  Aura paid KDS back the $1.9 million with outgoing wire transfers within several days of receiving the payments from Orchestra.
+
+  In connection with the fiscal 1997 year end audit, Aura's independent auditors were provided a false "balance due" audit confirmation letter concerning the collectibility of the Mag Innovision receivable.  This confirmation letter asked Mag Innovision to confirm that it owed Aura approximately $9 million as of February 28, 1997.  The confirmation letter, which was sent to KDS instead of to Mag Innovision, was purportedly signed by a Mag Innovision employee.  However, the person who purportedly signed the letter was not a Mag Innovision employee and the signature was not authentic.
+
+
+
+  In its fiscal 1997 annual report on Form 10-K filed with the SEC on June 13, 1997, Aura falsely reported $16.5 million in sales of KDS computer monitors to Mag Innovision.  By recording the fictitious sales in its fiscal 1997 annual report on Form 10-K, Aura materially overstated revenue by $16.5 million and accounts receivable by approximately $9 million, approximately 15% of gross receivables.  Aura also falsely described itself as a computer monitor reseller in the text of its annual report. 
+
+     D. Fiscal 1998 Computer Monitor Sales 
+
+          In Aura's 1998 fiscal year, Aura booked revenue from wholly fictitious monitor resales to Micro Computer Distribution Power ("MCDP"), a shell entity controlled by Hui which shared office space with KDS.  With the assistance of KDS, Hui, and Wong, Aura created or caused the creation of false purchase orders from MCDP and corresponding false invoices from Aura to MCDP and from KDS to Aura to make it appear that Aura was reselling KDS monitors to MCDP.  As with Mag Innovision, individuals at Aura made or caused false entries in Aura's internal accounting system to reflect the fictitious sales, and Aura and KDS made circular wire transfers to MCDP to allow Aura to record "payments" from the fictitious sales and avoid a receivable write off at year- end.  In mid-1998, KDS wired approximately $2.4 million to MCDP in five separate transfers.  Next, MCDP personnel directed five payments totaling $2.4 million from MCDP to Aura.  Aura booked those transfers as payments for the computer monitors.  Between April 30 and July 29, 1998, Aura repaid KDS the $2.4 million.  
+
+          In connection with its fiscal 1998 year end audit, Aura's independent auditors were provided a false accounts receivable confirmation letter.  That confirmation letter purported to confirm that MCDP owed Aura a balance of $5.9 million as of February 28, 1998.  However, the signature on that letter was not authentic.  On the last day of fiscal 1999, Aura wrote off over $5 million in receivables attributable to the MCDP sales.  
+
+
+
+  Also in its 1998 fiscal year, Aura falsely reported revenue from fictitious computer monitor sales to FYE Trading ("FYE"), another shell company that Hui and Wong had incorporated as a fictitious business name in 1993.  FYE never had its own address, and instead used addresses of KDS and other companies run by Hui and/or Wong.  As with the purported sales to Mag Innovision and MCDP, with the assistance of KDS, individuals at Aura created or caused to be created false documents, including false purchase orders from FYE to Aura, to support Aura's alleged sales to FYE.  The false purchase orders, purporting to be on FYE letterhead, are addressed to the location of another Hui affiliated entity.  Others at Aura also made false accounting entries to reflect the fictitious sales in Aura's internal accounting system.  Once again, Aura and KDS caused circular wire transfers to be made to create the appearance that FYE was paying Aura for the monitors.  On five occasions between March 11 and August 25, 1998, Hui and Wong caused FYE to transfer a total of $2.25 million to Aura, which Aura recorded as payments for monitors.  Within days of its payments to Aura, Hui and Wong had KDS transfer all $2.25 million to FYE.  Between March and July 1998, Aura repaid KDS the $2.25 million it had received from FYE.  
+
+  In connection with the fiscal 1998 year end audit, Aura's independent auditors were provided a false accounts receivable confirmation.  During the 1998 year end audit, Aura addressed the confirmation request to FYE at the address of another KDS-affiliated entity.  In June 1998, Aura's auditors received the letter confirming that FYE owed Aura approximately $4.1 million as of February 28, 1998.  The signature on the letter was not authentic.  
+
+  As a result of this scheme, in its 1998 annual report on Form 10-K, Aura materially overstated revenue by $5.9 million attributable to the fictitious sales to MCDP and by $4.1 million attributable to the fictitious sales to FYE Trading.  It also overstated accounts receivable by $5.9 million and by $4.1 million, respectively, or approximately 15% of gross receivables for the year.  Aura also falsely described itself as a computer monitor reseller in the text of its 1998 annual report.  
+
+     E. Aura Files Registration Statements with the Commission 
+
+  On December 4, 1997, Aura filed with the Commission a registration statement on Form S-3 that incorporated by reference Aura's materially false annual report for fiscal year 1997.  On June 25, 1998, Aura filed with the Commission a registration statement on Form S-3 that incorporated by reference Aura's materially false annual report for fiscal year 1998.  
+
+  IV.
+
+
+
+    A.  Legal Discussion 
+
+
+
+  Section 8A of the Securities Act and Section 21C of the Exchange Act authorize the Commission to enter a cease-and-desist order against any respondent who caused another's violation of the federal securities laws by an act or omission that the respondent knew or should have known would contribute to the violation.  Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, prohibit material misstatements or omissions, made with scienter, in connection with the purchase or sale of securities.   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 860-62 (2d Cir. 1968),  cert.   denied , 394 U.S. 976 (1969).  Section 17(a) of the Securities Act prohibits a person, in the offer or sale of any security, from employing any device, scheme, or artifice to defraud.  See ,  e.g. ,  U.S. v. Naftalin , 441 U.S. 768, 771-72 (1979).  Misrepresentation of a company's earnings, and the improper recognition of revenue in departure from GAAP, may be material.   See    Texas Gulf   Sulphur Co. , 401 F.2d at 849;   Fine v. American Solar King Corp. , 919 F.2d 290, 297, 300-01 (5th Cir. 1990).  By the conduct described above, KDS, Hui and Wong were a cause of Aura's violations of these provisions of the federal securities laws, and each knew or should have known that its actions contributed to Aura's violations. 
+
+
+
+  V.
+
+
+
+    Based on the foregoing, the Commission finds that Respondents KDS, Hui, and Wong caused violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
+
+  VI.
+
+
+
+    In view of the foregoing, the Commission finds that it is appropriate to accept the Respondents' Offers of Settlement and to impose the sanctions specified therein.
+
+
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondents KDS, Hui, and Wong cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
+
+   
+
+    By the Commission.
+
+    Jonathan G. Katz  
+Secretary
+
+  ____________________________
+      1      The findings herein are made pursuant to KDS's, Hui's, and Wong's Offers of Settlement and are not binding on any other person or entity in this or in any other proceeding.    
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diff --git a/raw/aaer/2002/AAER-1572.txt b/raw/aaer/2002/AAER-1572.txt
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+
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+     SEC.gov | Gerald S. Papazian 
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+              Gerald S. Papazian
+           
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+        Gerald S. Papazian
+       
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+ SECURITIES ACT OF 1933  
+Release No.   8105 / June 7, 2002 
+  SECURITIES EXCHANGE ACT OF 1934  
+Release No. 46048 / June 7, 2002       
+  ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.   1572 / June 7, 2002     
+  ADMINISTRATIVE PROCEEDING 
+File No.  3-10795
+  
+      In the Matter of
+  Gerald S. Papazian,
+                                  Respondent.
+     
+  : : : : :   
+ 
+ ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER
+     I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Gerald S. Papazian ("Papazian") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+
+
+  II.
+
+
+
+  In anticipation of the institution of these proceedings, Papazian has submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, Papazian, without admitting or denying the findings set forth herein, except that he admits the jurisdiction of the Commission over him and over the subject matters set forth herein, consents to the issuance of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order (the "Order").
+
+ 
+
+  III.
+
+
+
+    On the basis of this Order and Papazian's Offer of Settlement, the Commission makes the following findings:  1      A. Gerald S. Papazian, age 46, served as President and Chief Operating Officer of Aura Systems, Inc. ("Aura") from July 1997 until February 2002.  During that time, Papazian had overall responsibility for Aura's day-to-day operations, and division heads responsible for purchasing and contracts reported to him.  Prior to July 1997, Papazian was Aura's senior vice president for administration with oversight responsibility for Aura's purchasing, contracts, inventory control, and shipping and receiving functions.  Papazian resides in Palos Verdes, California.
+
+          
+ B. Aura Systems, Inc. ("Aura"), a Delaware corporation headquartered in El Segundo, California, formerly sold sound related and multi-media products, and now sells an induction power system for mobile power applications.  Aura's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and was quoted on the NASDAQ national market system until July 1999, when its stock was delisted.  Aura's stock currently trades on the over-the-counter bulletin board under the symbol "AURA."  Aura's fiscal year ends February 28.  On October 2, 1996, the Commission entered a Cease-and-Desist Order by consent against Aura and others for violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 promulgated thereunder.
+
+
+
+  C During its 1997 fiscal year, Aura booked revenue from fictitious sales of computer monitors to Mag Innovision.  The computer monitors were actually sold to Mag Innovision by Korean Data Systems Co., Ltd. ("KDS").  
+
+  D. In its fiscal 1997 annual report on Form 10-K filed with the Commission on June 13, 1997, Aura reported $16.5 million in fictitious sales of KDS monitors to Mag Innovision.  By recording the fictitious sales in its fiscal 1997 annual report on Form 10-K, Aura overstated its sales by $16.5 million and accounts receivable by approximately $9 million.  The fictitious sales were material.  Aura also inaccurately described itself as a computer monitor reseller in the text of its fiscal 1997 annual report.
+
+
+  
+E. During its 1998 fiscal year, Aura booked revenue from fictitious monitor sales to two shell entities, Micro Computer Distribution Power ("MCDP") and FYE Trading ("FYE").  
+
+  F. In its fiscal 1998 annual report on Form 10-K, Aura materially overstated sales by $5.9 million attributable to the fictitious sales to MCDP and by $4.1 million attributable to the fictitious sales to FYE Trading.  It also overstated accounts receivable by $5.9 million and by $4.1 million, respectively.  The fictitious sales were material.  Aura also inaccurately described itself as a computer monitor reseller in the text of its 1998 annual report.    
+
+          
+
+ G. In quarterly reports filed during its 1997 fiscal year, Aura improperly recognized $2.54 million in contract revenue that it had earned and booked in prior periods relating to contracts Aura had to install its electric value actuators in engines.  The entries resulted in revenue overstatements of $1.04 million in the second quarter and $1.5 million in the third quarter.  The entries were material to Aura's financial results. 
+
+          
+
+H. On December 4, 1997, Aura filed with the Commission a registration statement on Form S-3 that incorporated by reference Aura's materially false annual report for fiscal year 1997.  On June 25, 1998, Aura filed with the Commission a registration statement on Form S-3 that incorporated by reference Aura's materially false annual report for fiscal year 1998.  
+
+          
+
+ I. As Aura's President, Papazian had day-to-day responsibility for Aura's operations, including its major purchases and sales and contractual arrangements.  Papazian also approved outgoing wire transfers including some of the outgoing wire transfers that Aura recorded as payments for fictitious computer monitor sales.  In fiscal years 1997 and 1998, Papazian signed management representation letters to Aura's independent auditors, Aura's annual reports, and Aura's December 4, 1997 and June 25, 1998 registration statements that contained or incorporated the revenue overstatements described above.  Papazian also assisted Aura's CFO in preparing the revenue recognition entries relating to contracts Aura had to install its electric value actuators in engines by providing information about the amount of work performed under those contracts.  Papazian either knew or was reckless in not knowing that the management representation letters, annual reports and registration statements discussed above contained material misstatements.  By authorizing outgoing wire transfers as alleged payments for monitors, Papazian also falsified or caused the falsifications of Aura's books and records.  Likewise, by signing management representation letters, Papazian failed to disclose to Aura's auditors the revenue overstatements described above.  Papazian also knowingly failed to implement a system of accounting controls sufficient to prevent the false entries described above. 
+
+  IV.
+
+
+
+    
+J. Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, prohibit material misstatements or omissions, made with scienter, in connection with the purchase or sale of securities.  SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 860-62 (2d Cir. 1968),  cert.   denied , 394 U.S. 976 (1969).  Section 17(a) of the Securities Act prohibits material misstatements and omissions made with scienter in the offer or sale of securities.    Recklessness has been found to satisfy the scienter requirement for these provisions.   See ,  e.g. ,  Decker v. Massey-Ferguson, Ltd ., 681 F.2d 111, 120 (2d Cir. 1982). 
+
+
+
+
+    K. Section 13(b)(2) of the Exchange Act requires an issuer to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of its assets. Section 13(b)(5) provides that no person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls, or knowingly falsify any accounting book, record or account. Rule 13b2-1 promulgated under Section 13(b)(2) provides that no person shall, directly or indirectly, falsify or cause to be falsified any book, record, or account subject to Section 13(b)(2). Rule 13b2-2, also promulgated under Section 13(b)(2), prohibits any officer or director from making or causing to be made any materially false or misleading statement to an accountant in connection with an audit of the issuer's financial statements or the preparation of any filing with the Commission.
+
+  V.
+
+
+
+    Based on the foregoing, the Commission finds that Papazian committed violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
+
+    Based on the foregoing, the Commission also finds that Papazian committed violations of Section 13(b)(5) and Rules 13b2-1 and 13b2-2.
+
+ 
+
+  VI.
+
+
+
+    In view of the foregoing, the Commission finds that it is appropriate to impose the following relief as agreed to in the Offer of Settlement.
+
+
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Papazian cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder.
+
+    By the Commission.
+
+              Jonathan G. Katz
+             
+Secretary
+
+  __________________________
+      1     The findings herein are made pursuant to Papazian's Offer of Settlement and are not binding on any other person or entity in this or in any other proceeding.    
+
+ 
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diff --git a/raw/aaer/2002/AAER-1573.txt b/raw/aaer/2002/AAER-1573.txt
new file mode 100644
index 0000000000000000000000000000000000000000..350b2885ff9e24e3392bbd881e5a0b83b9834a3f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1573.txt
@@ -0,0 +1,1667 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Ashford.com, Inc., Kenneth E. Kurtzman, Brian E. Bergeron andAmazon.com, Inc. 
+     
+     
+     
+     
+     
+     
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+              Ashford.com, Inc., Kenneth E. Kurtzman, Brian E. Bergeron andAmazon.com, Inc.
+           
+     
+ 
+
+   
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+             
+        Ashford.com, Inc., Kenneth E. Kurtzman, Brian E. Bergeron andAmazon.com, Inc.
+       
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+ Securities Exchange Act of 1934  
+Release No.  46052 / June 10, 2002 
+
+ Accounting and Auditing Enforcement  
+Release No. 1573 / June 10, 2002 
+
+ Administrative Proceeding  
+File No.  3-10797 
+
+     
+
+In the Matter of    
+
+ASHFORD.COM, INC., 
+KENNETH E. KURTZMAN, 
+BRIAN E. BERGERON AND 
+AMAZON.COM, INC.
+
+     Respondent.   
+  
+ : : : : : : : : : 
+ 
+ ORDER INSTITUTING PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS AND IMPOSING A 
+CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Ashford.com, Inc. ("Ashford.com"), Kenneth E. Kurtzman ("Kurtzman"), Brian E. Bergeron ("Bergeron") and Amazon.com, Inc. ("Amazon.com"). 
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except that Respondents admit the Commission's jurisdiction over them and over the subject matter of these proceedings, Respondents have consented to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").  
+
+ III. 
+Facts 
+
+Based on the foregoing, the Commission finds that:
+
+ A. Respondents 
+
+ Ashford.com, Inc. is a Delaware corporation based in Houston, Texas.  During the relevant time, Ashford.com's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the Nasdaq Stock Market under the ticker symbol ASFD.  Ashford.com, Inc. is an online retailer of luxury goods, such as gems, jewelry and watches.  On March 14, 2002, after the events described herein, Ashford.com became a wholly-owned subsidiary of another company, and terminated its registration under Section 12(g) of the Exchange Act. 
+
+ Kenneth E. Kurtzman, 39, was Ashford.com's Chief Executive Officer until April 2001, when he resigned. 
+
+ Brian E. Bergeron, 35, was Ashford.com's Vice President of Finance until May 2001, when he was promoted to Chief Financial Officer.  Bergeron is licensed as a Certified Public Accountant by the state of Texas. 
+
+ Amazon.com, Inc. is a Delaware corporation based in Seattle, Washington.  Amazon.com's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Nasdaq Stock Market under the ticker symbol AMZN.  Amazon.com is an on-line retailer. 
+
+ B. Summary 
+
+ This matter involves the misstatement of Ashford.com's financial results, which allowed the company to beat analysts' pro forma earnings expectations.  In March 2000, Ashford.com and two of its executives improperly deferred $1.5 million in expenses under a contract with Amazon.com, causing Ashford.com to materially understate its marketing expenses.  The improper deferral resulted from Ashford.com's settlement of a dispute with Amazon.com using two separate documents (prepared at Ashford.com's request), one of which Ashford.com subsequently failed to disclose to its auditors. 
+
+ In September 2000, Ashford.com misstated its pro forma results by changing the classification of expenses on its income statement.  For the quarters ended March 31 and June 30, 2000, Ashford.com had properly classified these expenses as marketing expenses.  But in September 2000, without disclosing that it had made a change, Ashford.com classified the expenses as "depreciation and amortization," which inflated its pro forma results (which did not take depreciation and amortization into account). 
+
+ Additionally, during 2000, Ashford.com misclassified a material portion of the expenses arising under a second contract with Amazon.com.  Under this agreement, Ashford.com issued new Ashford.com stock to Amazon.com in exchange for advertising placements and an agreement not to compete.  Ashford.com, however, classified 100% of the expenses under this contract as "depreciation and amortization," materially understating its true marketing expenses each quarter and improving its pro forma results. 
+
+ C. Ashford.com's Relationship with Amazon.com 
+
+ On November 29, 1999, Ashford.com entered into two contracts with Amazon.com: a New Customer Agreement and a Stock Purchase Agreement.  Under the New Customer Agreement, Ashford.com agreed to pay Amazon.com $6 million to perform promotional placements and marketing services for Ashford.com targeted at Amazon.com's customer base and agreed to pay an extra $2 million if Amazon.com delivered 45,000 customers before December 31, 2000.  1    Under the Stock Purchase Agreement, Amazon.com purchased 707,694 shares of Ashford.com stock for $10 million in cash and, in addition, Ashford.com issued 6.7 million shares of its stock to Amazon.com, which Ashford.com valued at $94.6 million, in return for advertising placements, as well as Amazon.com's agreement not to compete with Ashford.com in certain areas.  2    After the two deals closed in December 1999, Amazon.com owned 16.6% of Ashford.com. 
+
+ D. Ashford.com's Misstatement of Marketing Expenses in March 2000 
+
+ 1. The Valentine's Day Promotion 
+
+ The first significant joint Ashford.com/Amazon.com promotion pursuant to their new relationship was for Valentine's Day 2000.  Amazon.com issued coupons to its customers for substantial discounts on Ashford.com products,  3   but the coupons were not assigned unique serial numbers.  As a result, when an unknown coupon recipient posted the redemption instructions for certain of these coupons on a publicly accessible Internet chat board, a large number of persons who were not necessarily Amazon.com customers were able to use them.  (Ashford.com and Amazon.com disputed which party was responsible for this problem.)  Ashford.com considered deactivating the coupons to minimize any unintended use, but Amazon.com's management, in order to avoid creating a problem for customers, insisted that Ashford.com honor the problem coupons.  With the general understanding that Amazon.com would compensate Ashford.com for the revenue lost as a result, Ashford.com agreed to honor all requests to redeem the coupons. 
+
+ When the promotion ended, Ashford.com calculated that approximately 11,500 customers had redeemed the coupons, of which approximately 8,500 were unintended recipients.  At the time, Ashford.com estimated that the unintended coupon use had reduced the company's revenue by about $600,000. 
+
+ Beginning in late January 2000, Kurtzman contacted Amazon.com to discuss the financial assistance needed to repair the damage to Ashford.com's gross margin from the unintended coupon use.  Ashford.com and Amazon.com discussed different proposals under which Amazon.com would pay $600,000 to Ashford.com and receive $600,000 in additional future revenue, but these ideas were rejected by accountants within each company, who concluded that the proposals lacked economic substance.  4   
+
+ By mid-March 2000, Amazon.com and Ashford.com reached a settlement, and on March 20, 2000, an Amazon.com employee signed a letter on Amazon.com letterhead, stating that Amazon.com would pay Ashford.com $600,000 and that Ashford.com would credit Amazon.com with 11,500 customers under the New Customer Agreement.  This letter, however, was never sent to Ashford.com. 
+
+ 2. Ashford.com Asks Amazon.com to Document the Settlement Using Two Letters 
+
+ After negotiating the terms reflected in the March 20 letter, Kurtzman realized that crediting Amazon.com with 11,500 customers would require Ashford.com to recognize substantial expenses associated with them during the quarter ended March 31, 2000, and that this would have a negative impact on Ashford.com's GAAP and pro forma financial results.  (Ashford.com's management had previously decided to record the $6 million in cash paid to Amazon.com under the New Customer Agreement as a prepaid asset and to amortize the asset on a per-customer basis, requiring Ashford.com to recognize a marketing expense of $177.78 for each new customer referred by Amazon.com.)  5   
+
+ As a result, Kurtzman asked Amazon.com to change how the terms of the settlement (as set forth in the March 20 letter) were to be documented.  Kurtzman suggested crediting Amazon.com with 3,000 customers during the quarter ended March 31, 2000 and to defer crediting the remaining 8,500 customers until accounting periods after March 31, 2000.  6    To accomplish this deferral, Kurtzman consulted with Bergeron, who proposed that the documentation for the settlement be split into two letters.  Ashford.com communicated the proposal to Amazon.com, which drafted the letters as requested.  One letter, to be on Amazon.com letterhead, stated that, in settlement of the Valentine's Day promotion, Amazon.com would pay Ashford.com $600,000 in return for credit for 3,000 customers under the New Customer Agreement.  The other, to be on Ashford.com letterhead, stated that Ashford.com would credit Amazon.com with 8,500 new customers as of April 1, 2000 (the first day of the following quarter).  Neither letter referred to the other, and the second letter made no reference to the Valentine's Day Promotion.   
+
+ Shortly thereafter, to avoid a similar problem with higher expenses in the next quarter, Kurtzman sent an e-mail to Amazon.com, asking that the 8,500 customers credited in the second letter be spread over Ashford.com's next three quarters, rather than all being credited on April 1.  Amazon.com agreed to redraft the letter as requested.  Bergeron reviewed the new draft letter and replied by e-mail to Amazon.com that the letter was acceptable to Ashford.com. 
+
+ Communications between Amazon.com and Ashford.com employees reflect that Amazon.com employees were aware that Kurtzman did not want to "count" the full 11,500 customers for Valentine's Day because it meant Ashford.com was going to record a greater expense in Ashford.com's fourth quarter than desired.  The Amazon.com employees did not know how Ashford.com was accounting for the New Customer Agreement or how large the effect would be. 
+
+ 3. Ashford.com and Amazon.com Exchange Letters 
+
+ On March 27, 2000, Amazon.com faxed a letter on Amazon.com letterhead to Ashford.com stating that, in settlement of the Valentine's Day Promotion, Amazon.com would pay $600,000 to Ashford.com, and Ashford.com would credit Amazon.com for 3,000 customers under the New Customer Agreement.  The March 27 letter did not fully reflect the settlement between Amazon.com and Ashford.com, which was that Amazon.com would pay $600,000 and receive credit for 11,500 customers.  
+
+ Because the March 27 letter alone did not accurately reflect the settlement, Amazon.com transmitted the letter with a fax cover sheet making clear that the letter on Ashford.com letterhead (which gave Amazon.com credit for an additional 8,500 customers) was an integral part of the bargain.  The fax cover sheet stated, in part: 
+
+ If this letter is acceptable to Ashford.com, please countersign it in the space provided and fax the fully-executed copy, together with a signed copy of the other letter we discussed on Ashford.com letterhead, to me at the number above. 
+
+  Please note  that [Amazon.com] will not be bound by the provisions of the attached letter unless and until I receive executed copies of both letters as described above.  Once I receive them, I'll have the check sent down to you via FedEx. 
+
+ Kurtzman countersigned the March 27 letter and signed a letter on Ashford.com letterhead, dated March 28, that credited Amazon.com with 8,500 customers under the New Customer Agreement as follows: 3,000 as of April 1, 2000; 2,750 as of July 1, 2000; and 2,750 as of October 1, 2000.  This letter made no reference to the Valentine's Day promotion or to the March 27 letter.  On March 28, Amazon.com sent Ashford.com a check for $600,000, which Ashford.com recorded as revenue during the quarter ended March 31, 2000. 
+
+ 4. Ashford.com Misstates its Financial Results 
+
+ Based upon the March 27 letter, which Ashford.com provided to its auditors, Ashford.com recognized marketing expenses of $533,340 during the quarter ended March 31, 2000.  Based upon the March 28 letter, which Ashford.com failed to disclose to its auditors, Ashford.com improperly deferred the recognition of $1,511,130 in marketing expenses. 
+
+ Because of Ashford.com's improper deferral of expenses, the financial statements in its Form 10-K for the year ended March 31, 2000 (its first-ever Form 10-K filing) understated the company's marketing expense for the year by 4.2%, its net loss for the year by 2.1%, and its net loss for the quarter by 3.5%.  Ashford.com's reported marketing expenses were material information for investors and analysts.  Among other things, analysts used this information to calculate Ashford.com's "customer acquisition cost,"  which was considered an important measure of the company's potential for future profitability.  7   
+
+ Ashford.com's understatement of its marketing expenses during the quarter ended March 31, 2000 also allowed Ashford.com to report a pro forma net loss of $0.30 per share, just beating analysts' estimates of a net loss of $0.31 per share.  Without the understatement of the marketing expenses, Ashford.com would have reported a pro forma loss of $0.32, missing analysts' estimates by $0.01. 
+
+ On May 2, 2000, Ashford.com issued a press release announcing that, "[e]xcluding non-cash depreciation and amortization, net loss during the quarter ended March 31, 2000 was $13.3 million, or $0.30 per share . . . ."  Ashford.com's pro forma results were material information for investors and analysts.  First Call, which published consensus analyst estimates for Ashford.com during the relevant time period, published only pro forma earnings estimates for the company, and Ashford.com's own earnings press releases emphasized the company's pro forma results.  8   
+
+ 5. Ashford.com Fails to Disclose the Settlement Terms to its Auditors 
+
+ In testing Ashford.com's marketing expenses for the year ended March 31, 2000, Ashford.com's auditors requested documentation from Ashford.com to support its calculation of expenses relating to the New Customer Agreement.  The auditors, however, were not initially told by Ashford.com about the March 27 letter on Amazon.com letterhead.  Before signing off on Ashford.com's earnings release, Ashford.com's auditors asked Kurtzman to explicitly state in a management representation letter that 3,000 new customers had been referred to the company during the Valentine's Day promotion.  Kurtzman agreed to do so and signed a letter, dated May 1, 2000, stating that Ashford.com and Amazon.com had  verbally  agreed that Amazon.com had delivered 3,000 customers pursuant to the Valentine's Day promotion. 
+
+ However, Ashford.com's auditors decided that the representation regarding the "verbal agreement" was insufficient for purposes of its audit opinion and asked Ashford.com for a document on Amazon.com letterhead, confirming the 3,000 customers, or a similar document on Ashford.com letterhead, counter-signed by Amazon.com.  In response to this request, Ashford.com provided its auditors with the March 27 letter on Amazon.com letterhead, but did not provide the March 28 letter, in which the parties agreed to credit Amazon.com with 8,500 customers over the next three quarters.  9   
+
+ E. Ashford.com's Undisclosed Reclassification of New Customer Agreement Expenses in September 2000 
+
+ During September 2000, Ashford.com changed its amortization method for the New Customer Agreement from per-customer to straight-line.  Bergeron, along with Ashford.com's CFO and other personnel and advisors, participated in this decision.  Although the change in amortization method was not improper, Ashford.com should have disclosed this accounting change in its filings with the Commission and failed to do so.  10   
+
+ More significantly, when Ashford.com changed its amortization method, it also improperly reclassified $2.9 million in New Customer Agreement expenses from marketing to depreciation and amortization ("D&A").  11    Consequently, in the financial statements included in its September 30, 2000 Form 10-Q, Ashford.com materially understated its marketing costs. 
+
+ The reclassification also substantially improved Ashford.com's pro forma results, which the company knew analysts followed, and lowered Ashford.com's apparent cost of customer acquisition.  Analysts' estimates for the quarter ended September 30 were for pro forma losses of $0.27 per share, but Ashford.com reported pro forma losses of $0.19 per share, beating the estimates by $0.08 -- almost entirely due to the reclassification.  Ashford.com's earnings announcement for the quarter, issued on October 23, made the most of these results, highlighting the company's "Far Lower Than Expected Operating Losses" and noting that the company had beaten "consensus analyst expectations by almost 30 percent."  The earnings release also stated that the quarter was "the third straight quarter the company has significantly reduced losses" and that the company had shown "dramatic improvement in several key operating metrics," including customer acquisition costs, which "declined by 66 percent compared to the same quarter a year ago." 
+
+ Without the reclassification, Ashford.com would have beaten analysts' estimates by a penny (3.7%), rather than by $0.08 (almost 30%).  In addition, Ashford.com would have reported  increased  pro forma losses from the previous quarter, preventing the company from announcing three straight quarters of "significantly reduced losses" and undermining an earlier public statement by the company that it was committed to showing declining pro forma losses.  While Ashford.com disclosed in its September 30 Form 10-Q that the amortized expenses for the New Customer Agreement were being recorded as "Depreciation and Amortization," Ashford.com never disclosed that it had changed the classification of these expenses.  12   
+
+ F. Ashford.com's Improper Classification of the Expenses Associated with the Stock Purchase Agreement 
+
+ When the Stock Purchase Agreement closed in December 1999, Ashford.com valued the shares issued to Amazon.com in connection with the agreement at $94.6 million.  Ashford.com recorded this amount as a prepaid expense on its balance sheet and amortized it on a straight-line basis over the life of the contract.  Thus, Ashford.com recorded approximately $23.7 million per quarter as an expense. 
+
+ Although the Stock Purchase Agreement expressly states that the newly-issued Ashford.com stock was granted, in part, in consideration of "advertising placements" made by Amazon.com, Ashford.com did not record any of the expenses associated with the agreement as marketing expenses.  Instead, Ashford.com initially classified the entire $23.7 million as D&A on its income statement.  This classification was not in conformity with GAAP, because Ashford.com should have classified the portion attributable to advertising placements as marketing expenses.  13   
+
+ Ashford.com's improper classification of these expenses as D&A caused it to materially understate its marketing expenses for the quarter and year ended March 31, 2000 and for the quarters ended June 30, September 30, and December 31, 2000.  Because Ashford.com calculated its pro forma earnings by subtracting D&A expenses, the company significantly improved its reported pro forma results for these periods by allocating more expenses to D&A.  Additionally, both the company and its analysts used the reported marketing expenses to calculate Ashford.com's "customer acquisition cost," so that, by reducing the amount allocated to marketing expenses, Ashford.com effectively lowered its apparent cost of acquiring new customers. 
+
+ Ashford.com's Form 10-K for the year ended March 31, 2000, and its Form 10-Q for the quarter ended June 30, 2000, failed to disclose that Ashford.com had classified expenses under the Stock Purchase Agreement as D&A expenses.  14   
+
+ G. Ashford.com's Undisclosed Reclassification of Stock Purchase Agreement Expenses and "Re-reclassification" of New Customer Agreement Expenses in March 2001 
+
+ In its Form 10-K for the year ended March 31, 2001, Ashford.com made another undisclosed change in its accounting policy for the two agreements with Amazon.com.  Ashford.com reclassified expenses recognized under both agreements from D&A to marketing expenses.  15    However, Ashford.com's March 31, 2001 Form 10-K did not disclose that the company made this reclassification. 
+
+ Also in the Form 10-K, Ashford.com presented historical figures as though Ashford.com had classified the Stock Purchase Agreement expenses as marketing expenses in the previous fiscal year, when in fact Ashford.com had classified those expenses as D&A at the time.  Ashford.com's Form 10-K failed to disclose that Ashford.com had reclassified the historical numbers from the previous fiscal year for marketing expenses and for D&A.  16   
+
+ IV. 
+Legal Analysis 
+
+ A. Fraud Violations 
+
+ Section 10(b) of the Exchange Act and Rule 10b-5 thereunder proscribe a variety of fraudulent practices in connection with the purchase or sale of securities.  Violations of Section 10(b) and Rule 10b-5 occur when an issuer makes material misstatements or omissions in periodic reports filed with the Commission, including financial statements, and trading thereafter occurs in the issuer's securities.   SEC v. Texas Gulf Sulphur , 401 F.2d 833, 860-862 (2d Cir. 1968),  cert. denied , 394 U.S. 976 (1969);  SEC v. Great American Indus. , 407 F.2d 453 (2d Cir.),  cert. denied , 395 U.S. 920 (1968). 
+
+ The Supreme Court, in interpreting the securities laws, has held that a fact is material if there is a "substantial likelihood that the . . . fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available."   TSC Indus. v. Northway, Inc. , 426 U.S. 438, 449 (1976);  see also Basic, Inc. v. Levinson , 485 U.S. 224 (1988).  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).  Even financial misstatements that are not large in magnitude may be material if they are made intentionally to manage a company's income, hide a failure to meet analysts' expectations or sustain an earnings trend.   See Ganino v.Citizens Utility Co. , 228 F.3d 154, 166 (2d Cir. 2000). 
+
+ Scienter is required for a violation of the antifraud provisions.   Aaron v. SEC , 446 U.S. 680, 691 (1980).  The Supreme Court defines scienter as "a mental state embracing intent to deceive, manipulate, or defraud."   Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).  The scienter of a company's management is imputed to the company.   See, e.g., SEC v. Manor Nursing Ctrs. , 458 F.2d 1082 (2d Cir. 1972).  Recklessness generally satisfies the scienter requirement.   Rolf v. Blyth Eastman Dillon & Co. , 570 F.2d 38, 44 (2d Cir. 1978),  cert. denied , 439 U.S. 1039 (1978);  SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985). 
+
+ As set forth above, Kurtzman, on behalf of Ashford.com, negotiated the settlement of the Valentine's Day promotion with Amazon.com.  He knew that, by splitting the settlement into two letters, Ashford.com would defer recognizing marketing expenses during the quarter ended March 31, 2000 and might thereby meet analysts' earnings expectations. 
+
+ As a result, Ashford.com and Kurtzman violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+
+ B. Reporting and Books and Records Violations 
+
+ Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file annual and quarterly reports with the Commission, and the obligation to file such reports includes the requirement that they be true and correct.  Rule 12b-20 further requires that such reports contain any additional information necessary to ensure that the required statements in the reports are not, under the circumstances, materially misleading.  Financial statements in Commission filings that do not comply with GAAP are presumed to be misleading.  Regulation S-X, 17 C.F.R. § 210.4-01(a)(1). 
+
+ Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer."  Section 13(b)(5) of the Exchange Act provides that no person shall knowingly falsify any such book, record or account or circumvent internal controls.  In addition, Rule 13b2-1 prohibits the falsification of any book, record or account subject to Section 13(b)(2)(A), and Rule 13b2-2 prohibits any director or officer of an issuer from making, or causing to be made, any false or misleading statement to an accountant, and from omitting to state material facts to an accountant, in connection with an audit of the company's financial statements or the preparation of a report required by the Commission. 
+
+ No showing of scienter is required to violate Sections 13(a) and 13(b)(2)(A) and Rules 13b2-1 and 13b2-2 thereunder.   See, e.g., SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979);  SEC v. World-Wide Coin Invs., Ltd. , 567 F. Supp. 747, 749-50 (N.D. Ga. 1983). 
+
+ As discussed above, Ashford.com materially understated its marketing expenses in its Form 10-K for the year ended March 31, 2000 by improperly deferring expenses related to 8,500 customers acquired as a result of the Valentine's Day promotion.  Kurtzman negotiated the "two letter" settlement with Amazon.com, which caused Ashford.com's books and records to be inaccurate.  Bergeron also participated in the negotiation and approval of the "two letter" settlement.  In addition, Kurtzman signed two inaccurate management representation letters that were provided to Ashford.com's auditors. 
+
+ In September 2000, Ashford.com, with the participation of Bergeron, changed its classification of expenses under the New Customer Agreement from marketing expenses to D&A, but did not disclose this reclassification to its investors.  This reclassification was incorrect because it did not comply with GAAP, and it was material because it substantially improved Ashford.com's reported pro forma losses, allowing the company to substantially beat analysts' earnings estimates.  Ashford.com's September 2000 Form 10-Q contained material omissions, because it failed to disclose the reclassification. 
+
+ Additionally, Ashford.com's initial accounting for the Stock Purchase Agreement was improper because it classified all expenses associated with the agreement as D&A, when it should have recorded a material amount of those expenses as marketing expenses.  This misclassification caused Ashford.com to materially understate its marketing expenses in the financial statements for its Form 10-K for the year ended March 31, 2000 and its Forms 10-Q for the quarters ended June 30, September 30, and December 31, 2000.  Ashford.com's Form 10-K for the year ended March 31, 2000 and its Form 10-Q for the quarter ended June 30, 2000 improperly failed to disclose how the company had classified expenses under the Stock Purchase Agreement. 
+
+ Finally, in the financial statements included in its March 31, 2001 Form 10-K, Ashford.com failed to disclose that it had made a significant change in its accounting policy: the reclassification of all fiscal 2001 expenses under both the Stock Purchase Agreement and the New Customer Agreement as marketing expenses.  This Form 10-K also failed to disclose that certain numbers presented as historical data had been reclassified. 
+
+ As a result, Ashford.com violated Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Kurtzman violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder and was a cause of Ashford.com's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.  Bergeron violated Exchange Act Rule 13b2-1 and was a cause of Ashford.com's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+
+ C. Amazon.com's Violations 
+
+ Section 21C of the Exchange Act provides that the Commission may order any person who is or was a cause of a violation of any provision of the Exchange Act, due to an act or omission the person knew or should have known would contribute to the violation, to cease and desist from causing such violations.  A person may be a cause of a non-scienter based violation, such as a reporting violation, through negligent conduct that contributes to the violation.   See KPMG, LLP v. SEC , 2002 U.S. App. LEXIS 9119, *25-27 (D.C. Cir. May 14, 2002).  Intentional or reckless conduct is not required.   See id. at *25-27.  
+
+ The Amazon.com employees who negotiated and drafted the resolution of the Valentine's Day promotion on Amazon.com's behalf should have known that the purpose of splitting the settlement into two letters was to allow Ashford.com to delay the recognition of expenses.  Amazon.com's acquiescence in a settlement documented with two letters facilitated Ashford.com's improper deferral of expenses. 
+
+ As a result, Amazon.com was a cause of Ashford.com's violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ V. 
+Findings 
+
+ Based on the foregoing, the Commission finds that: 
+
+ A. Ashford.com, Inc. violated Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder; 
+
+ B. Kenneth E. Kurtzman violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and was a cause of Ashford.com's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; 
+
+ C. Brian E. Bergeron violated Exchange Act Rule 13b2-1 and was a cause of Ashford.com's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and 
+
+ D. Amazon.com, Inc. was a cause of Ashford.com's violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ VI. 
+Order 
+
+ Accordingly,  IT IS HEREBY ORDERED , pursuant to Section 21C of the Exchange Act that: 
+
+ A. Ashford.com cease and desist from committing or causing any violation, and any future violation, of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder; 
+
+ B. Kenneth E. Kurtzman cease and desist from committing or causing any violation, and any future violation, of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from causing any violation, and any future violation, of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; 
+
+ C. Brian E. Bergeron cease and desist from committing or causing any violation, and any future violation, of Exchange Act Rule 13b2-1, and from causing any violation, and any future violation, of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and 
+
+ D. Amazon.com, Inc. cease and desist from causing any violation, and any future violation, of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1     Ashford.com made a $6 million, non-refundable payment to Amazon.com up-front and agreed to make four quarterly payments of $500,000.  If Amazon.com failed to meet the 45,000 new customer goal, Ashford.com would not have been required to make the last quarterly payment, and if Amazon.com failed to deliver 40,000 new customers, Amazon.com would have been required to refund the three previous quarterly payments made by Ashford.com. 
+
+   2     Ashford.com executives also believed that the Stock Purchase Agreement, by creating a relationship with Amazon.com, would provide intangible benefits to Ashford.com. 
+
+   3    For example, one coupon offered $75 off any purchase of more than $100. 
+
+   4     At Ashford.com, Bergeron determined that one of the proposals was unacceptable, and he recommended that the company not resolve the dispute in this manner. 
+
+   5     The figure of $177.78 per customer was calculated by dividing $8 million by the 45,000 customer goal. 
+
+   6     Ashford.com employees thought that this structure would enable it to record expenses of $533,340 in the quarter ended March 31, 2000 and to defer $1,511,130 of expenses to later reporting periods. 
+
+   7     Generally, analysts calculated the cost by dividing the quarterly marketing expenses line item by the number of new customers Ashford.com reported during the quarter. 
+
+   8     Ashford.com's press releases also contained the company's GAAP results and disclosed that the pro forma results excluded depreciation and amortization expenses. 
+
+   9     After providing Ashford.com's auditors with the March 27 letter, Kurtzman signed a revised management representation letter, dated June 12, 2000.  This representation letter, like the earlier one, inaccurately reflected the terms of the Valentine's Day promotion settlement.  Because Ashford.com had provided its auditors with the March 27 letter, however, the June 12 representation letter no longer described the agreement as  verbal . 
+
+   10     APB Opinion No. 20, paragraph 7 states:  "A change in accounting principle results from adoption of a generally accepted accounting principle different from the one used previously for reporting purposes.  The term accounting principle includes `not only accounting principles and practices but also the methods of applying them.'"  Paragraph 17 of APB 20 states, "The nature of and justification for a change in accounting principle and its effect on income should be disclosed in the financial statements of the period in which the change is made.  The justification for the change should explain clearly why the newly adopted accounting principle is preferable."  In addition, as required by Regulation S-K, Ashford.com's September 30 Form 10-Q should have contained a letter from its independent accountants indicating whether, in their judgment, this change in accounting principle was preferable under the circumstances.  Ashford.com failed to obtain and file this "preferability letter." 
+
+   11     Statement of Financial Accounting Concepts No. 5 ("CON5"), paragraph 20, requires that "[c]lassification in financial statements facilitate[] analysis by grouping items with essentially similar characteristics and separating items with essentially different characteristics."  The New Customer Agreement was, essentially, a marketing agreement, and expenses thereunder should therefore have been classified as marketing expenses. 
+
+   12     Previous filings by Ashford.com had not disclosed how these expenses were classified. 
+
+   13     See  CON5 at ¶ 20 (stating that "essentially similar" items should be classified together).  Moreover, companies typically classify as D&A only the depreciation and amortization of "long-lived" assets (assets amortized over a period exceeding one year).  Assets that are not "long-lived," such as prepaid expenses for rent, insurance or advertising, are systematically recognized and classified on a company's income statement according to their nature: rent, insurance or advertising expenses, respectively. 
+
+   14     Ashford.com's Forms 10-Q for the quarters ended September 30, 2000 and December 31, 2000 disclosed that expenses under the Stock Purchase Agreement were classified as D&A.  Ashford's Form 10-K for the year ended March 31, 2001 disclosed that expenses under the Stock Purchase Agreement were classified as marketing expenses. 
+
+   15     Ashford.com reclassified $71 million in expenses under the Stock Purchase Agreement and $5.5 million in expenses under the New Customer Agreement. 
+
+   16     Ashford.com's earnings announcement for the year ended March 31, 2001 similarly presented reclassified "historical" numbers. 
+
+ 
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diff --git a/raw/aaer/2002/AAER-1574.txt b/raw/aaer/2002/AAER-1574.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c458fe8e691d7741f45371ce3713014ff105e240
--- /dev/null
+++ b/raw/aaer/2002/AAER-1574.txt
@@ -0,0 +1,1389 @@
+
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+     SEC.gov | Ashford.com, Inc., Kenneth E. Kurtzman, Brian E. Bergeron andAmazon.com, Inc. 
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+              Ashford.com, Inc., Kenneth E. Kurtzman, Brian E. Bergeron andAmazon.com, Inc.
+           
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+ 
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+        Ashford.com, Inc., Kenneth E. Kurtzman, Brian E. Bergeron andAmazon.com, Inc.
+       
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+
+ Litigation Release No. 17550 / June 10, 2002
+  Accounting and Auditing Enforcement 
+ Release No. 1574 / June 10, 2002 
+
+    Securities and Exchange Commission v. Kenneth E. Kurtzman and Brian E. Bergeron , 1:02CV01126 (D.D.C.) (June 10, 2002). 
+
+   In the Matter of Ashford.com, Inc., Kenneth E. Kurtzman, Brian E. Bergeron and Amazon.com, Inc. , Administrative Proceeding File No. 3-10797 and Securities Exchange Act Release No. 46052.
+
+   SEC FILES SETTLED CEASE-AND-DESIST ORDER AGAINST ASHFORD.COM, INC., TWO OF ITS EXECUTIVES AND AMAZON.COM, INC.; THE COMMISSION FINDS THAT ASHFORD.COM BEAT ANALYSTS' PRO FORMA EARNINGS EXPECTATIONS BY MISSTATING ITS GAAP RESULTS 
+
+
+
+  The Securities and Exchange Commission announced today the filing of a civil action filed in federal court against Kenneth E. Kurtzman (Ashford.com's former Chief Executive Officer) and Brian E. Bergeron (Ashford.com's former Vice President for Finance).  Kurtzman and Bergeron consented, without admitting or denying the allegations in the Commission's complaint, to pay civil penalties of $60,000 and $25,000, respectively.  
+
+  The Commission also announced the filing of a settled cease-and-desist order against Ashford.com, Inc., Kurtzman, Bergeron and Amazon.com, Inc.  The Commission's Order finds that, in March 2000, Kurtzman and Bergeron, on behalf of Ashford.com, improperly deferred $1.5 million in expenses under a contract with Amazon.com, causing Ashford.com to materially understate its marketing expenses and allowing the company to report a pro forma net loss of $0.30 per share, just beating analysts' pro forma earnings estimates of a net loss of $0.31 per share for the quarter ended March 31, 2000.  Without the understatement, Ashford.com would have reported a pro forma loss of $0.32 per share.  The improper deferral resulted from the settlement of a dispute with Amazon.com using two separate documents which were prepared by Amazon.com at Ashford.com's request.  Ashford.com subsequently failed to disclose one of the two documents to its auditors.  
+
+  The Order also finds that in September 2000, Ashford.com misstated its pro forma results by changing the classification of expenses on its income statement.  In two previous quarters, Ashford.com had properly classified these expenses as marketing expenses.  But in September 2000, without disclosing that it had made a change, Ashford.com classified the expenses as "depreciation and amortization," which improved the company's pro forma results (which did not take depreciation and amortization into account).
+
+
+
+  Additionally, during 2000, Ashford.com misclassified a portion of the expenses arising under its contracts with Amazon.com, causing Ashford.com to materially understate its reported marketing expenses and improve its pro forma results.  Under these agreements, Ashford.com issued common stock in exchange for advertising placements and an agreement not to compete.  Ashford.com, however, classified all of the expenses under this contract as "depreciation and amortization."  This classification was not in conformity with Generally Accepted Accounting Principles, because Ashford.com should have classified the portion attributable to advertising placements as marketing expenses. 
+
+  The Commission's Order further finds that:
+
+      Ashford.com violated Sections 10(b), 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder;
+
+       Kurtzman violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and was a cause of Ashford.com's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder;
+
+       Bergeron violated Exchange Act Rule 13b2-1 and was a cause of Ashford.com's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and
+
+       Amazon.com, Inc. was a cause of Ashford.com's violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
+   Ashford.com, Kurtzman, Bergeron and Amazon.com consented, without admitting or denying the findings in the Commission's Order, to cease-and-desist from committing or causing violations of the provisions of the federal securities laws cited above.  The allegations in the Commission's civil action are substantially the same as set forth in the Commission's Order.  
+  
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diff --git a/raw/aaer/2002/AAER-1576.txt b/raw/aaer/2002/AAER-1576.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4e3ac0154d81a86a1235b9d787be5f8a370313e6
--- /dev/null
+++ b/raw/aaer/2002/AAER-1576.txt
@@ -0,0 +1,1372 @@
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+                                                                                                                                                                                                                                                                                                                                                 
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+              Patrick O. Wheeler, Steven S. Gallers, and Robert L. Carberry
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Patrick O. Wheeler, Steven S. Gallers, and Robert L. Carberry
+       
+
+             
+   
+
+
+        
+                   
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+    
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+             
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+
+ LITIGATION RELEASE NO.  17561 / June 12, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1576 / June 12, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION v. PATRICK O. WHEELER, STEVEN S. GALLERS, and ROBERT L. CARBERRY , Case No. 02-60131-CIV-GRAHAM (S.D. Fla.) 
+
+   CYBERGUARD CORPORATION'S FORMER CONTROLLER SETTLES  
+  SEC FRAUD CHARGES AND AGREES TO PAY $50,000 PENALTY 
+
+  On June 6, 2002, the United States District Court for the Southern District of Florida entered a final judgment against Steven S. Gallers, the former controller and assistant treasurer of CyberGuard Corporation, in an accounting fraud case filed by the Securities and Exchange Commission in January 2002. Without admitting or denying the allegations of the Commission's complaint, Gallers consented to the entry of the final judgment, which permanently enjoins him from violating the securities antifraud, books-and-records, and internal controls provisions of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, bars him from acting as an officer or director of a publicly-traded company, and requires him to pay a $50,000 civil penalty.
+
+  The Commission's complaint, filed on January 30, 2002, alleged that Gallers and two others engaged in securities fraud and other violations while officers of CyberGuard, a Fort Lauderdale-based company in the business of developing and selling computer network security systems. According to the complaint, Gallers improperly recorded revenue from contingent transactions and accelerated revenue recognition on after-quarter shipments of CyberGuard products over seven fiscal quarters ended March 31, 1998, and knew, or was reckless in not knowing, that CyberGuard's financial results were materially misstated as a result.  One of the other defendants - Robert L. Carberry, who was CyberGuard's former chairman, chief executive, and president - previously settled with the Commission.   See   Litigation Rel. No. 17346  (Jan. 30, 2002).  The case against the remaining defendant - Patrick O. Wheeler, who was CyberGuard's former chief financial officer and vice president of North American sales, and is the company's current vice president of business development - is still pending.
+  
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+ 
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+  
+       SEC Complaint  in this matter.  
+  
+ 
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diff --git a/raw/aaer/2002/AAER-1577.txt b/raw/aaer/2002/AAER-1577.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4c427e2e07f74aa2e585559d94afdb4f880560b7
--- /dev/null
+++ b/raw/aaer/2002/AAER-1577.txt
@@ -0,0 +1,1385 @@
+
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+     SEC.gov | John Daws, Thomas Butler and Mark Folit 
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+              John Daws, Thomas Butler and Mark Folit
+           
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+ 
+
+   
+
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+
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+        John Daws, Thomas Butler and Mark Folit
+       
+
+             
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+
+
+        
+                   
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+
+ Litigation Release No. 17564 / June 14, 2002
+
+  Accounting and Auditing Enforcement Release No.  1577 / June 14, 2002
+
+  SEC Settles Charges against John Daws for His Involvement in Financial Reporting Fraud at Cylink Corporation
+
+   Securities and Exchange Commission v. John Daws, Thomas Butler and Mark Folit , United States District Court for the Northern District of California, Civil Action No. C 01-3362 VRW
+
+  The Securities and Exchange Commission announced that on May 15, 2002, the Honorable Vaughn Walker, United States District Judge for the Northern District of California, issued a Final Judgment of Permanent Injunction and Other Relief against John H. Daws, the former Chief Financial Officer of Cylink Corporation. 
+
+  Without admitting or denying the Commission's allegations, Daws consented to the entry of a final judgment that: permanently enjoins him from violating the antifraud provisions (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder); from circumvention of Cylink's internal controls and falsification of records (Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder); from making misrepresentations or material omissions to accountants (Rule 13b2-2); and from aiding and abetting Cylink's violations of the periodic reporting and books and records provisions (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder).  
+
+  In addition, the final judgment orders him to disgorge ill-gotten gains which he had received in the form of a performance bonus of $30,000, to pay prejudgment interest and to pay a civil penalty of $100,000.
+
+  The Commission's complaint, filed on September 27, 2000, alleged that in order to meet Cylink's ambitious revenue goals, Daws, in conjunction with other former Cylink officers, led the Company to recognize revenue on numerous transactions that violated Cylink's own revenue recognition policy, generally accepted accounting principles, or both, for the fourth quarter of 1997 and the first two quarters of fiscal 1998.
+
+  The complaint alleges that in the fourth quarter, Daws directed that Cylink improperly recognized revenue for Cylink's wireless division on a $3.7 million shipment to a warehouse in which the transaction was not final because Cylink's customer had failed to provide a letter of credit to support its order.  The complaint further alleges that Daws failed to disclose this material information about the transaction to the firm's outside auditors, PriceWaterhouseCoopers, in connection with the 1997 audit.  Because Cylink sold its wireless division to another company in early 1998, the effect of this transaction appears in Cylink's restated financial statements in the line item for income from discontinued operations.
+
+  In addition, the complaint alleges that, in the second quarter of fiscal 1998, Cylink recognized over $900,000 in revenue on a transaction that was not final because the customer still had up to 90 days to cancel the order.  In another instance alleged in the complaint, Cylink recognized revenue on orders from a distributor even though the defendants had reason to believe the distributor could not pay for the product.  The complaint also alleges that Cylink recognized revenue on software product orders that were contingent on the customers' rights to exchange the software for Cylink hardware products.  Cylink overstated its quarterly revenue by as much as 97.5% during the period of the fraud, according to the Complaint.
+
+  After the fraud was uncovered, Cylink issued restated financials that sharply reduced its results for the periods in question.  For the year-ended 1997, Cylink reported revenue of $49.3 million, income from discontinued operations of $4.5 million and a net loss of $58.8 million.  Cylink's restatement reduced revenue to $47.7 million, reduced income from discontinued operations to $3.2 million and widened the net loss to $61.7 million.  Originally reported revenue and earnings from discontinued operations were overstated 3.4% and 41.7%, respectively.  The originally reported net loss was understated by 4.8%.
+
+  For the first quarter of fiscal 1998, the Company restated revenue from $15.8 million to $8 million (a 97.5% overstatement) and net income from continuing operations of $1.1 million to a net loss from continuing operations of $3.4 million.  For the second quarter of fiscal 1998, the Company restated revenue from $18 million to $12.4 million (a 45% overstatement) and net income of $1.7 million to a net loss of $1.7 million. 
+
+  The other two defendants, Thomas Butler and Mark Folit, had previously settled with the Commission.
+  
+
+ 
+
+  
+       SEC Complaint  in this matter.  
+  
+ 
+
+ -->
+ 
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diff --git a/raw/aaer/2002/AAER-1578.txt b/raw/aaer/2002/AAER-1578.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a4f7ee11c1ff6ef3c101a2220b28a52bd5209cb7
--- /dev/null
+++ b/raw/aaer/2002/AAER-1578.txt
@@ -0,0 +1,1380 @@
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+       
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+
+ Litigation Release No. 17558 / June 12, 2002
+
+   SEC v. Paul Skulsky, et al. , No. CV-02-1524 (E.D.N.Y.) (DRH)
+
+  JUDGMENTS ENTERED AGAINST FIVE DEFENDANTS IN FINANCIAL 
+ FRAUD CASE CONCERNING APPONLINE.COM, INC. 
+
+  The Commission announced that on May 21, 2002 the Honorable Denis R. Hurley of the United States District Court for the Eastern District of New York entered partial final judgments with respect to five defendants named in the Commission's action alleging financial reporting fraud involving AppOnline.com, Inc. ("AppOnline"), a now bankrupt Melville, New York mortgage bank.  
+
+  The Court entered partial judgments against defendants Paul Skulsky, Jeffrey Skulsky, Edward Capuano ("Capuano"), Cindy Eisele ("Eisele") and Joseph Casuccio ("Casuccio"), all of whom consented to the entry of the judgments, without admitting or denying the allegations in the Commission's complaint. 
+
+  The judgments permanently enjoin Paul Skulsky, Jeffrey Skulsky, Capuano, Eisele, and Casuccio from further violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b), 13(a), 13(b), 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13b2-1, and 13a-13 thereunder.  In addition, the judgments bar Paul Skulsky, Jeffrey Skulsky, and Capuano from acting as an officer or director of a public company.  
+
+      Paul Skulsky, Jeffrey Skulsky, Capuano, Eisele and Casuccio have all entered guilty pleas to various criminal charges arising out of the same conduct identified in the Commission's complaint.  Additional relief sought in the Commission's complaint is deferred until completion of the criminal proceedings now pending against these defendants in the United States District Court for the Eastern District of New York.
+
+      The Commission's complaint, filed on March 12, 2002, alleges that, from May 1997 through June 2000, AppOnline engaged in two simultaneous schemes to defraud AppOnline's public investors.  First, AppOnline diverted at least $60 million AppOnline's lenders had advanced to fund specific mortgage loans and used those funds to pay AppOnline's operating expenses.  To conceal the misappropriation, AppOnline prepared false and misleading financial reports that were filed with the Commission.  Second, AppOnline manipulated the public market for its stock by paying bribes in exchange for three brokerage firms recommending the purchase of AppOnline stock to their retail customers.  
+
+  The Commission's complaint alleges that Paul Skulsky (a former  de   facto  officer and control person of AppOnline), Jeffrey Skulsky (AppOnline's former president and a director), Capuano (AppOnline's former Chief Executive Officer), Eisele (AppOnline's former Chief Financial Officer) and Casuccio (the audit partner for the audit of AppOnline's December 31, 1997 and 1998 financial statements) participated in AppOnline's financial reporting fraud. 
+
+               The Commission continues to prosecute the litigation against the remaining defendants. [ SEC v. Paul Skulsky, et al. , No. CV-02-1524 (E.D.N.Y.) (DRH)] ( LR-17407 ).
+  
+
+ 
+
+  
+       SEC Complaint  in this matter.  
+  
+ 
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diff --git a/raw/aaer/2002/AAER-1579.txt b/raw/aaer/2002/AAER-1579.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b9b22697b591167169237fe06ef1269dc6f0dfbe
--- /dev/null
+++ b/raw/aaer/2002/AAER-1579.txt
@@ -0,0 +1,1786 @@
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+              Rite Aid Corporation
+           
+     
+ 
+
+   
+
+     
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+      
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+             
+        Rite Aid Corporation
+       
+
+             
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+
+
+        
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+             
+                        
+             
+ Securities Exchange Act of 1934
+ Release No.   46099 / June 21, 2002
+  Accounting and Auditing Enforcement
+ Release No.   1579 / June 21, 2002
+  Administrative Proceeding 
+ File No.  3-10808 
+
+         In the Matter of  
+   RITE AID CORPORATION,  
+       Respondent.   
+     
+    : : : : : :   
+      ORDER INSTITUTING PUBLIC 
+ PROCEEDINGS PURSUANT TO 
+         SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+  FINDINGS, AND IMPOSING A
+   CEASE-AND-DESIST ORDER          I. 
+
+
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted against Rite Aid Corporation ("Rite Aid" or "the Company") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+      II. 
+
+    In anticipation of the institution of these proceedings, Rite Aid has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's finding of jurisdiction over Rite Aid and the subject matter of these proceedings, which Rite Aid admits, Rite Aid consents to the issuance of this Order Instituting Public Proceedings Pursuant to Section  21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order") and to the entry of the findings and imposition of the cease and desist order set forth below.
+
+     III. 
+
+     FINDINGS 
+
+    On the basis of this Order and the Offer submitted by Rite Aid, the Commission finds  1   that: 
+
+     A. The Respondent  
+
+    Rite Aid is a Delaware corporation with principal offices located in Camp Hill, Pennsylvania.  Rite Aid is one of the nation's largest drugstore chains, operating more than 3500 stores located in twenty-eight states and the District of Columbia. Rite Aid's stock is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act and is listed on the New York Stock Exchange.  
+
+     B. Summary 
+
+    Rite Aid's former senior management team engaged in a financial fraud that materially overstated the Company's net income for the fiscal years ("FY") 1998, 1999, the intervening quarters and the first quarter of FY 2000.  2    In addition, the former senior management failed to disclose material information, including related party transactions, in Proxy and Registration Statements, as well as a Form 8-K filed in February 1999.  Initially in July 2000 and later in October 2000, Rite Aid restated reported cumulative pre-tax income by a total of $2.3 billion and cumulative net income by $1.6 billion.  Rite Aid's massive restatement was, and to this day is, the largest financial restatement of income by a public company.
+
+  As a result of the improper acts and accounting practices described below, Rite Aid violated the reporting, books and records, and internal controls provisions of the Exchange Act.  3    The Commission notes that Rite Aid cooperated in the Commission's investigation of this matter, including declining to assert its attorney-client privilege with regard to various matters relevant to the investigation and voluntarily providing the Commission staff with full access to an internal investigation conducted by Rite Aid's counsel.  The Commission has considered the value of this cooperation in determining the appropriate resolution of this matter.  
+
+   
+
+     C. Rite Aid's Reported Financial Statements Were False and Misleading
+    and Its Books and Records Were Inaccurate 
+
+       1. Accounting Entries Affecting All Quarterly and Annual Financial Statements 
+
+    From at least the first quarter of FY 1998 through the first quarter of FY 2000, Rite Aid inflated net income by reducing its Vendor Accounts Payable and Cost of Goods Sold for unearned vendor credits.  For these periods, Rite Aid also failed to record as an expense the cost of the Company's stock appreciation rights program.  
+
+        a.   Improper Vendor Deductions/"Up-charges" 
+
+      Rite Aid systematically inflated deductions it took against amounts owed to vendors for damaged and outdated products ("D&Os").  For those vendors that did not require Rite Aid to return D&Os to them ("deduct vendors"), Rite Aid had the product destroyed and reported to the deduct vendors the quantity and dollar value of the destroyed product.  Rite Aid then deducted the dollar value of destroyed product from a future remittance to the vendor.  Rite Aid improperly inflated the quantities and dollar value of D&Os reported to the deduct vendors through a practice known within Rite Aid as the vendor "up-charge." The vendors did not agree to or know about the up-charge.  The effect of this practice was to overstate Rite Aid's reported net income.  In FY 1998 and FY 1999, Rite Aid overstated reported pre-tax income by approximately $8 million and $28 million, respectively, as a result of the undisclosed vendor up-charges.  
+
+        b.   Stock Appreciation Rights ("SARS") 
+
+      In May 1995, Rite Aid granted SARS to certain field managers.  These SARS gave the holders the right to receive in cash or Rite Aid stock an amount equal to the change in the price of Rite Aid's stock between the date of grant and the vesting date.  Under Generally Accepted Accounting Principles ("GAAP"), Rite Aid should have recorded an accrued expense each quarter based on the then-current market price of Rite Aid stock.  Rite Aid never recorded any such accruals.  In FY 1998 and FY 1999, Rite Aid should have recorded an accrued expense of approximately $22 million and $33 million, respectively.
+
+       2. Accounting Entries Affecting Quarterly Financial Statements Only 
+
+    Rite Aid had a practice of making unsubstantiated quarterly adjustments to cost of goods sold and expense accounts, and then reversing the adjustments in later periods.  The initial adjustments and subsequent reversals were not based on GAAP.  The practice had the effect of inflating earnings in the quarters that the adjustments were made, while deflating earnings in the quarters that the reversing entries were made.
+
+      a.  Reduction of Previously-Recorded Expenses 
+
+      In certain quarters from at least the first quarter of FY 1997 through the first quarter of FY 2000, Rite Aid reduced amounts already booked for various expenses incurred in its retail stores and at the corporate level.  Rite Aid typically reversed these expense reductions in the quarter subsequent to the one in which it had entered the reductions, thus returning the expenses to its books but reflecting them in an incorrect period.  For example, in connection with the closing of Rite Aid's books for the second quarter of FY 1998 (August 1997), Rite Aid credited its retail stores general ledger expense accounts for the month of August by a total of $9 million across eleven separate accounts.    The amounts credited in August were reversed in the following month, September.  The effect of the expense reductions was to overstate Rite Aid's pre-tax income for the second quarter of FY 1998 by $9 million. The reversal in the following month had the effect of understating pre-tax income in the third quarter of FY 1998.     
+
+        b.   Gross Profit Entries 
+
+      From at least the first quarter of FY 1997 through the first quarter of FY 2000, Rite Aid made adjusting entries known as "gross profit" entries.  This practice had the effect of lowering the Cost of Goods Sold and Accounts Payable accounts.  The gross profit entries were determined by one person without input or review by anyone and were completely unsubstantiated.  These entries caused material overstatements of Rite Aid's net income in each quarterly period in which they were made.  In the second quarter of FY 1999, for example, Rite Aid improperly reduced Cost of Goods Sold and Accounts Payable accounts by approximately $100 million.  As a result of these "gross profit" entries alone, Rite Aid overstated pre-tax income by $100 million in the second quarter of FY 1999.  In each of the relevant years, the gross profit entries made during the first three quarters of each fiscal year were reversed in the fourth quarter of that fiscal year.
+
+       3. Accounting Entries Recorded in the Fourth Quarter 
+That Affected the FY 1999 Financial Statements 
+
+   The reversal of the gross profit entries described above created an understatement of fourth quarter income that necessitated the recording of new entries in the fourth quarter that would overstate income in the fourth quarter by at least a like amount.   Some of these entries were recorded just as the fiscal year was ending or just after the year ended.  Rite Aid's reported net income of $143 million for fiscal year 1999 was materially overstated as a result of these entries. In fact, without such entries Rite Aid would have suffered a net loss for FY 1999.  4      
+
+
+
+        a.  Undisclosed markdowns 
+
+      In addition to the improper vendor deductions discussed in Section C.1.a above,   Rite Aid overstated its FY 1999 Net Income by falsely reporting to vendors as D&Os the cost of marking down the price of certain products in its stores. The vendors did not agree to share in the cost of the price markdowns and were misled by Rite Aid into believing that the deductions taken by Rite Aid in February 1999 were for D&Os.  These purported D&Os resulted in an overstatement of FY 1999 pre-tax income of approximately $30 million.
+
+          b.  Vendor Rebates 
+
+        On the last day of FY 1999, Rite Aid recorded reductions to accounts payable and cost of goods sold totaling $42 million. The reductions were based upon purported credits from two vendors. These credits, however, were expressly contingent upon Rite Aid's future sales of these vendors' products.  Rite Aid even went so far as to reopen its books to record an additional $33 million of these credits on March 11, 1999, subsequent to the close of the fiscal year, when it was readily apparent that the Company's results would fall short of Wall Street analysts' projections.  These entries violated GAAP because the credits were unearned as of FY 1999.  Moreover, the purchasing agreements pursuant to which Rite Aid might have earned these credits in the future were not consummated in legally binding form on or before February 27, 1999.
+
+    c.   Litigation Settlement 
+
+      In the fourth quarter of FY 1999, Rite Aid prematurely recognized a $17 million litigation settlement with one of the two vendors referenced in the paragraph above.  Rite Aid should not have recognized this sum because the settlement offer was expressly contingent upon the execution of a formal settlement agreement which did not take place until May 1999. Moreover, the litigation settlement was also contingent upon the execution of the purchasing agreement referenced in the prior paragraph, which was not finalized until May 1999.
+
+          d.  "Dead Deal" Expense 
+
+      Rite Aid incurred costs for matters such as legal services, title searches, and architectural drawings relating to sites being considered for possible construction of new stores.  Rite Aid capitalized these costs at the time they were incurred.  Subsequently, during FY 1999 (and during prior periods), Rite Aid determined not to construct new stores at certain of these sites.  Under GAAP, Rite Aid should have written off the capitalized costs relating to each site at the time that Rite Aid decided not to develop that site.  Such write-offs would have adversely affected Rite Aid's reported net income in the relevant periods.  Rather than write off these expenses (which Rite Aid called "dead deal" expenses), Rite Aid continued to carry them on its books as assets.  Despite knowing that writing such amounts off based on a budget was contrary to GAAP, Rite Aid's accounting department wrote off portions of these expenses at the fixed rate of $125,000 per month (later increased to $250,000 per month), rather than write off the full amount of dead deal expenses.  By February 27, 1999, the accumulated dead deal expense totaled approximately $10.6 million. 
+
+        e.   Will-Call Payables 
+
+      . Rite Aid often received payment from customer insurance carriers whether or not the customers actually picked up medication ordered by telephone.  Beginning in 1997, a member of Rite Aid's accounting staff recorded a "will-call" account payable that represented the total amount of payments received from private insurance carriers for prescription orders never picked up by customers.  Rite Aid reversed the will-call account payable without sufficient justification or basis in violation of GAAP.  Ultimately, the accrual was re-established and the $6.6 million attributable to the will-call payable was repaid to the insurance carriers.
+
+    f.    Inventory Shrink 
+
+        Rite Aid periodically conducted physical inventories of retail stores.  If the physical inventory count was less than the inventory carried on Rite Aid's books, Rite Aid wrote down its book inventory accordingly to reflect this "shrink" (i.e., reduction of inventory presumed due to physical loss or theft). In FY 1999, Rite Aid failed to record $8.8 million in shrink.  For retail stores in which a physical inventory was not conducted, Rite Aid recorded a shrink accrual, reflecting Rite Aid's estimate of the shrink during the period.  In FY 1999, Rite Aid improperly reduced the accrued shrink expense for 2,000 stores, resulting in an aggregate increase to income of $5 million.  As a result of this improper accounting for shrink, Rite Aid's pre-tax income for FY 1999 was overstated by $13.8 million.
+
+       4. Summary of Rite Aid's FY 1998, FY 1999 and 1 st  Quarter
+FY 2000 Overstatements of Pre-tax Income 
+
+         The quantifiable effect of Rite Aid's practices in the above-described areas on Rite Aid's reported pre-tax income are summarized below:
+
+  
+      
+  1st Q  
+  2nd Q  
+  3rd Q  
+   
+  1st Q  
+  2nd Q  
+  3rd Q  
+   
+  1st Q       
+  FY 1998  
+  FY 1998  
+  FY 1998  
+  FY 1998  
+  FY 1999  
+  FY 1999  
+  FY 1999  
+  FY 1999  
+  FY 2000          Reported  Pre-tax Income 
+ 114.3 
+ 101.5 
+ 113.7 
+ 530.0 
+ 151.3 
+ 135.2 
+ 144.7 
+ 199.6 
+ 141.1           Adjustments   
+      Corporate Entries 
+   
+   
+   
+   
+   
+   
+   
+   
+ 17.5    Retail Entries 
+ 0.0 
+ 9.0 
+ (4.0) 
+   
+ 1.0 
+ 12.2 
+ 1.7 
+   
+ 8.0    Gross Profit Entries 
+ 25.3 
+ 26.2 
+ 5.9 
+   
+ 47.1 
+ 100.4 
+ 39.6 
+   
+ 23.8    Undisclosed Up-charge 
+ 2.6 
+ 1.7 
+ 1.5 
+ 7.6 
+ 5.9 
+ 6.5 
+ 7.0 
+ 27.8 
+      Undisclosed Markdowns 
+   
+   
+   
+   
+   
+   
+   
+ 29.7 
+      Vendor Rebates 
+   
+   
+   
+   
+   
+   
+   
+ 75.6 
+      Litigation Settlement 
+   
+   
+   
+   
+   
+   
+   
+ 17.0 
+      Dead Deals 
+   
+   
+   
+   
+   
+   
+   
+ 10.6 
+      SARS 
+ 3.4 
+ 3.6 
+ 12.6 
+ 22.1 
+ 9.0 
+ 13.7 
+ 21.9 
+ 33.2 
+      Will-Call Payables 
+   
+   
+   
+   
+   
+   
+   
+ 6.6 
+      Inventory Shrink 
+   
+   
+   
+   
+   
+   
+   
+ 13.8 
+      Depreciation 
+   
+   
+   
+ 14.6 
+   
+   
+   
+   
+      Total Adjustments 
+ 31.3 
+ 40.5 
+ 16.0 
+ 44.3 
+ 63.0 
+ 132.8 
+ 70.2 
+ 214.3 
+ 49.3      
+   
+   
+   
+   
+   
+   
+   
+   
+      Corrected Pre-tax Income/(Loss) 
+ 83.0 
+ 61.0 
+ 97.7 
+ 485.7 
+ 88.3 
+ 2.4 
+ 74.5 
+ (14.7) 
+ 91.8      
+   
+   
+   
+   
+   
+   
+   
+   
+       Overstatement Percentage  
+  38%  
+  66%  
+  16%  
+  9%  
+  71%  
+  5533%  
+  94%  
+  N/A  
+  54%       
+   
+   
+   
+   
+   
+   
+   
+   
+      Notes: 
+ 1) Reported Pre-tax Income for the 2nd quarter of FY 99 is before a pre-tax charge for store closings of $289.7 million 
+             2) This table does not purport to show a complete listing of the adjustments recorded in Rite Aid's restatements.   See  footnote    3 of text. 
+
+     5.         Additional Misrepresentations and Omissions 
+      In Rite Aid's Public Filings 
+
+          a.   Misleading Disclosures of Related Party Transactions 
+
+      (i) Prompted by a series of newspaper articles in January 1999, Rite Aid filed a Form 8-K on February 9, 1999 purporting to disclose its CEO's interest in three properties that Rite Aid leased as store locations.  While the Form 8-K acknowledged that the CEO owned one of the three properties in a partnership with his relatives (in contrast with the CEO's prior public comments), the Form 8-K inaccurately stated that (1) the second property was owned by the CEO's brother-in-law but the CEO had no interest in the second property; (2) the third store was now on a new property controlled by an "unrelated entity;" and (3) the CEO had no participation in approval of any real estate deals in which "a related party or any person with whom he has business relationships is involved."  In fact, on February 9, 1999, (1) the CEO was still a partner in the second property; (2) the third store was now on property controlled solely by a man with whom the CEO had multiple real estate partnerships, including joint ownership of its previous location; and (3) the CEO approved the terms of the lease for the third location with the new "unrelated entity."  Prior to the February 9, 1999 Form 8-K, Rite Aid had not disclosed any of these related party transactions and relationships.
+
+      (ii) The February 9, 1999 Form 8-K also did not disclose dealings the CEO had involving an 83 acre parcel of land (the "Site") which was considered as a relocation site for Rite Aid's headquarters.  In January 1998, with the knowledge of other senior officers, the CEO caused $2.6 million to be transferred from Rite Aid to a partnership controlled by the CEO and a family member (the "Partnership").  The Partnership used $1.6 million to purchase the Site in its own name, and most of the balance to pay off debts of other partnerships involving the same partners.  Rite Aid subsequently paid over $1 million in costs connected to the Site even though it was owned by the Partnership and not by Rite Aid.  These costs were capitalized in Rite Aid's Land Holding account.  
+
+    (iii)  Shortly before the Form 8-K was filed in February 1999, the CEO transferred $2.9 million to Rite Aid from a personal bank account.        Soon after the Form 8-K was filed (with no mention of the Site), a published report questioned whether Rite Aid intended to relocate its headquarters to the Site.  Grass then provided an affidavit to Rite Aid's Board falsely stating that neither he nor any entity in which he had an interest had any business dealings with Rite Aid Corporation other than as described in the Form 8-K.  None of these facts, including the money transfers, were disclosed by Rite Aid in the Form 8-K or in proxy statements that Rite Aid distributed to shareholders for FY 1998 and FY 1999. 
+
+         b. Non-Disclosure of Debt Financing Issues 
+
+      (i)        In January 1999, Rite Aid acquired PCS Health Systems Inc. ("PCS"),  a pharmacy benefits manager, for $1.5 billion.  In order to finance the PCS deal, Rite Aid issued short-term commercial paper ("CP") backed by a $1.3 billion line of credit ("Credit Line").  By the end of September 1999 Rite Aid could not roll over its' CP for a variety of reasons.  Rite Aid approached its lenders in late September 1999 and asked to draw down on the Credit Line in order to repay maturing CP, but the request was denied because the creditors discovered that the company was not in compliance with the Credit Line's covenants. Instead, the CEO of Rite Aid pledged Rite Aid's ownership of PCS as collateral and paid $5 million in fees to obtain an interim facility from five banks that was used to pay off immediately maturing CP.  Four days later, the lending syndicate waived the covenant violations on the Credit Line, allowing Rite Aid to pay off the interim loan as well as additional maturing CP.  Rite Aid's interest in PCS was again used as collateral for the newly amended Credit Line. 
+
+            (ii) Rite Aid did not timely disclose its violation of the original loan covenants, the interim loan, or the pledge of PCS.  In fact, during a conference call with analysts on September 29, 1999, the CEO affirmatively denied that Rite Aid had used any sources other than the Credit Line to pay off CP, and failed to mention any of the other financing problems. 
+
+       6. Accounting Entry That Affected FY 1997 Pre-tax Income   
+
+  Rite Aid sometimes improperly recorded gains from the sale of stores as additions to reserve accounts rather than as income, and Rite Aid also improperly charged current or future period expenses against the same reserve accounts.  The most extreme example of this occurred in FY 97 in connection with Rite Aid's sale of 189 stores to another company for a gain that Rite Aid inaccurately calculated to be $90 million.  Rite Aid recorded this gain in a reserve account and improperly used the reserve to absorb an equivalent amount of operating expenses that should have been charged to the income statement.  As a result of these accounting practices, Rite Aid appeared to have achieved its reported net income for FY 1997 by controlling recurring operating expenses, when in fact it was by means of an undisclosed one-time nonrecurring gain of $90 million. The $90 million represented 34% of Rite Aid's $261 million Pre-tax Income for FY 1997.  Moreover, Rite Aid's FY 97 Form 10-K stated that " [g]ains from drugstore closings and dispositions were not significant."   This statement was misleading for the reasons discussed above.  The inaccurate FY 1997 financial statements were republished in Rite Aid's Forms 10-K for FY 1998 and FY 1999.
+
+
+
+     D. The Restatements 
+
+    Rite Aid restated its reported financial statements on July 11, 2000 and October 11, 2000 in a Form 10-K and an amended Form 10-K for FY 2000.  The Forms 10-K and 10-K/A restated reported cumulative pre-tax income by $2.3 billion and cumulative net income by $1.6 billion.
+
+   E. Legal Analysis 
+     Rite Aid Violated the Reporting, Record-keeping and  
+    Internal Controls Provisions of the Exchange Act 
+
+    1.  Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 require issuers to make and keep accurate books, records, and accounts, to file annual and quarterly reports with the Commission, and to keep reported information current and not misleading.  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain the accountability of assets.  No showing of scienter is necessary to find a violation of these provisions.   See   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978).   
+
+  2.  As described in detail above, Rite Aid's internal books, records, and accounts reflected numerous transactions that were invalid or without substantiation, had no legitimate business purpose, and were recorded in violation of GAAP.  Moreover, from at least 1997 to July 11, 2000, all of the annual and quarterly reports that Rite Aid filed with the Commission contained misleading financial statements. As a result, Rite Aid violated Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+  3. Rite Aid's system of internal accounting controls was not designed to provide reasonable assurances that transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP or to maintain the accountability of assets. Rite Aid's system of internal accounting controls failed to prevent, and indeed facilitated, the improper accounting practices described in detail above.  As a result, Rite Aid violated Section 13(b) of the Exchange Act and Rule 13(b)(2)(B) thereunder. 
+
+       IV. 
+
+    Rite   Aid   has submitted an Offer in which, without admitting or denying the findings herein, it consents to the Commission's entry of this Order, which (1) makes findings as set forth above; and (2) orders Rite Aid to cease and desist from committing or causing any violation, or any future violation, of certain provisions of the federal securities laws.  As set forth in its Offer, Rite Aid undertakes to cooperate with the Commission staff in connection with this action and any related judicial or administrative proceedings or investigation commenced by the Commission or to which the Commission is a party. 
+
+       V. 
+
+    Based on the foregoing, the Commission deems it appropriate to accept the Offer submitted by Rite Aid and to impose the relief specified herein.
+
+    Accordingly,  IT IS HEREBY ORDERED , effective immediately, that Rite Aid shall cease and desist from committing or causing any violation, and from committing or causing any future violation, of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and
+
+     IT IS FURTHER ORDERED  that Rite Aid comply with its undertaking described in Section IV. above.
+
+    By the Commission.
+
+      Jonathan G. Katz
+     Secretary
+
+  ___________________________
+      1     The findings herein are made pursuant to Rite Aid's Offer of Settlement and are not binding on any other person or entity in these or any other proceedings.
+
+      2       Rite Aid's FY 1998 and FY 1999 ended on February 28 th  and February 27 th , respectively.
+
+      3      Rite Aid's reported financial statements and internal records were replete with false and/or inappropriately recorded accounting entries for many years during the 1990s. This Order describes an illustrative subset of the issues that resulted in the Company's cumulative $2.3 billion overstatement of pre-tax income. This Order does not purport to set forth every problematic accounting issue, nor does it account for every entry included in the $2.3 billion restatement.  Rather, this Order focuses on the most egregious practices that occurred during FY 1998, FY 1999 and the 1 st  quarter of FY 2000.                
+
+      4       Rite Aid retroactively increased the estimated lives (periods of time) over which some groups of assets were depreciated, in violation of GAAP, which requires such changes to be done prospectively. There was no legitimate business purpose or supporting documentation for these changes. The effect of the retroactive depreciation changes resulted in increases to income, and caused some asset groups to have a negative depreciation expense.  Although the data to determine the effect of these changes on FY 1999 is not available, these changes resulted in an approximately $14.6 million overstatement of FY 1998 pre-tax income.       
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diff --git a/raw/aaer/2002/AAER-1580.txt b/raw/aaer/2002/AAER-1580.txt
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@@ -0,0 +1,1485 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Timothy J. Noonan 
+     
+     
+     
+     
+     
+     
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+              Timothy J. Noonan
+           
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+        Timothy J. Noonan
+       
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+
+ Securities Exchange Act of 1934
+ Release No.   46100 / June 21, 2002
+  Accounting and Auditing Enforcement
+ Release No.     1580 / June 21, 2002
+  Administrative Proceeding 
+ File No.  3-10809 
+
+         In the Matter of     
+   TIMOTHY J. NOONAN,    
+       Respondent. 
+     
+    : : : : : :   
+     ORDER INSTITUTING PUBLIC 
+PROCEEDINGS PURSUANT TO 
+ SECTION 21C OF THE SECURITIES  
+   EXCHANGE ACT OF 1934, MAKING 
+    FINDINGS, AND IMPOSING A 
+    CEASE-AND-DESIST ORDER          I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted against Timothy J. Noonan ("Noonan") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+      II. 
+
+  In anticipation of the institution of these proceedings, Noonan has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's finding of jurisdiction over Noonan and the subject matter of these proceedings, which Noonan admits, Noonan consents to the issuance of this Order Instituting Public Proceedings Pursuant to Section 21C Of The Securities Exchange Act Of 1934, Making Findings, and Imposing a Cease-And-Desist Order ("Order") and to the entry of the findings and imposition of the cease-and-desist order set forth below.
+
+                 III. 
+
+                 FINDINGS 
+
+    On the basis of this Order and the Offer submitted by Noonan, the Commission finds  1   that: 
+
+    A. Noonan was a director, president, and chief operating officer of Rite Aid Corporation ("Rite Aid") from March 1995 until December 1999.  Noonan was also interim chief executive officer from October 15, 1999 through December 5, 1999.     
+
+    B. Rite Aid is a Delaware corporation with principal offices located in Camp Hill, Pennsylvania.  Rite Aid is one of the nation's largest drugstore chains, which currently operates more than 3600 stores located in thirty states and the District of Columbia. Rite Aid's stock is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act and is listed on the New York Stock Exchange.
+
+    C. Rite Aid filed Forms 10-K for its fiscal years ended February 28, 1998 ("FY 1998") and February 26, 1999 ("FY 1999") (together, the Forms 10-K) that contained materially false and misleading financial statements and disclosures.  Noonan signed these Forms 10-K.
+
+    D. Rite Aid's FY 1998 and FY 1999 financial statements did not conform to Generally Accepted Accounting Principles with respect to a number of transactions and balances reported in the Forms 10-K.
+
+    E. Noonan participated in activities that caused Rite Aid to overstate its net income by, among other things, understating its vendor accounts payable and cost of goods sold. These understatements of accounts payable and cost of goods sold resulted from Rite Aid's improperly inflating deductions it claimed against outstanding payables it owed to its vendors.
+
+    F. Rite Aid had a practice since the early 1990's of systematically inflating deductions it took against amounts owed to vendors for damaged and outdated products ("D&Os"). For those vendors that did not require Rite Aid to return D&Os to them ("deduct vendors"), Rite Aid had the product destroyed and reported to the deduct vendors the quantity and dollar value of D&O product destroyed.  Rite Aid then deducted the dollar value of destroyed D&O product from a future remittance to the vendor.
+
+    G. Noonan was aware that Rite Aid improperly inflated the quantities and dollar value of D&Os reported to the deduct vendors through a practice known within Rite Aid as vendor "up-charge". The vendors did not agree to or know about the up-charge.
+
+    H. Rite Aid also falsely reported to the vendors as D&Os some price markdowns.  The vendors did not agree to share in the cost of the price markdowns and were misled into believing that the deductions taken by Rite Aid in February 1999 were for D&Os. Noonan participated in activities that caused Rite Aid to process unauthorized markdowns.
+
+    I. As a result of the vendor upcharge, Rite Aid overstated income before taxes for FY 1998 by approximately $7.6 million dollars, and for FY 1999 by approximately $27.8 million dollars.  As a result of the price markdowns, Rite Aid overstated income before taxes for FY 1999 by the additional amount of approximately $29.7 million.    
+
+    J. By reason of the conduct and events set forth above, Noonan committed or caused violations of Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused violations by Rite Aid of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+       IV. 
+
+    In view of the foregoing, the Commissions finds that Noonan committed or caused violations of Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused violations by Rite Aid of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The Commission notes the cooperation extended to the Commission staff by Noonan during the course of the Commission's investigation.  The Commission therefore deems it appropriate to issue a cease-and-desist order.
+
+    Accordingly,  IT IS HEREBY ORDERED , effective immediately, that Noonan shall cease and desist from committing or causing any violation or any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from causing any violation or any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+    By the Commission.
+
+      Jonathan G. Katz
+     Secretary
+  ________________________
+      1      The findings herein are made pursuant to Noonan's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.    
+
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diff --git a/raw/aaer/2002/AAER-1581.txt b/raw/aaer/2002/AAER-1581.txt
new file mode 100644
index 0000000000000000000000000000000000000000..887537b00657ac860ea2e2edbd5bba0f296c048f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1581.txt
@@ -0,0 +1,1437 @@
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+              Frank M. Bergonzi, Martin L. Grass, and Franklin C. Brown
+           
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+        Frank M. Bergonzi, Martin L. Grass, and Franklin C. Brown
+       
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+ LITIGATION RELEASE NO. 17577  / June 21, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+  RELEASE NO. 1581 / June 21, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION V.  FRANK M. BERGONZI, MARTIN L. GRASS, AND FRANKLIN C. BROWN,   1:CV02-1084 (M.D.Pa.)
+
+   RITE AID'S FORMER MANAGEMENT TEAM  
+  CHARGED WITH SECURITIES FRAUD BY SEC 
+
+
+  The Securities and Exchange Commission announced today that it filed accounting fraud charges in federal district court in the Middle District of Pennsylvania against three former senior executives of Rite Aid Corporation, the nationwide drug store chain based in Harrisburg, Pennsylvania.  The United States Attorney for the Middle District of Pennsylvania simultaneously announced related criminal charges.  
+
+  The Commission also announced today that it instituted separate settled cease-and-desist proceedings against Rite Aid and its former president and COO Timothy J. Noonan.  
+
+  In the civil action, the Commission charged that Martin L. Grass, Rite Aid's former long-time CEO, Frank M. Bergonzi, the drug chain's former CFO, and Franklin C. Brown, the former vice chairman and chief legal officer, were responsible for one of the most egregious accounting frauds in recent history.  The Commission also charged Grass and Brown with concealing certain related party transactions that enriched Grass at shareholder expense, and charged Grass with fabricating Board committee minutes in order to support a lie he told in connection with obtaining a loan critical to keeping Rite Aid in business. 
+
+  The Commission alleges that Grass, Bergonzi, and Brown conducted a wide-ranging accounting fraud scheme that resulted in the significant inflation of Rite Aid's net income in every quarter from May 1997 to May 1999.  After the discovery of improper and unsubstantiated accounting transactions, in July and October 2000 Rite Aid restated cumulative pretax income by a massive $2.3 billion dollars and cumulative net income by $1.6 billion dollars.  Rite Aid's restatement was, and to this day is, by far the largest financial restatement ever by a public company.  The Commission's subsequent investigation of the reasons for this massive restatement resulted in the current charges against the company and its former top managers.         
+
+  The Commission is seeking permanent injunctions prohibiting violations of the antifraud, reporting, books and records, internal controls, and other provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934; civil money penalties; bars against acting as officers and directors of public companies; and disgorgement of ill-gotten gains, including performance-based bonuses.  
+
+    The Commission's Complaint alleges as follows:
+
+      Summary  
+
+      From at least March 1997 through at least September 1999, the Defendants engaged in a fraudulent scheme to misrepresent Rite Aid's financial condition and result of operations, and to hide from public view the existence of certain transactions designed to enrich Grass at shareholder expense. They did this with the intent to enrich themselves through performance-based bonuses of stock and cash, and to keep the price of Rite Aid stock from falling as it would have if the public knew the truth about Rite Aid's actual financial condition and results of operations.
+
+       At the Defendants' direction and/or with their knowledge, for over two years Rite Aid's accounting staff entered into Rite Aid's books and records various kinds of false and misleading accounting entries based on unsubstantiated or otherwise inadequate information, frequently in violation of Generally Accepted Accounting Principles ("GAAP").  The information was generally supplied by Bergonzi but on occasion was also supplied by and/or originated with Grass or Brown. 
+
+       As a result of the misleading accounting entries, all of Rite Aid's publicly reported financial statements from 1997 through May 2000 were materially false or misleading, as were its registration statements and other documents relating to Rite Aid's offerings of securities.  
+
+       The misleading accounting entries enabled Rite Aid to report positive net income when in fact the Rite Aid should have reported materially lower income or losses for the affected periods.  For example, Rite Aid's reported pre-tax income was inflated by at least $214.3 million dollars for the fiscal year ended February 27, 1999 ("FY 1999"), turning Rite Aid's actual loss of  $14.7 million into a large reported profit.    
+
+       Rite Aid's pre-tax income was overstated by 54% for the first quarter of the period ended May 29, 1999 (the first quarter of fiscal 2000); by 71%, 5533%, and 94% for the first three quarters of FY 1999; by a huge (but indeterminable) percentage for FY 1999 as a whole; by 38%, 66%, and 16% for the first three quarters of the fiscal year ended February 28, 1998 ("FY 1998"), and by 9% for FY 1998 as a whole.    
+
+       In addition, the Defendants were responsible for public reports that failed accurately to disclose several related party transactions by Grass, including one in which Grass arranged for Rite Aid to transfer $2.6 million to a partnership between Grass and a relative purportedly for the purpose of purchasing a new 83-acre site for Rite Aid's headquarters.  When this undisclosed transaction unraveled, Grass and Brown attempted to conceal the fact that it had ever occurred. 
+
+       Finally, Grass made material misrepresentations to Rite Aid's lenders in order to obtained a critical loan from them based on a pledge of stock owned by Rite Aid.  In support of his false statement, he arranged for the creation of, and personally signed, minutes approving the stock pledge from a meeting of the Board's finance committee that in fact never occurred.
+     The Accounting Fraud  
+      Bergonzi caused Rite Aid to make improper accounting entries in the following subject areas:
+
+       Vendor-Related Accounting Irregularities  
+       Improper Vendor Deductions/"Upcharges" :  With the knowledge of Grass, Brown, and Bergonzi, Rite Aid systematically inflated deductions it took against future amounts owed to vendors for purportedly damaged and outdated products ("D&Os").   The vendors did not agree to or know about this practice.  In FY 1999 and FY 1998, Rite Aid overstated reported pre-tax income by approximately $28 million and $8 million, respectively.
+
+          Undisclosed Markdowns :  With the knowledge of Grass and Bergonzi, Rite Aid also overstated FY 1999 pre-tax income by $30 million by charging vendors for undisclosed markdowns relating to vendor products.  Like the upcharges, the vendors did not agree to or know about these markdowns.  Rite Aid misled them into believing that the deductions taken by Rite Aid were for D&Os.
+
+          Vendor Rebates :  With the knowledge of Grass and Bergonzi, Rite Aid improperly recognized $75 million from vendor rebates, which represented 37% of Rite Aid's reported pre-tax income for FY 1999.  At Bergonzi's direction, Rite Aid recognized $42 million of these rebates on the last day of FY 1999 and reopened its books after the close of the fiscal year to recognize the other $33 million.  Because the entries were based on expected credits from two vendors which in fact were expressly contingent upon Rite Aid's future sales of these vendors products, they should not have been recognized during FY 1999. 
+
+          Litigation Settlement :   In the fourth quarter of FY 1999, in order to help fill a $100 million shortfall perceived by Bergonzi, Grass, Brown and Bergonzi arranged for Rite Aid to prematurely recognize $17 million relating to a litigation settlement with one of the vendors referenced above.  It was improper to recognize the $17 million during this quarter because the settlement was contingent on the execution of a purchasing agreement and the finalization of a settlement agreement.  
+
+       Other Major Areas of Accounting Irregularities  
+
+           Stock Appreciation Rights ("SARs") : With the knowledge of Grass and Bergonzi, Rite Aid failed to account for SARs which gave certain field managers the right to receive in cash or Rite Aid stock an amount equal to the change in price in Rite Aid's stock between the date of grant and the vesting date.  Rite Aid should have recorded, but failed to record, an accrued expense of approximately $33 million for FY 1999 and $22 million for FY 1998.
+
+          Reductions of Previously-Recorded Expenses :  Bergonzi caused Rite Aid to improperly reduce previously-recorded expenses from at least the first quarter of FY 1998 through the first quarter of FY 2000.  Rite Aid routinely reduced amounts already booked for expenses in its retail stores and at the corporate level, typically in the quarter subsequent to the one on which it had entered the reductions.  For example, in the second quarter of FY 1998, Rite Aid in August credited expenses by a total of $9 million, and then reversed the entries in September.  The effect of the expense reduction was to overstate pre-tax income for the second quarter by $9 million, and to understate pre-tax income in the third quarter.  There was no support for these reductions.
+
+          Gross Profit Entries :  Bergonzi caused Rite Aid to record unsubstantiated "gross profit" entries that had the effect of lowering cost of goods sold and accounts payable, and therefore caused overstatements of net income in every quarter in which they were made.  For example, in the second quarter of FY 1999, as a result of these entries alone Rite Aid overstated pre-tax income by $100 million. 
+
+          "Dead Deal" Expense :  Bergonzi caused Rite Aid to improperly account for costs related to the development of store sites which Rite Aid later determined not to use.  Although the costs associated with these transactions (known within the company as "dead deals") should have been written off when Rite Aid decided not to develop the sites, Rite Aid instead carried the expenses on its books as assets and wrote them off over time (based on a budget) in violation of GAAP.  By February 27, 1999, the dead deal expense totaled $10.6 million.
+
+          "Will-Call Payables ":   Bergonzi caused Rite Aid to improperly recorded payments received from insurance carriers for medication ordered by customers over the telephone but that the customers never picked up.  Rite Aid reversed the $6.6 million "will-call" accounts payable in the fourth quarter of FY 1999 without basis and in violation of GAAP.  When the accounting department employee responsible for this area told the general counsel about this reversal, he directed that the payables be reinstated.  Bergonzi then directed that improper off-setting entries be recorded in the general ledger in a different account.  This achieved the same improper effect as had the original reversal.
+
+          Inventory Shrink :   Bergonzi allowed Rite Aid to under-accrue for inventory "shrink" or the reduction of inventory presumed due to physical loss or theft.  In FY 1999, Rite Aid failed to record $8.8 million in shrink, and improperly reduced the shrink account for 2000 stores resulting in an aggregate increase to income of $5 million.  As a result, Rite Aid's pre-tax income for FY 1999 was overstated by $13.8 million attributable to shrink.
+
+          Depreciation Charges :  Bergonzi caused Rite Aid to retroactively increase the estimated lives (periods of time) over which some groups of assets were depreciated, in violation of GAAP.  The effect of these changes resulted in an approximately $14.6 million overstatement of FY 1998 pre-tax income.
+       Fraud Relating to Concealed Related Party Transactions Benefiting Grass  
+      Based on false questionnaires provided by Grass, Rite Aid made material misrepresentations concerning three properties that Rite Aid leased as store locations.  Rite Aid was required to disclose these transactions as related party transactions.  After press reports in early 1999 prompted Rite Aid to correct previous disclosures, Grass not only did not provide correct information about the three properties, he and Brown actively concealed the existence of a transaction where Rite Aid had transferred $2.6 million to a real estate partnership between Grass and a relative.  The partnership used $1.8 million to purchase an 83-acre site in its own name, and used most of the balance to pay off debts of other partnerships involving Grass.  Rite Aid subsequently paid over $1 million in costs connected to this site, which purportedly would be used as Rite Aid's future headquarters, even though the site was entirely owned by the partnership.  
+
+        Instead of disclosing the transaction as he was obligated to do, Grass, with the knowledge of and help from Brown, took several actions to conceal it.  After press reports raised questions about the purpose of the site, Grass paid Rite Aid $2.9 million from his own personal account.  He also provide a false affidavit to the Board attesting that other than interests previously disclosed, neither he nor any entity associated with him "has or had" any business dealings with Rite Aid.  Grass and Brown also attempted to cover up the transactions by means of a false email and a back-dated letter.
+     Fraud Relating to Stock Pledge and Grass's Fabrication of Minutes  
+      In September 1999, when Rite Aid was in perilous financial condition and needed a significant loan, Grass falsely told the lead bank on Rite Aid's line of credit that the Board's finance committee had approved a stock pledge that was a condition of getting the needed loan.  He then arranged for the creation of minutes documenting the purported finance committee meeting and its purported results, even though no such meeting had ever occurred and the pledge had never been authorized.  Grass then signed these false minutes.   
+   Specifically, the Commission has charged all Defendants with violations of Section 17(a) of the Securities Act, Sections 10(b) and   13(b)(5) of the Exchange Act, and Rules 10b-5 ,  13b2-1, and 13b2-2 thereunder, and as controlling persons of Rite Aid pursuant to Section 20(a) of the Exchange Act, Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; Bergonzi, as a controlling person, with violations of Rule 13a-13 under the Exchange Act; and Grass and Brown, as controlling persons, with violations of Section 14(a) of the Exchange Act and Rules 14a-9(a) and Rule 13a-11 thereunder.       
+
+  The Commission also instituted separate settled cease-and-desist proceedings against Rite Aid and its former president and COO Timothy J. Noonan.  The Commission considered Rite Aid's and Noonan's cooperation during the investigation in determining the appropriate resolution of the proceedings against them
+
+  Rite Aid agreed to settle the action against it by consenting to a cease-and-desist order prohibiting it from committing or causing violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, the reporting, books and records, and internal controls provisions.  Rite Aid also agreed to cooperate with the Commission during any future judicial proceedings.  
+
+  Noonan agreed to settle the action against him by consenting to a cease-and-desist order prohibiting him from committing or causing violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the antifraud provisions of the Exchange Act, and from causing violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, the reporting, books and records, and internal controls provisions.  
+
+        *   *   *
+
+        The Commission acknowledges the assistance of the United States Attorney's Office for the Middle District of Pennsylvania in the investigation of this matter.
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diff --git a/raw/aaer/2002/AAER-1582.txt b/raw/aaer/2002/AAER-1582.txt
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+              Bruce Hill, et al.; Richard P. Vatcher
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+        Bruce Hill, et al.; Richard P. Vatcher
+       
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+ Litigation Release No. 17578 / June 21, 2002
+  Accounting and Auditing Enforcement Release No. 1582 / June 21, 2002
+
+  SEC CHARGES FORMER OFFICERS AND EMPLOYEES OF INSO CORP. WITH ACCOUNTING SCHEMES
+
+   SEC v. Bruce Hill, et al., (United States District Court for the District of Massachusetts, Civil Action No. 02-CV-11244 (EFH), Filed June 21, 2002) 
+
+   SEC v. Richard P. Vatcher,(United States District Court for the District of Massachusetts, Civil Action No. 02-CV-11245 (REK), Filed June 21, 2002) 
+
+    The Commission today filed two civil injunctive actions in federal district court in Massachusetts alleging separate revenue recognition schemes perpetrated during 1998 by former officers and employees of Inso Corp., now known as eBT International, Inc., a software company formerly located in Boston, Massachusetts and now headquartered in Providence, Rhode Island. The Commission's first complaint alleges that Inso's former general counsel, Bruce Hill of Belmont, Massachusetts, and a former vice president, Graham Marshall of Lexington, Massachusetts, engaged in fraud related to a phony $3 million sales transaction.  This complaint also charges Inso's former chief executive officer, Steven Paxhia of Boston, Massachusetts, with being liable for certain violations as a controlling person of Inso.  The Commission's second complaint alleges that another former Inso vice president, Richard Vatcher of Framingham, Massachusetts, engaged in fraud related to several false sales totaling approximately $3.6 million. Paxhia and Vatcher have offered to settle with the Commission.
+
+    The Charges Against Hill and Marshall  
+
+    The Commission's first complaint alleges that, when an anticipated sales transaction with a major customer failed to close prior to the end of Inso's third quarter on September 30, 1998, Bruce Hill and Graham Marshall arranged for a Malaysian distributor, who had no prior involvement in the transaction, to place a $3 million purchase order for the transaction that evening.  Because they promised the distributor that he would not have to pay Inso for the transaction, and that Inso, rather than the distributor, would resell the software to the intended end user, this transaction was a sham and should not have been included in Inso's reported financial results.  However, Hill and Marshall concealed the oral terms of the sale from Inso's finance department and, as a result, Inso improperly included the $3 million as revenue in its third quarter 1998 financial statements.  Thereafter, the sale of the software to the intended end user was never consummated, and Hill and Marshall took steps to cover up the fraudulent nature of the third quarter transaction.  Among other things, Hill orchestrated the providing of $4 million in letters of credit to the Malaysian distributor to finance his payment of the $3 million third quarter receivable and caused a false board resolution to be provided to Inso's bank purporting to authorize the letters of credit.
+
+    The complaint charges Hill and Marshall with violating the antifraud provisions of the federal securities laws [Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder]; circumvention of Inso's internal accounting controls and falsification of records [Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1]; lying to accountants [Exchange Act Rule 13b2-2]; and aiding and abetting Inso's uncharged violations of the periodic reporting and books and records provisions [Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder].  The complaint seeks permanent injunctions against Hill and Marshall, monetary penalties, disgorgement of losses avoided  from their sales of Inso stock during the period of the fraud, and an order barring them from serving as officers or directors of any public company.  
+
+    The Charges Against Paxhia  
+
+    The Commission's first complaint also charges Inso's former chief executive officer, Steven Paxhia, with liability, as a controlling person of Inso, for the company's uncharged violations of various provisions of the Exchange Act.  The complaint alleges that, after learning in the evening of the last day of the third quarter of 1998 that Inso had failed to conclude the $3 million transaction with a major customer, Paxhia authorized others at Inso to find a distributor for the deal before the end of the quarter.  Because of his position as CEO of Inso, Paxhia should have known that finding a distributor in so short a period risked having Inso enter a transaction that was not consistent with generally accepted accounting principles.  However, Paxhia did not take steps to learn about or prevent the side agreement with the Malaysian distributor and the fraudulent revenue recognition scheme carried out by Hill and Marshall.  He further did not inquire into certain factors concerning the transaction, such as that the Malaysian distributor engaged by Hill and Marshall had not previously been involved in the transaction and that, with little notice, the distributor purportedly accepted responsibility for a $3 million transaction on the last night of the quarter. 
+
+    The complaint charges Paxhia with being liable for certain of Inso's uncharged violations of the Exchange Act as a controlling person of Inso under Section 20(a) of the Exchange Act.  Without admitting or denying the allegations in the complaint, Paxhia has consented to entry of a final judgment permanently enjoining him from future violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, and 13a-13 thereunder.  He has also agreed to pay disgorgement of his losses avoided from the sale of Inso stock during the relevant time period of $101,000, including pre-judgment interest.
+
+    The Charges Against Vatcher  
+
+    The Commission's second complaint charges Richard Vatcher, Inso's former vice president of international sales, with a separate revenue recognition scheme that falsely boosted Inso's revenue by approximately $3.6 million during the first three quarters of 1998.  According to the Commission's complaint, in at least six transactions, Vatcher obtained sales orders from foreign customers by grantingside agreements allowing the customers to cancel the sales.  Because the customers had the right to cancel the sales, the transactions should not have been included in Inso's reported financial results. However, Vatcher failed to report the side agreements to Inso's finance department.  In at least one of the transactions, Vatcher falsified documents provided to Inso's finance department to conceal a side agreement that would have negated the recognition of revenue from the sale.  As a result of Vatcher's fraud, Inso improperly included approximately $3.6 million of revenue in its financial statements for the first three quarters of 1998.
+
+    Without admitting or denying the allegations in the complaint, Vatcher has consented to entry of a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13, and 13b2-1 thereunder.  He has also agreed to pay a $25,000 civil penalty.
+  
+
+ 
+
+          SEC v. Richard P. Vatcher  in this matter.         SEC v. Bruce Hill, Graham Marshall, and Steven Paxhia  in this matter.    
+
+ -->
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diff --git a/raw/aaer/2002/AAER-1584.txt b/raw/aaer/2002/AAER-1584.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7673120e3357aa1285a5585c4e08bdc4228e8be4
--- /dev/null
+++ b/raw/aaer/2002/AAER-1584.txt
@@ -0,0 +1,1659 @@
+
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+              Moret Ernst & Young Accountants, n/k/a Ernst & Young Accountants
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+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 46130 / June 27, 2002 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1584 / June 27, 2002 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-10815 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			  In the Matter of   
+
+			  MORET ERNST & YOUNG   
+			 ACCOUNTANTS, n/k/a   
+			 ERNST & YOUNG ACCOUNTANTS,   
+
+			  Respondent.   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS AND ORDER PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE  
+		 
+	 
+ 
+
+  I.  
+
+ The Commission deems it appropriate to institute public administrative proceedings against Moret Ernst & Young Accountants, located in the Netherlands and now known as Ernst & Young Accountants (hereinafter "Moret"), pursuant to Rule 102(e) of the Commission's Rules of Practice.  1   
+
+  II.  
+
+ In anticipation of the institution of these proceedings, Moret has submitted an Offer of Settlement, 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 facts, findings, or conclusions herein, except that Moret admits the Commission's jurisdiction over it in these proceedings and over the subject matter of these proceedings, Moret consents to the entry of this Order Instituting Public Administrative Proceedings and Order Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order"). 
+
+  III.  
+
+ The Commission finds that: 
+
+  A. Summary  
+
+ Respondent Moret, an accounting firm based in the Netherlands, audited the 1995, 1996, and 1997 financial statements of a major client at a time when consultants affiliated with Moret had joint business relationships with the same client that impaired Moret's independence as auditor. During the last of those audits, moreover, Moret used and relied on audit work performed by an affiliated accounting firm in the United States, which firm also lacked independence from the same client due to joint business relationships. Throughout the relevant period, the Moret audit client had securities that were registered with the Commission and were publicly traded in the United States, and Moret's audit reports were included in the audit client's public filings with the Commission. As discussed below, Moret violated the auditor independence requirements imposed by the Commission's rules and regulations and by generally accepted auditing standards ("GAAS"), and thereby engaged in improper professional conduct within the meaning of Rule 102(e) of the Commission's Rules of Practice. 
+
+  B. Respondent   
+
+ Moret is a professional services firm headquartered in the Netherlands that provides, among other things, accounting and auditing services. During the relevant period, Moret operated under the name Moret Ernst & Young Accountants, and was one of several affiliated partnerships known collectively as Moret Ernst & Young.  2   Moret was and still is a member firm of Ernst & Young International. 
+
+  C. Other Relevant Entities  
+
+ Baan Company N.V.   ("Baan") is a   business software company headquartered in the Netherlands.  3   During the relevant period, Baan's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and was quoted on the Nasdaq National Market. As a foreign private issuer, Baan filed annual reports with the Commission on Form 20-F, each of which included a Moret audit report on Baan's financial statements for the relevant periods. In August 2000, Baan was acquired by another company, and as a result of that acquisition is no longer a U.S. registrant. 
+
+ Ernst & Young LLP ("E&Y") is a limited liability partnership headquartered in New York, New York. At all relevant times, E&Y has been a member firm of Ernst & Young International, and has been engaged in the business of providing, among other things, accounting and auditing services. 
+
+  D. Facts  
+
+  1. Joint Business Relationships with Baan   
+
+ Baan was an audit client of Moret even before Baan's May 1995 initial public offering ("IPO") of common stock in the United States. In early 1995-when Baan was preparing for its IPO-the Moret partner and senior manager then responsible for the Baan audit familiarized themselves with the Commission's auditor independence requirements. In particular, they reviewed a summary of applicable independence rules that had been prepared for them by a partner at E&Y, an affiliated firm in the United States. From that summary, the Moret audit partner and senior manager created their own summary of applicable auditor independence requirements, along with a list of criteria for acceptable engagements. They then used this summary to educate Moret consultants on business-relationship restrictions. They also used this summary to evaluate whether contemplated relationships between Moret and Baan would violate applicable independence rules. Moret consultants nonetheless entered into certain joint business relationships with Baan, each of which impaired Moret's independence as Baan's auditor for one or more of Baan's 1995, 1996, and 1997 fiscal years. These joint business relationships are described below. 
+
+  a. The Dutch Subsidy Project   
+
+ Well before Baan's May 1995 IPO, one of the services performed by Moret consultants was the implementation of software purchased by customers of Baan (and customers of other business software companies as well), reflecting a common form of symbiotic relationship between software implementers and software sellers. In 1994, Moret and Baan deepened this software implementation relationship by jointly applying to the Dutch government for a subsidy to research and develop faster software implementation tools. Under the subsidy plan, Moret and Baan would split the subsidy awarded based on their respective hours billed and costs incurred for the project. 
+
+ Prior to the Baan IPO in May 1995, the Dutch government granted the subsidy application, and Moret and Baan started work on the project. The work on the project continued until approximately September 1995. Moret and Baan coordinated their efforts on the subsidized project. In early 1996, Moret submitted an accounting of Moret's and Baan's project expenses to the Dutch government, the accuracy of which was certified by the Moret audit partner then responsible for the Baan audit. Subsequently, the Dutch government paid the subsidy of approximately $100,000 to Moret, which in turn provided an accounting to Baan. The final accounting reflected a 51% / 49% split of the subsidy between the two parties, with Baan receiving the larger share, based on its larger proportional share of the project's total overhead costs. 
+
+  b. The Triton Partner Agreement   
+
+ In January 1995, Moret and a Baan affiliate entered into an agreement referred to as the "Triton Partner Agreement," which remained in effect until at least January 1997.  4   After stating that its primary purposes included enabling both Moret and Baan to benefit from their respective implementation expertise, the agreement made Moret a member of Baan's software implementation "Partner Program" whereby Moret consultants would implement Baan's software for third parties. The agreement also addressed the type of coordination of efforts by Baan and Moret to develop the software implementation tools for which the Dutch government had approved the subsidy described above. It also authorized Moret to use Baan's trademarks and required Moret to establish a "Baan Center of Excellence," to be staffed by at least three dedicated Moret consultants. Finally, the agreement established guidelines for coordination of the global alliance, a joint structure for managing Baan's and Moret's activities, mutual indemnification between the parties, and prohibitions against the disclosure of confidential information. 
+
+  c. Joint Marketing Activities  
+
+ In late 1995, Baan and Moret began jointly marketing their services to potential customers. While engaging in this activity, Moret consultants made plain that the parties viewed each other as business partners working together   to obtain customers. For example, in December 1995, Baan and Moret formed a coordinated account team to target one potential client. A Moret consulting partner wrote at the time: 
+
+ This team should create win/win/win situations; for [our potential client] to have an optimal product and services package for their business issues; for Baan to generate more sales within [the potential client;] and for [Moret] to generate more services at [the potential client]. 
+
+ In a similar vein, in a proposal to another potential customer, a Moret consultant stated: 
+
+ 
+ Baan and [Moret] have a world-wide  partnership . In this  partnership  both parties have made concrete arrangements of  working together  for clients. In practice this means that Baan and [Moret]  operate as one party  towards the client. Our activities are  fully integrated with and steered by the Baan project management . 
+ 
+
+ (Emphasis added.) In addition, Moret consultants and Baan engaged in discussions concerning joint marketing opportunities. 
+
+  d. Moret Consultants Acting as Baan Subcontractors or Baan Employees  
+
+ During the period in which Moret was Baan's external auditor, Baan occasionally lacked sufficient staff to meet its contractual obligations to third-party clients of Baan. On at least three such occasions, Baan requested Moret to provide it with specialized professional staff to assist it in completing a project for its client. In each case, Moret complied with the request and provided its own personnel to work on the Baan project, and in each case Moret: (i) billed Baan directly for the services of the Moret personnel; (ii) agreed to have its personnel report directly to Baan (and not to Baan's client); (iii) had no contract with Baan's client for the work its personnel performed; and (iv) provided-under Baan's direct supervision-services to Baan's clients that Baan was contractually obligated to provide. Also on each of these engagements, the Moret personnel functioned in a capacity identical to that of Baan's own employees. 
+
+ For example, in October 1996, Moret and Baan agreed that Moret would take over Baan's implementation responsibilities under its contract with a Turkish company. Moret consultants then worked on the Turkish project from October 1996 until July 1997, and Moret billed Baan approximately $327,923 in fees for that work. Baan also gave Moret consultants the authority to act on its behalf to complete this implementation project. Accordingly, Moret consultants signed documents and made presentations on Baan's behalf, and Moret consultants were listed in project documents as being members of the Baan implementation team. This project also resulted in a billing dispute between Moret and Baan, which further impaired Moret's independence as auditor. Moret's invoices for this project remained in dispute during Moret's audit of Baan's fiscal year 1996 financial statements, and ultimately did not get paid. 
+
+ In another instance in early 1997, Baan lacked sufficient skilled staff to complete a software implementation project for a Finnish company that was then Baan's third largest customer. To solve its problem, Baan temporarily hired employees with the requisite expertise from several of its consulting partners, including Moret. Thus, in February 1997, at Baan's request, Moret provided Baan with a Senior Finance Consultant to work on the Finnish project under Baan's direct supervision. Subsequently, as the project grew, Moret provided three other experienced consultants to work on the project, also at Baan's request. Each of these Moret consultants-who, just like Baan's own employees, reported directly to Baan's Finnish project director-was responsible for completing key aspects of the implementation, including development of training materials, software testing, and customization of the software. These Moret consultants were identified in project documents as being Baan employees. Although Moret consultants were given discrete responsibilities, Baan was ultimately responsible to the Finnish company for the success of the implementation. Moret consultants worked on the Finnish project through Moret's May 1998 resignation as Baan's auditor, and beyond. During the period that Moret was serving as Baan's auditor, Moret consultants billed and collected from Baan a total of $960,000 for work on the Finnish project. 
+
+ Moreover, at least one Moret consultant had managerial responsibilities for the Finnish implementation. In particular, this Moret consultant was designated as second-in-command on the project, and was given responsibility for acting as project director when the director-a Baan employee-was unavailable. Baan agreed to pay a premium to Moret for this consultant's services. In addition, Moret consultants on the Finnish project-just like Baan's own employees-were required to submit weekly time cards to Baan for approval by Baan and the Finnish company. Moret then billed Baan for the work, and Baan in turn paid Moret, but only after first collecting payment from the Finnish company. When Baan billed the Finnish company for the work performed by Moret consultants, Baan generally included a 25% mark-up over the hourly rate that Moret was charging Baan. Thus, in addition to directly helping Baan complete an implementation for an important customer, Moret's furnishing of consultants also contributed to Baan's profits. 
+
+ Finally, Moret professional staff also acted as Baan employees or subcontractors in a facility called the "Baan Support Center." As its name implies, the purpose of the Baan Support Center was to provide technical support for Baan's software customers. By late 1996, the Baan Support Center had a huge backlog of customer support requests, and needed temporary employees who had experience with Baan's software. Unable to find a sufficient number of employees with the requisite experience, however, Baan asked Moret to furnish the Baan Support Center with Moret employees having at least two years' experience with Baan's financial software package. Moret agreed to do so, and Moret personnel worked in the Baan Support Center from October 1996 through Moret's May 1998 resignation as Baan's auditor, and beyond. In the Baan Support Center, Baan personnel directly supervised the Moret employees, who had identical responsibilities to those of the Center's full-time Baan employees. For example, the Moret employees often had to contact Baan's customers-both for the purpose of identifying problems and of providing solutions-and even to access the Baan customers' computer systems to help diagnose their problems. When contacting customers (either orally or in writing), all Baan temporary employees-including those supplied by Moret-were required to identify themselves as Baan employees. In all, during the period that it was serving as Baan's auditor, Moret billed and collected from Baan approximately $600,000 for work its employees performed in the Baan Support Center. 
+
+  2. Reliance on the Work of a Non-Independent Auditor   
+
+  a. Background  
+
+ For Baan's 1995 fiscal year-the year in which Baan became a public company-E&Y audited the financial statements of Baan USA, which was Baan's U.S. subsidiary. In early 1996, however, E&Y resigned as external auditor for Baan USA so that it could, without violating the auditor independence rules, pursue joint business relationships with Baan, including subcontracting on software implementations and submitting joint proposals with Baan for software sales and implementation business.  5   
+
+ In early 1996, shortly following E&Y's resignation, Baan engaged a small accounting firm, headquartered near Baan USA's California offices (the "California Firm"), to audit Baan USA's financial statements for its 1996 fiscal year and to perform quarterly reviews. Prior to this engagement, the California Firm had limited experience auditing public companies or their subsidiaries, and did not issue audit reports for public companies because it was not insured to do so. However, the California Firm did not consider the Baan USA engagement to be a public company audit for three reasons: (i) the registrant was Baan, not Baan USA; (ii) Moret, not the California Firm, was the firm signing the Baan audit report; and (iii) as a condition of the engagement, Moret, while it made use of the California Firm's audit work, could not reference the California Firm's work in Moret's audit report. Under GAAS, Moret's refraining from making any reference to the California Firm's work meant that Moret assumed responsibility-and liability-for the California Firm's work on the Baan USA audit.  6   
+
+ By the summer of 1997, Moret faced a dilemma, which the Moret audit partner then responsible for the Baan audit engagement discussed with partners in E&Y's National Office: Moret wanted to continue to audit Baan, but no longer felt comfortable relying on-and assuming liability for-the California Firm's audit of Baan USA. This discomfort stemmed in part from the explosive growth of Baan USA, whose revenues were expected to account for as much as 40% of Baan's worldwide revenues for fiscal year 1997. To increase Moret's confidence in-and assuage its liability fears concerning-the Baan USA audit, the Moret audit partner and the E&Y National Office partners considered whether Baan could retain another "Big Six" firm to audit Baan USA. They soon discovered that, like E&Y, the other firms also lacked independence from Baan, because of consulting relationships. Subsequently, they began considering other possible solutions, including Baan's engagement of E&Y as its  internal  auditor for Baan USA. By September 1997, Moret was seeking input from E&Y's National Office regarding whether E&Y could, consistently with U.S. independence rules, accept this internal auditor role. 
+
+  b. E&Y's National Office Cautions Moret About Possible Impairment of Independence   
+
+ During E&Y's deliberations on the question of whether E&Y could serve as Baan's internal auditor, an E&Y National Office partner cautioned the Moret audit partner that internal audit work was "a grey area because it [could] directly affect the scope of external audit work and [was] hard to distinguish from external audit work in appearance." E&Y's National Office concluded that, unless such work by E&Y for Baan were carefully structured, it could give the appearance of E&Y significantly participating in Baan's external audit. Ultimately, E&Y's National Office determined that E&Y could act as internal auditors for Baan USA, but that the engagement should follow the standard U.S. rules for outsourcing the internal audit function in order to avoid the appearance of external audit services.  7   
+
+ After receiving guidance from E&Y's National Office regarding the internal audit solution, the Dutch Moret audit partner sent several e-mails to E&Y, in English, discussing the terms of the engagement. In these e-mails, the Moret audit partner requested "internal audit" procedures that Moret could use for its external audit of Baan. In one of them, the Moret audit partner wrote: 
+
+ 
+ [E&Y's procedures must] be adequate for us to use . . . for the external audit without having to supplement a lot of work. So they should be similar to a normal external audit plan, perhaps supplemented with some real internal audit stuff to further substantiate that this clearly is an internal audit . . . . 
+ 
+
+ In another e-mail, the Dutch Moret audit partner wrote: "We will have to do the year end audit [for] 1997 (using [the California Firm] as far as necessary)[; E&Y] will however also have to issue [a] report on the year end audit and then continu[e] without [the California Firm] in 1998." The Moret audit partner indicated that Moret might have to resign from the Baan audit if E&Y would not agree to perform internal audit work along the lines he wanted. In connection with this discussion, E&Y's National Office reiterated its view that any internal audit engagement should "follow the standard U.S. model to avoid the appearance of external audit services," and cautioned against the preparation of an "audit report" by E&Y. E&Y's National Office concluded that "sufficient audit coverage could be achieved within this framework to provide [Moret] with the assurance it needs to audit the consolidated accounts." 
+
+  c. Moret Violates the Independence Rules by Using and Relying Upon E&Y's Work in Moret's External Audit of Baan's 1997 Fiscal Year Financial Statements  
+
+ In auditing Baan's fiscal year 1997 financial statements, Moret used and relied on E&Y's purported "internal audit" work, and E&Y thereby became significantly involved in Moret's external audit. Among other things, E&Y and Baan had not signed an engagement letter;  8   E&Y received its instructions as to audit scope and critical audit areas from Moret (rather than Baan); E&Y, at Moret's request, performed procedures similar to, and redundant of, those performed by the California Firm as external auditor; Baan never authorized E&Y to perform any year-end procedures for fiscal year 1997; and E&Y did not provide a report to Baan, but did provide a draft report to Moret, which was included in Moret's working papers and never subsequently revised. 
+
+ In essence, E&Y's "internal audit" work took on the very role that E&Y's National Office had cautioned against: that of significant participation in Baan's year-end external audit. The California Firm conducted a full scope audit of Baan USA, and both Moret and E&Y reviewed and tested that work in connection with the audit. Moret, however, also used and relied on E&Y's work for its fiscal year 1997 audit of Baan, citing that work repeatedly in its audit working papers and using that work to confirm the accuracy and appropriate scope of the California Firm's work, thereby making E&Y an essential part of Moret's external audit team. Moreover, almost all of E&Y's fiscal year 1997 audit work was duplicative of the audit procedures that the California Firm had already conducted, or was conducting, as part of its external audit (although the California Firm's audit procedures were broader and more extensive that those E&Y performed). For example, E&Y performed extensive procedures in the areas of revenue recognition and accounts receivable, even though the California Firm had already performed the same procedures as part of its external audit. 
+
+ Thus, because E&Y lacked independence from Baan, Moret's own independence was impaired when it used and relied upon E&Y's "internal audit" procedures in connection with its audit of Baan's 1997 fiscal year financial statements. 
+
+  E. Legal Analysis   
+
+ In Sections 12(b) and 13(a) of the Exchange Act, Congress gave the Commission the authority to require that financial statements be certified by an independent public accountant. The Commission has exercised that authority in Regulation S-X, which requires that accountants be independent when they audit SEC registrants. Rule 2-01 of Regulation S-X states that the Commission does not consider an accountant to be "independent" from its audit client if the accountant has any direct financial interest or material indirect financial interest in the client. With respect to such interests, Section 602.02.g of the Commission's Codification of Financial Reporting Policies further provides that "[d]irect . . . business relationships [with an audit client], other than as a consumer in the normal course of business . . . will adversely affect the accountant's independence with respect to that client." 
+
+ Rule 2-01(b) of Regulation S-X also specifies that the SEC's independence requirements apply to: (i) all partners, shareholders, and other principals of audit firms, (ii) any professional employee involved in providing any professional service to an audit client, its parents, subsidiaries, or other affiliates, and (iii) any professional employee having managerial responsibilities and located in the engagement office or other office of an audit firm that participates in a significant portion of the audit.  9   Similarly, AICPA rules prohibit an auditor from being connected with the audit client as an employee or "in any capacity equivalent to that of a member of management." AICPA Professional Standards, Vol. 2, ET § 101-1(B)1 (Interpretation of Rule 101). The AICPA rules also specifically prohibit an auditor from using non-independent professionals as part of the external audit engagement team.  See  ET §§ 191.142 - 191.143 ("Use of Nonindependent CPA Firm on an Engagement").  10   Finally, Rule 2-01(c) of Regulation S-X provides that, in determining whether an accountant is independent with respect to a particular client, the Commission considers all relevant circumstances, including evidence concerning all relationships between the accountant and the client or any of its affiliates. 
+
+ Rule 2-02 of Regulation S-X requires the audit report to state "whether the audit was made in accordance with generally accepted auditing standards." Here, Moret's audit reports on Baan's financial statements for each of fiscal years 1995, 1996 and 1997 stated that the audits were conducted in accordance with GAAS, when in fact they were not. Consistent with the Commission's rules and pronouncements, GAAS also requires auditors to maintain strict independence from their audit clients. Codification of Statements on Auditing Standards, AU § 220.03, explains the independence requirement as follows: 
+
+ 
+ It is of utmost importance to the profession that the general public maintain confidence in the independence of independent auditors. Public confidence would be impaired by evidence that independence was actually lacking, and it might also be impaired by the existence of circumstances which reasonable people might believe likely to influence independence. . . . Independent auditors should not only be independent in fact; they should avoid situations that may lead outsiders to doubt their independence. 
+ 
+
+ As described above, due to its joint business relationships with Baan from 1995 through 1997, Moret lacked independence from Baan when it issued audit reports on Baan's financial statements for its 1995, 1996, and 1997 fiscal years, all of which were included in the company's public filings with the Commission. During its audit of Baan's 1997 fiscal year financial statements, moreover, Moret improperly relied on the audit work of an affiliated firm, E&Y, which also lacked independence from Baan. Moret's conduct in this regard constituted an extreme departure from the standards of ordinary care that resulted in violations of the auditor independence requirements imposed by the Commission's rules and by GAAS. 
+
+  IV.  
+
+ Based on the foregoing and on Moret's Offer of Settlement, the Commission finds that Moret engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice. 
+
+  V.  
+
+ Accordingly, the Commission hereby accepts Moret's Offer of Settlement and orders, effective immediately, that: 
+
+ A. Moret is censured pursuant to Rule 102(e)(1); and 
+
+ B. Moret shall comply (within 60 days of this Order unless otherwise specified below) with the following undertakings, as agreed to in its Offer of Settlement: 
+
+ (1) Moret shall pay a civil penalty in the amount of $400,000. Payment shall be made within 21 days of the date of this order. Payment shall be made by postal money order, certified check, bank cashier's check or bank money order, payable to the order of the "United States Securities and Exchange Commission." The payment shall be hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6342 General Green Way, Stop 0-3, Alexandria, VA 22312, under cover of a letter identifying the name and number of this administrative proceeding and the Respondent. A copy of the cover letter and the payment shall be simultaneously transmitted to Russell G. Ryan, Assistant Director, Division of Enforcement, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549-0806; 
+
+ (2) Moret shall develop and implement Auditor Independence Policies for the firm, which policies shall fully incorporate SEC auditor independence requirements, including those prohibiting business relationships between the accounting firm and its audit clients. These Auditor Independence Policies shall specifically address the types of business relationships that have been found to impair the firm's independence in this Order. The firm shall distribute these Auditor Independence Policies to each of its partners and professional employees; 
+
+ (3) Moret-for so long as it participates in or performs audits of the financial statements of companies subject to the SEC's independence rules-shall require all of its partners and managers who provide any services to such companies to undergo training regarding auditor independence, based on its Auditor Independence Policies, at least once every twelve months; 
+
+ (4) Moret-in connection with any audit of the financial statements of a company subject to the SEC's independence rules-shall require its audit engagement teams to perform and document procedures designed to confirm Moret's independence from the audit client. Moret will reflect in its audit documentation any independence issues that arose and how such issues were resolved. Moret shall retain all such audit documentation for a period of at least 5 years after the date of the audit report to which such documentation relates; 
+
+ (5) Moret-for so long as it participates in or performs audits of the financial statements of companies subject to the SEC's independence rules-shall establish an Approval Procedure to determine, prior to entering into any business relationship with any audit client having securities registered with the Commission, whether such contemplated relationship would impair the firm's independence as to any audit client having securities registered with the Commission. Moret shall designate a Responsible Partner to oversee the Approval Procedure. At the conclusion of each Approval Procedure, the Responsible Partner shall sign an Approval Procedure Affirmation identifying all independence issues considered and how each issue was resolved. Moret shall maintain all Approval Procedure Affirmations for a period of at least 5 years after the date of their execution; 
+
+ (6) Moret-for so long as it participates in or performs audits of the financial statements of companies subject to the SEC's independence rules-shall establish an "Independence Affirmation" which each of its partners and managers must sign on an annual basis. The Independence Affirmation will attest that the affiant: (i) is familiar with the firm's Auditor Independence Policies; (ii) is independent as to all audit clients of the accounting firm that are subject to the SEC's independence rules in all circumstances in which the affiant is deemed a "covered person" under 17 C.F.R. § 210.2-01(f)(11); and (iii) is not aware of any business relationships between Moret and any company having securities registered with the Commission that would impair the accounting firm's independence. In the event the affiant cannot truthfully furnish any of the foregoing attestations, the Independence Affirmation will attest to the reasons therefore; and 
+
+ (7) Moret shall distribute a copy of this Order to all of its partners and professional employees within 10 business days after entry of the Order. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ ________________________ 
+
+ 
+	 
+		 
+			   1   
+			 Rule 102(e)(1) of the Commission's Rules of Practice, 17 C.F.R. § 201.102(e), provides in pertinent part:
+			 
+			 The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for a hearing in the matter . . . to have engaged in . . . improper professional conduct. 
+			 
+			 
+		 
+		 
+			   2   
+			 Another of the affiliated partnerships of Moret Ernst & Young during the relevant period was Moret Ernst & Young Consultants, which shared in profits, office expenses, and management personnel with Moret Ernst & Young Accountants. Subsequent to the period relevant to this Order, Moret Ernst & Young Accountants became known as Ernst & Young Accountants, and Moret Ernst & Young Consultants became part of Cap Gemini Ernst & Young, a separate management and information technology consulting firm. For purposes of describing the relevant facts in Section III.D. of this Order, the term "Moret" refers to and includes all of the constituent parts and personnel of what were known during the relevant period as Moret Ernst & Young Accountants and Moret Ernst & Young Consultants. For all other purposes and in all other sections of this Order, the term "Moret" refers to and includes only the entity formerly known as Moret Ernst & Young Accountants and now known as Ernst & Young Accountants in the Netherlands. 
+		 
+		 
+			   3   
+			 During the period relevant to this Order, Baan had dual headquarters in the Netherlands and in the United States; the U.S. headquarters were moved from Menlo Park, California to Reston, Virginia in April 1998. 
+		 
+		 
+			   4   
+			 During this time Baan also entered into similar agreements with other "Big Six" firms who were not Baan's auditors. 
+		 
+		 
+			   5   
+			 Although E&Y performed no audit procedures during the audit of Baan's 1996 financial statmements, it continued to provide Baan and Moret with advice concerning U.S. accounting standards and to perform reviews of Baan's filings with the Commission. 
+		 
+		 
+			   6   
+			   See Codification of Statements on Auditing Standards , AU § 543. 
+		 
+		 
+			   7   
+			 These rules were set forth in AICPA Ethics Interpretation 101-13 ("Extended Audit Services"), which delineate when an external auditor can perform internal audit services for an audit client. 
+		 
+		 
+			   8   
+			 E&Y and Baan did reach an agreement in principle regarding the performance by E&Y of internal audit services beginning for the first quarter of Baan's 1998 fiscal year. In this regard, a draft engagement letter was prepared and circulated but never finalized. 
+		 
+		 
+			   9   
+			 The AICPA has provided the following guidance on whether an office participates in a significant portion of the audit:
+			 
+			 Professional judgment must be exercised in deciding whether any other office participates in a significant portion of a multioffice engagement. For example, an office would be considered to be participating in a significant portion of the engagement if the office's engagement hours or fees are material to total engagement hours or fees or if the office's responsibility for reporting, whether internally or externally, on a portion of the engagement relates to a material amount of assets or income (loss) before income taxes of the client. The foregoing examples are not necessarily inclusive of all the situations in which an office may be considered to be participating in a significant portion of the engagement. 
+			 
+
+			 ET § 101.11. An auditor of an SEC registrant must comply with SEC independence requirements as well as those of the AICPA, to the extent the latter are not inconsistent with SEC regulations. 
+			 
+		 
+		 
+			   10   
+			 This rule does permit non-independent persons' work to be used in a manner similar to the work of internal auditors, but only as long as all applicable Statements on Auditing Standards are met. 
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+ Washington, D.C. 
+ Litigation Release No. 17588 / June 27, 2002 
+ Accounting and Auditing Release No.  1585 /June 27, 2002 
+ Securities and Exchange Commission v. WorldCom, Inc., Civil Action 02 CV 4963 (S.D.N.Y.) (June 27, 2002) 
+ SEC Charges WorldCom with $3.8 Billion Fraud 
+Commission Action Seeks Injunction, Money Penalties, Prohibitions on Destroying Documents and Making Extraordinary Payments to WorldCom Affiliates, and the Appointment of a Corporate Monitor  
+ The Securities and Exchange Commission filed a civil action yesterday in federal district court in New York charging major global communications provider WorldCom, Inc. with a massive accounting fraud totaling more than $3.8 billion.  The Commission's complaint alleges that WorldCom fraudulently overstated its income before income taxes and minority interests by approximately $3.055 billion in 2001 and $797 million during the first quarter of 2002.   
+ The complaint further alleges that WorldCom falsely portrayed itself as a profitable business during 2001 and the first quarter of 2002 by reporting earnings that it did not have.  WorldCom did so by capitalizing (and deferring) rather than expensing (and immediately recognizing) approximately $3.8 billion of its costs:  the company transferred these costs to capital accounts in violation of established generally accepted accounting principles ("GAAP").  These actions were intended to mislead investors and manipulate WorldCom's earnings to keep them in line with estimates by Wall Street analysts.     
+ The complaint charges WorldCom with violating various antifraud and reporting provisions of the federal securities laws, including Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13a-1, 13a-13 and 12b-20.  The Commission is seeking court orders permanently enjoining WorldCom; imposing civil monetary penalties; prohibiting WorldCom and its affiliates, officers, directors, employees, and agents from destroying, altering, or hiding relevant documents; prohibiting WorldCom and its affiliates from making any extraordinary payments to any present or former officer, director, or employee of WorldCom or its affiliates, including but not limited to any severance payments, bonus payments, or indemnification payments; and appointing a corporate monitor to ensure that documents are not destroyed and that no such extraordinary payments are made. 
+ In a related action yesterday, the Commission ordered WorldCom to file with the Commission, under oath, a detailed report of the circumstances and specifics of these matters by 8 a.m. next Monday, July 1.  
+ The Commission thanks the U.S. Attorney's Offices for the Southern District of New York and Southern District of Mississippi, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter. 
+ The Commission's investigation is continuing. 
+        SEC Complaint  in this matter         Order Requiring the Filing of a Sworn Statement      
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diff --git a/raw/aaer/2002/AAER-1586.txt b/raw/aaer/2002/AAER-1586.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4b3fbd677ab0bfe8c883fdfe9b1dfa9a85e914d4
--- /dev/null
+++ b/raw/aaer/2002/AAER-1586.txt
@@ -0,0 +1,1379 @@
+
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+ 
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+     SEC.gov | WorldCom, Inc. 
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+              WorldCom, Inc.
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+       
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+ Litigation Release No.   17594 / June 28, 2002
+
+  Accounting and Auditing Enforcement Release No.  1586 / June 28, 2002
+
+  Securities and Exchange Commission v. WorldCom, Inc., Civil Action 02 CV 4963 (S.D.N.Y.) (June 27, 2002)
+
+   COURT ORDERS WORLDCOM TO PRESERVE DOCUMENTS AND ASSETS, WILL APPOINT CORPORATE MONITOR 
+
+  Based upon a joint agreement between the Commission and defendant WorldCom, Inc., U.S. District Court Judge Jed S. Rakoff today entered an order:
+
+          Directing WorldCom and its affiliates to preserve all items relating to WorldCom's financial reporting obligations, public disclosures required by the federal securities laws, or accounting matters.  
+
+         Providing for the Court to appoint a Corporate Monitor having oversight responsibility with respect to all compensation paid by WorldCom.  The Corporate Monitor will have responsibility to prevent unjust enrichment as a result of the conduct alleged in the Commission's complaint and to ensure that WorldCom's assets are not dissipated by payments that are not necessary to the operation of WorldCom's business.  
+
+         Forbidding, until the Corporate Monitor is in place, WorldCom from (1) paying more than $100,000 to any present or former officer, director or employee, or any of its affiliates; or (2) making any extraordinary payment to any present or former WorldCom director, present or former officer who holds or formerly held a position at or above the level of vice-president, or any person currently or formerly employed within WorldCom's financial reporting or accounting functions. 
+
+         Directing WorldCom to cooperate with the Corporate Monitor in full and make its books, records and accounts available to the Corporate Monitor.
+
+   For further information, see  Litigation Release No. 17588  (June 27, 2002), announcing the filing of the Commission's civil action against WorldCom.
+  
+
+ 
+
+  
+       SEC Complaint  in this matter.  
+  
+ 
+
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diff --git a/raw/aaer/2002/AAER-1587.txt b/raw/aaer/2002/AAER-1587.txt
new file mode 100644
index 0000000000000000000000000000000000000000..48b7c659ffb02f51ad2871e79e0e9557d6633b8f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1587.txt
@@ -0,0 +1,1647 @@
+
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+ 
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+              Peter D. Stewart, C.A., John L. Harbor, C.A., and David Chopping, C.A.
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46157 / July 2, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1587 / July 2, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10820
+
+        In the Matter of
+  PETER D. STEWART, C.A.,
+ JOHN L. HARBOR, C.A., and
+ DAVID CHOPPING, C.A.,
+    Respondents.
+     
+    : : : : : : : :   
+     ORDER INSTITUTING PUBLIC
+     ADMINISTRATIVE PROCEEDINGS
+ PURSUANT TO RULE 102(e) OF THE
+ COMMISSION'S RULES OF PRACTICE,
+ MAKING FINDINGS, AND IMPOSING
+  REMEDIAL SANCTIONS      I. 
+
+    The Commission deems it appropriate that public administrative proceedings pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice  1   be, and hereby are, instituted against Peter D. Stewart ("Stewart"), John L. Harbor ("Harbor"), and David Chopping ("Chopping") (collectively the "Respondents").
+
+   II. 
+
+  In anticipation of the institution of this proceeding, Stewart, Harbor, and Chopping have each submitted an Offer of Settlement ("Offer") which the Commission has determined to accept.  Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, Respondents consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), and the entry of findings and imposition of remedial sanctions herein, without admitting or denying the findings herein, except that the Respondents admit the jurisdiction of the Commission over them and the subject matter of this proceeding.
+
+   III. 
+
+    The Commission makes the following findings.  2     A. RESPONDENTS, OTHER RELEVANT ENTITIES AND INDIVIDUAL 
+
+     1. Respondents 
+
+     Peter D. Stewart  ("Stewart"), age 45, is a Chartered Accountant (C.A.) licensed by the Institute of Chartered Accountants of England and Wales.  3    Stewart is a member of Moore Stephens Chartered Accountants ("Moore Stephens U.K.") and was the audit engagement partner for the audit of The Cronos Group's ("Cronos" or "the company") consolidated financial statements for the fiscal year ended December 31, 1996.
+
+   John L. Harbor  ("Harbor"), age 55, is a Chartered Accountant licensed by the Institute of Chartered Accountants of England and Wales.  He is a member of Moore Stephens U.K., headed the business group within the firm, and was the client liaison partner for the audit of Cronos' consolidated financial statements for the year ended December 31, 1996. 
+
+   David Chopping  ("Chopping"), age 38, is a Chartered Accountant licensed by the Institute of Chartered Accountants of England and Wales.  He is a member of Moore Stephens and was the second partner for the audit of Cronos' consolidated financial statements for the year ended December 31, 1996. 
+
+   2. Other Relevant Entities and Individual 
+
+   The Cronos Group  ("Cronos"), one of the ten largest lessors of marine cargo containers, is a Luxembourg holding company with its operational headquarters in San Francisco, California.  Until 1999, Cronos' operational office was in Orchard Lea, England.  Cronos' common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and is traded on the Nasdaq market system.  From December 1995 through March 1999, Cronos was a "foreign private issuer" as defined by Exchange Act Rule 3b-4.
+
+     Stefan M. Palatin  ("Palatin") is the former Chairman and CEO of the Cronos Group.  In May 1997, Austrian authorities filed criminal fraud charges against Palatin.  Subsequently, in July 1997, Palatin resigned his position as chairman and CEO of Cronos.
+
+     Contrin Holding S.A.  ("Contrin") is a company founded by a former director of Cronos and business partner of Palatin.  It evolved into a group of companies which organized and managed the equivalent of limited partnerships in Austria to finance, acquire and lease shipping containers to or through container leasing companies.  In 1991, Palatin agreed to purchase Contrin and other entities in an installment agreement.
+
+     Barton Holdings Ltd.  ("Barton") is a Bahamian bearer share company incorporated in January 1992.  All evidence indicates that Palatin controlled Barton and, directly or indirectly, owned it.  When Contrin became a potential liability for Palatin, he transferred ownership of Contrin to Barton.
+
+     Arthur Andersen   (U.K.)  ("Andersen") provided auditing services to Cronos from prior to the Company's IPO in 1995 through its resignation from the Cronos engagement on February 3, 1997.  On the same day, Andersen sent a report pursuant to Section 10A of the Exchange Act to the Cronos board of directors.
+
+     Moore Stephens Chartered Accountants (U.K.)  ("Moore Stephens UK") succeeded Andersen as Cronos' independent auditor.  Moore Stephens UK provided auditing services to Cronos from March 1997 through August 1999.  The firm is a member of Moore Stephens International.
+
+     Moore Stephens P.C. (NJ)  ("Moore Stephens NJ") is a public accounting firm with offices in New Jersey and New York.  The firm is a member of Moore Stephens International.  
+
+   B. SUMMARY 
+
+    Stewart, Harbor, and Chopping, chartered accountants residing in the United Kingdom, engaged in improper professional conduct in connection with the audit of Cronos' financial statements for the year ended December 31, 1996.  In March 1997, Moore Stephens UK became the auditors of Cronos after Andersen resigned when it failed to receive sufficient competent audit evidence to support a $1.5 million disbursement by the company, was denied access to the results of a corporate investigation involving other related party transactions, and Cronos' board refused to investigate the $1.5 million payment, forged and false confirmations, and other related party transactions.  4    After contacting the company, Harbor conducted the client acceptance procedures, including contacting Andersen, the prior auditor, and learned the issues that caused Andersen to resign.  In meetings with Palatin, Harbor was given a different explanation for the auditor's resignation, one that had nothing to do with the payment, forgeries or related party transactions.  Nevertheless, after consulting with Chopping and others at Moore Stephens UK, Harbor chose to accept Palatin's representations and accepted the audit engagement.  Stewart supervised the audit of Cronos' 1996 consolidated financial statements which reported total revenues of $169 million, Harbor acted as the client liaison partner, and Chopping consulted on, and reviewed, the audit procedures as second partner.
+
+    During the course of the audit, Stewart did not question Palatin's representations with respect to the $1.5 million disbursement, a subsequently attempted disbursement of $2 million, and a forged document that stated that the $1.5 million had been repaid in mid-January 1997.  Nor did he examine Palatin's use of the forged document and false representations to secure a loan of $3.7 million from the company.  A portion of the proceeds of this loan was used to repay the $1.5 million.  Even though these events raised management integrity issues, Stewart's audit team decided to "audit around" the $1.5 million disbursement and other issues that gave rise to the resignation of their predecessor.  The audit failed to address these issues as well as other problems that arose late in the audit related to collateral Palatin had pledged to secure a loan he obtained from Cronos.
+
+    Stewart chose to accept management's representations in spite of overwhelming conflicting evidence he learned from Andersen and other third parties.  He disregarded advice provided by Moore Stephens NJ to examine these issues further, and he failed to comply with generally accepted auditing standards ("GAAS").  He failed to obtain sufficient competent evidential matter, exercise due professional care and appropriate professional skepticism, and to adequately plan the audit.  Harbor and Chopping failed to comply with GAAS because they knew the issues concerning management integrity and related party transactions that gave rise to Andersen's resignation from the audit yet they approved the plan to "audit around" the issues and they approved the final unqualified audit report on Cronos' 1996 consolidated financial statements that were included in Cronos' Form 20-F filed with the Commission.  
+
+   C. FACTS 
+
+     1. Background 
+
+     a. Misappropriation and False Representations 
+
+  Palatin had repeatedly misappropriated funds from Cronos for years, beginning at least as early as 1994, before the company's initial public offering ("IPO").  By the time of the IPO, he had obtained more than $10 million, either by directing the company to make loans to Barton, a purportedly independent company that was a shareholder of Cronos but which, in fact, was a nominee for Palatin, or by intercepting and converting to his own use payments between Cronos and Contrin, a group of Austrian companies controlled, directly or indirectly, by Palatin.  Through various means he concealed his frauds and avoided detection.  Following the IPO, however, senior officials at Cronos and the company's auditor, Andersen, began to raise questions about Palatin's activities. 
+
+  In the IPO at the end of 1995, Barton was identified as a selling shareholder and the proceeds from the sale of its shares were applied to reduce its indebtedness to the company.  Nevertheless, at year-end, the company's financial statements reflected a receivable from Barton in the amount of $4.7 million.  During the 1995 audit, Andersen sought evidence that the receivable was collectible, either in the form of financial statements from Barton or a third party guarantee of the debt.  When Barton failed to respond, Andersen advised Palatin that the company would need to write down the receivable.  Instead, Palatin agreed to personally guarantee the loan balance and he collateralized the guarantee by pledging shares of Cronos purportedly owned by one of his personal holding companies.  Unknown to the company and Andersen, the shares were already pledged and held in escrow to secure a loan he owed to a third party.  In effect, Palatin pledged shares he did not own.  At the time, Andersen believed that Palatin gave the guarantee so he and the company could avoid the embarrassment and potential liability that would likely result from writing down a material asset shortly after the IPO.  Several months later, Barton defaulted on the loan and Palatin, in effect, assumed the loan and negotiated an extension of the due date.
+
+     b. Growing Concerns 
+
+  Several events occurred in the Spring of 1996 that caused company management and Andersen to question Palatin's integrity and his relationships with Barton, Contrin and Cronos.  A receiver was appointed for certain of the Contrin entities in Austria and he began questioning several of the transactions with Cronos in connection with which Palatin had intercepted and converted payments.  The receiver advised Cronos management that he believed the payments Contrin owed Cronos had been made to Cronos and, in some instances, cited evidence that the payments had been made directly to Palatin.  He also asserted that payments purportedly made by Cronos to Contrin had never been received.  While company employees followed up on these claims, an article appeared in the Austrian press that contained unsubstantiated allegations that Palatin had, in effect, controlled and looted Contrin and that he owned and controlled Barton.  When the Cronos managers learned of these allegations, they recognized that they raised serious issues concerning the company's financial statements and related party disclosures as well as questions concerning Palatin's integrity. 
+
+  In response, the general counsel, the chief financial officer and several other employee/directors of Cronos attempted to retain independent, outside counsel on behalf of the company to investigate the allegations.  When they advised Palatin of their recommendation, he argued that an investigation was not necessary and he stripped the employees of their board seats.  To quell pressure from Andersen and the senior employees, Palatin ultimately agreed to an investigation but insisted that the company's securities counsel conduct it.  After engaging the firm, he fired the company's general counsel.
+
+  Counsel's investigation reportedly was hampered by a number of factors.  It appears that they obtained little or no information from Austria, Switzerland (where, among other things, Barton purportedly maintained it's headquarters) or the Bahamas (where it was incorporated).  Palatin denied the press allegations and the claims of Contrin's receiver but he provided little information and no substantive assistance to the investigators.  According to the testimony of those who had first-hand knowledge of the report, its findings were inconclusive and it left unresolved the issues that gave rise to the investigation.  Immediately after reporting to the board in early fall, 1996, the outside firm that conducted the investigation resigned as company counsel.  Palatin thereafter refused to provide the report to Andersen despite the firm's repeated request for a copy.
+
+       c. Further Misappropriation 
+
+  During the Summer of 1996, while counsel's investigation was underway, Palatin began exploring the possible sale of the company or his holdings, which constituted the majority of its outstanding shares.  Talks progressed into the fall.  The company retained an investment bank and agreed to the standard contingent fee arrangement common to these types of transactions.  The investment bank neither required nor requested that the company escrow fees in connection with its services.
+
+  Nevertheless, in late October, Palatin directed company employees to transfer $1.5 million dollars to a non-company bank account.  Palatin represented to employees that the purpose of the transfer was to escrow an investment banking fee and that the investment bank had requested the escrow.  Both statements were false.  In fact, the account was maintained in the name of Palatin's wife and one of his Panamanian, bearer-share companies at a NatWest Bank branch located in a suburb of London.  Immediately after the funds were received into the account, a portion was disbursed to pay Palatin's personal expenses and most of the balance was withdrawn as cash.
+
+       d. Stonewalling, False Pretenses and Forgery 
+
+  Shortly after the company transferred the funds to the account, the CFO questioned the payment and brought it to the attention of Andersen.  Andersen, which was already uncomfortable because of the allegations regarding Barton and Contrin that gave rise to the investigation and the refusal of Cronos to provide it with the results of the investigation, attempted to examine the transaction as part of its year-end audit.  Palatin refused to assist the auditors.  When asked to provide details of the account in which the funds were deposited and verification of the whereabouts of the funds, Palatin refused but provided inconsistent and contradictory information concerning the nature of the account and the identity of the purported trustee.  Thereafter, conflict mounted between the auditors and Palatin.  As tensions increased, two of the company's three independent directors resigned.  Andersen and Palatin ended the year virtually at a standoff over the issue.
+
+  In early 1997, Palatin directed the chief operating officer ("COO") to transfer an additional $2 million to the same NatWest account to which the October payment had been transferred, and he again claimed the purpose of the transfer was to escrow investment banking fees.  Because the controversy with Andersen surrounding the $1.5 million transfer had not yet been resolved, the COO insisted that a disinterested board member approve the transfer.  Palatin then produced a signed authorization from a board member who was a long-time friend and business associate.  The document appeared to be a forgery.  The general counsel and the CFO advised Andersen of the matter and a teleconference was held among Andersen, outside counsel, the general counsel and other company executives and board members.  They agreed not to pay the funds unless the investment bankers confirmed that the funds were due and owing.  Palatin responded by firing the CFO and general counsel, and demoting the COO.
+
+  Days later, several board members requested Palatin's assurance that the $1.5 million would be returned to the company.  Palatin promised that the funds would be returned on January 13.  When the funds were not returned on the 13 th , Palatin explained that they were held in a time deposit and could not be released earlier than the 20 th .  He subsequently contradicted that statement by promising that they would be returned on the 16 th .
+
+  On January 16, the board met in New York to consider, among other things, the repayment of the $1.5 million.  Late in the meeting, Palatin produced to the board a forged facsimile letter, purportedly from NatWest, which stated that the funds had been returned to the company.  The board relied on the document and concluded that the growing controversy had been resolved.  
+
+  After the board meeting broke up and the sole independent director had left, Palatin unexpectedly reconvened the meeting and requested that the company loan him up to $4 million.  The remaining three directors approved the loan.  On January 21, Palatin drew $3.7 million against the loan.  Several days later, he deposited $1.55 million of the proceeds into the NatWest account and directed the bank to forward it to Cronos.  However, the funds were not credited to the Cronos account until the 29 th , in part because the bank had learned in the meantime of the forged letter and was conducting its own investigation of the matter.  Palatin, unaware of the bank's delay and assuming that the funds would be deposited to the company's account by the time his message arrived, sent a letter to Andersen on January 22 confirming that Cronos had received the $1.5 million.  In fact, the company had not.
+
+     e. Andersen Responds, the Board Doesn't and Andersen Resigns 
+
+  Meanwhile, on January 21, Andersen sought to verify the authenticity of the January 16 fax letter from NatWest and confirm that the funds had been transferred to the company.  NatWest advised the auditors that the letter was a forgery and that the $1.5 million had not been transferred to the company.  Andersen subsequently received Palatin's letter of the 22 nd  that represented that the funds had been received, and when they followed up to confirm the representation, learned again that Palatin's representations were not accurate.  
+
+  Meanwhile, in early January, Andersen had begun corresponding with the company and the board concerning its inability to audit the $1.5 million and the requested $2 million payment, in part because it had not received adequate support for the two transactions.  It advised the company of its reporting obligations pursuant to Section 10A of the Exchange Act unless it obtained the information it sought or the board instituted appropriate remedial action.  The firm requested a meeting with the board.  It received no response to this letter.
+
+  Andersen wrote again on January 13 and requested that the audit partner be permitted to attend the board meeting scheduled for the 16 th .  Again, it received no response.  On January 24, after learning of the forged NatWest confirmation letter and the false representations in Palatin's letter of the 22 nd  that the money had been received, Andersen sent another letter to the board citing its earlier letters, the forged NatWest letter and the misrepresentation contained in the letter of the 22 nd .  Andersen requested that the board undertake an investigation of the $1.5 million payment and all related party transactions of prior years and that it provide a copy of the Counsel's investigation report.  Andersen cautioned that if it did not receive an adequate response by January 28, it would take appropriate steps pursuant to Section 10A of the Exchange Act, including resignation from the engagement.  On the 28 th  the board responded, stating that since the $1.5 million had been returned to the company, no further investigation was warranted.  Palatin reiterated this position to Andersen on the 31 st .  On February 3, 1997, Andersen resigned as auditor and provided the company the report required by Section 10A of the Exchange Act.  On the same day, the sole remaining independent director resigned from the board.
+
+     2. Cronos Retains Moore Stephens UK to Complete the Audit 
+
+    After Andersen resigned the engagement, Cronos approached the other big five accounting firms and several regional accounting firms, all of whom rejected the engagement.  Moore Stephens U.K. learned of the potential engagement from the company's Luxembourg attorney.  Harbor contacted Cronos to inquire about the potential engagement.  In his initial meeting with the company, Palatin and the company's COO told him that Andersen resigned due to personality conflicts between Andersen's audit personnel and Cronos' senior management.  They explained that Andersen had used the $1.5 million payment issue as a pretext to terminate its relationship with Cronos.  Palatin told Harbor that after the $1.5 million was returned to the company, Andersen continued to insist on auditing the transaction and would not consider the issue resolved.  He contended that, in his view, Andersen had overstepped its authority as auditor and interfered with management of the company's operations.  Palatin told Harbor that Andersen resigned when management rejected this interference and refused to do as Andersen requested.  
+
+  After meeting with Cronos, Harbor met with the Andersen audit staff to obtain a clearance letter  5   and to discuss issues with respect to the 1996 audit. At this meeting the Andersen personnel told Harbor that Andersen resigned the engagement because Cronos' board and management had not taken remedial measures with respect to several issues, the most important concerning audit support for the $1.5 million disbursement in October 1996.  Andersen explained the issues that gave rise to its resignation including its concerns regarding forged documents, Palatin's misrepresentations, and related party transactions in general.  Andersen also provided Harbor with copies of its January correspondence to Cronos.  
+
+  Following the meeting, Moore Stephens UK requested that Andersen confirm in writing that it was not aware of any professional reasons why it should not accept the Cronos engagement.  Andersen issued a qualified clearance letter to Moore Stephens UK whereby it referenced its January 1997 correspondence and Section 10A report as setting forth the reasons for its resignation from the Cronos engagement.  Moore Stephens UK lacked experience with 
+
+  U. S. reporting companies so it sought advice from other members of Moore Stephens International Network with experience in auditing listed companies, including Moore Stephens NJ.  Members of the U.S. firms cautioned Harbor to further investigate the conflicting reasons for Andersen's resignation.  Harbor did not do so.  Instead, Moore Stephens UK accepted the Cronos engagement notwithstanding the qualified clearance letter from Andersen, evidence of a possible management defalcation with respect to the $1.5 million, the forged confirmation Palatin presented to the board, other evidence of false statements by Cronos' management, and advice from Moore Stephens NJ to further investigate the $1.5 million "escrow" payment.  Stewart was named engagement partner and Chopping was made second partner on the engagement.  6    Harbor and others at Moore Stephens UK essentially chose to believe Palatin's version of Andersen's resignation and related events over Andersen's explanation when Moore Stephens UK accepted the engagement.
+
+     3. The 1996 Cronos Audit Was Not Conducted in Accordance with GAAS 
+
+       a. Failure to Examine Related Party Transactions  
+
+         i. October 1996 Disbursement of $1.5 Million 
+
+    Moore Stephens UK's audit plan called for enhanced audit procedures.  However, these heightened procedures did not address the issues which Andersen raised and had caused it to resign.  Stewart's examination of the $1.5 million payment was limited to contacting NatWest, the Thames Valley Police, the company's lawyers and Cronos management.  NatWest officials confirmed again that the confirmation was a forgery and that the matter was under investigation.  Stewart did not pursue the matter further and did not send a confirmation letter to NatWest to determine whether the funds were in the account at year-end nor did he seek the identity of the account holder.  The Thames Valley Police confirmed that the matter was under investigation.  The audit team learned that the company's attorneys had not found any additional information with respect to the false confirmation.  Stewart did not seek further evidence regarding the account from NatWest, Palatin, the company, or any other source.
+
+  Palatin and his attorney, who was also a board member, insisted that the matter was closed because the funds had been returned to Cronos and they directed Moore Stephens UK away from further inquiry into the matter.  Palatin belatedly claimed that he had guaranteed the funds back in October and directed that the company could account for the transaction at year-end as a receivable from a related party.  In the end, Stewart accepted the accounting treatment and he decided to "audit around" the $1.5 million transaction.  Moreover, he did not object when the company, in a footnote disclosure to the financial statements, represented that the funds had been held in an escrow account at year-end and subsequently returned to the company, although he had no evidence, other than Palatin's representations, that the statement was true and, in fact, he had substantial evidence that it was false.
+
+  He accepted the financial statement treatment despite Moore Stephens NJ's advice that GAAS required him to examine the $1.5 million transaction further.  Moore Stephens NJ advised Stewart to contact the investment bankers, who advised Cronos on the proposed strategic alliance, to confirm the fee arrangement between the investment bankers and Cronos.  Stewart did not do so.  
+
+  Stewart also failed to examine the circumstances surrounding the forged confirmation and the repayment of the funds despite evidence that Palatin had provided a forged document to obtain a new loan which he used, in part, to repay the $1.5 million to the company.  Stewart knew that the status of the $1.5 million payment was a central issue at the board meeting of January 16th.  He also knew that Palatin produced a forged confirmation at the meeting to demonstrate that the funds had been returned.  Finally, unlike Andersen, he knew that the board subsequently approved a $4 million loan to Palatin, an amount curiously similar to the aggregate value of the October payment and the attempted January disbursement.  Finally, he knew that the $1.5 million was not, in fact, repaid until after the loan had been disbursed.  Stewart failed to examine these events to determine whether they were connected.  In doing so, he avoided the obvious.
+
+     ii. Ignoring Contrin's Allegations 
+
+    The 1996 audit also did not adequately examine the claims by Contrin and the contingent liability they raised.  Stewart did not contact Cronos' Austrian counsel concerning the ongoing arbitration between the company and Contrin to determine the nature and extent of any contingent liability that might result from Contrin's claims.  Instead, he relied on the oral representation of Palatin's personal attorney that the matter was in arbitration and not material.  As a consequence, he did not learn the details of Contrin's claims against Cronos and what they implied about Palatin's integrity and veracity.  The information Stewart learned from Andersen about these matters was sufficient to put him on notice that serious issues of liability, integrity and veracity were raised by Contrin's claims.  
+
+       iii. Failure to Examine the Palatin/Barton Relationship 
+
+  The 1996 audit failed to examine the loan transactions with Barton and Palatin's assumption of responsibility for Barton's debt.  The Barton loans and the transactions whereby Palatin guaranteed and ultimately assumed responsibility for the loans were discussed extensively in the footnotes to the company's 1996 financial statements and consequently were within the scope of the audit.  In addition, these transactions and questions concerning the relationship between Palatin and Barton were factors in Andersen's decision to resign the engagement and file a report pursuant to Section 10A of the Exchange Act.  Stewart and others at Moore Stephens U.K. were aware of the issues, they knew that the Barton loan payments had been disbursed directly to Palatin's bank accounts, they knew of the public allegations that Palatin controlled Barton, and Stewart knew that Counsel's investigation of the issue was inconclusive.  He also knew that the counsel had resigned immediately after making its report to the board.  It was obvious that the matter raised not only disclosure issues but, more significantly, issues of management integrity and the audit team's ability to rely on management representations.  Moore Stephens NJ recognized the significance of the issue and urged Stewart to inquire further into the matter.  Rather than follow the guidance of the GAAS experts from the U.S. member firm and require further information from Palatin, Stewart relied on Palatin's false oral assurances that he was not associated with Barton and had assumed its loan based on his own sense of moral obligation. 
+
+       iv. Failure to Examine Evidence of Asset Impairment 
+
+    In July of 1997, before Cronos filed its annual report on Form 20-F, Harbor and 
+
+  Stewart learned facts that put them on notice that Palatin did not have clear title to the shares he had pledged as collateral when he guaranteed and later assumed the Barton loan.  They learned that the shares were subject to a prior sales agreement and were being held by a trustee who refused to transfer them.  Because the trustee, as well as the other party to the sales agreement, were directors of the company, the auditors had the opportunity to make inquiries of all parties to determine whether the company's related party disclosures in the footnotes to its financial statements were correct and to satisfy themselves about the related management integrity issues that were raised by the prospect that the chairman and CEO of the company had pledged collateral he did not own to secure his debt to the company.  Stewart made no inquiries concerning these issues.  Instead, he wrongly concluded, without sufficient basis in fact, that the collateral available was sufficient to secure all of Palatin's obligations to the company and he authorized his firm to issue an unqualified audit report on the company's financial statements.
+
+   D. LEGAL ANALYSIS 
+
+  Rule 2-02(b)(1) of Regulation S-X requires an auditor's report to state "whether the audit was made in accordance with GAAS.  7    Accountants are required to conduct audits in accordance with GAAS, including the general standards, standards of field work, and standards of reporting. These standards require, among other things, that an auditor exercise due professional care and maintain appropriate professional skepticism in the conduct of the examination of the financial statements and preparation of the report  8  ; that the audit be adequately planned  9  ; that the auditor obtain sufficient competent evidence to afford a reasonable basis for an opinion regarding the financial statements under audit  10  ; and that the report state whether the financial statements are presented in conformity with generally accepted accounting principles ("GAAP") and contain an expression of opinion regarding the financial statements taken as a whole.  11    GAAS provides that "the auditor should be aware of the possible existence of material related party transactions that could affect the financial statements."  12    The applicable section provides guidance on procedures that should be considered by the auditor, when he is performing an examination of financial statements in accordance with GAAS, to identify related party relationships and transactions and to satisfy himself concerning the required financial statement accounting and disclosure.  Stewart did not comply with this provision.  In spite of overwhelming evidence that related party transactions had not been accurately disclosed, and that issues of management integrity were implicated, Stewart chose to "audit around" the issues.  However, the provision requires that related party issues be addressed, not avoided.  Stewart thereby failed to comply with the requirements of GAAS.  
+
+  Further, GAAP required that Cronos disclose the impairment of the collateral that Palatin had pledged to secure a loan from the company.  13    When Harbor learned of the potential impairment of this collateral, he did not review the financial statements and the resulting footnote disclosure concerning the issue.  Any competent auditor who had done so would have realized that they did not comply with GAAP.  Similarly, Chopping did not comply with GAAS in performing his second partner review of Cronos' 1996 audit with respect to the procedures and disclosure concerning this collateral.  Even a cursory review of the working papers would have revealed that Stewart had not reviewed any appropriate documentation concerning the validity of the pledge or Palatin's right to pledge the collateral.
+
+  Stewart, as the engagement partner on the audit, had overall responsibility with respect to the audit of Cronos' 1996 financial statements.  He knew the planning procedures used in the audit and the results obtained through the application of the procedures.  The procedures were not adequate in light of the information he received from the company's management, advice from Moore Stephens NJ, and information obtained from third parties.  He chose to ignore advice concerning the requirements under GAAS with respect to related party transactions and impairment of collateral Palatin had pledged to secure a loan from the company.
+
+ 
+
+  Harbor, as the client liaison partner, attended the initial meetings with the company's management and Andersen.  He then communicated this information to Stewart and later reviewed Stewart's work.  He knew the qualifications contained in Andersen's clearance letter and the issues Andersen raised in its Section 10A report to the Commission.  He knew of the concerns regarding related party transactions, management integrity, and the impairment of the collateral.  In his review of Stewart's work, Harbor failed to address the audit team's failure to audit the $1.5 million disbursement, issues concerning other related party transactions, and the impairment of the collateral.  Accordingly, he too failed to comply with the requirements of GAAS.
+
+  Chopping, as the second partner on the audit, acted as a backstop to Stewart.  Although he did not have day-to-day involvement in the audit, Chopping nonetheless was consulted prior to Moore Stephens UK's acceptance of the Cronos engagement, the audit team conferred with him during the course of the audit, and he reviewed the overall audit as second partner.  Chopping also had knowledge of the management integrity and related party transaction issues raised by Andersen in its resignation from the Cronos engagement.  Yet, he chose to accept Stewart's decision to "audit around" the $1.5 million disbursement and the forged bank confirmation.  Thus, he also failed to comply with the requirements of GAAS.
+
+  Under these circumstances, Harbor, Stewart and Chopping engaged in improper professional conduct in connection with Moore Stephens UK's audit of Cronos' 1996 financial statements.  Specifically, Harbor's, Stewart's and Chopping's conduct consisted of: (1) failing to exercise due professional care and sufficient professional skepticism in the performance of the audit, as required by GAAS; (2) failing to adequately plan the audit, as required by GAAS; (3) failing to ensure that sufficient competent evidential matter was obtained to afford a reasonable basis for the conclusions with respect to the audit issues discussed herein, as required by GAAS; and (4) improperly issuing an audit report opining that Cronos' financial statements were presented in conformity with GAAP and that its audits were conducted in accordance with GAAS when they were not.  
+
+   E. FINDINGS 
+
+    Based on the foregoing, the Commission finds that Stewart, Harbor and Chopping engaged in improper professional conduct pursuant to Rule 102(e) of the Commission's Rules of Practice.
+
+   IV. 
+
+  Based on the foregoing, the Commission deems it appropriate to accept Respondents' Offers, and to impose the sanctions agreed to therein.  Accordingly,
+
+  IT IS HEREBY ORDERED, effective immediately, that:
+
+    A. Stewart is denied the privilege of appearing or practicing before the Commission as an accountant.
+
+    B. After one year from the date of this Order, Stewart may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+
+      1. a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such application must satisfy the Commission that Stewart's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
+
+      2. an independent accountant.  Such application must satisfy the Commission that:
+
+        (a) Stewart, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms (SEC Practice Section) or an equivalent British organization that includes or is supplemented by peer review, concurring partner review, continuing professional education and other membership requirements that provide appropriate quality controls over an accounting and auditing practice, as long as he practices before the Commission as an independent accountant;
+
+        (b) Stewart, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and
+
+        (c) as long as Stewart appears or practices before the Commission as an independent accountant he will remain either a member of or associated with a member firm of the SEC Practice Section or equivalent British organization and will comply with all applicable SEC Practice Section or equivalent British organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+    C. The Commission's review of any request or application by Stewart to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Stewart's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+    D. Harbor and Chopping are censured pursuant to Rule 102(e) of the Commission's Rules of Practice for the conduct described herein and each undertakes that:
+
+      1.he, or any firm with which he is or becomes associated in any capacity, will remain either a member of or associated with a member firm of the SEC Practice Section or the equivalent British organization as long as he appears or practices before the Commission as an independent accountant,
+
+      2.he will comply with all applicable SEC Practice Section or equivalent British organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education, as long as he appears or practices before the Commission as an independent accountant .
+
+  By the Commission
+
+                    Jonathan G. Katz
+               Secretary     
+
+ ____________________________
+      1     Rule 102(e)(1)(ii), provides in relevant part, that: the Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it any person who is found to have engaged in improper professional conduct.
+
+      2     The findings herein are made pursuant to Respondents' Offers and are not binding on any other person or entity in this or any other proceeding.
+
+      3     In Britain, a C.A. is the professional equivalent of a Certified Public Accountant in the United States.
+
+      4     For a more complete description of these events and related proceedings involving Cronos and former executives and directors of the company see  In the Matter of The Cronos Group , Admin. Proc. No. 3-10096 (Nov. 15, 1999);  In the Matter of Axel E. Friedberg and Rudolf J. Weissenberger , Admin. Proc. No. 3-10263 (August 8, 2000).
+
+      5     GAAS requires that an auditor communicate with a predecessor auditor prior to the acceptance of the engagement to determine whether there are prior client-auditor problems that might cause the successor auditor to refuse the engagement.   See  Codification of Statements on Auditing Standards (hereinafter "AU") § 315.  The successor auditor generally requests the predecessor auditor to confirm in writing that there are no concerns that require the successor auditor to not accept the engagement.  The return communication of such a request is sometimes referred to as a clearance letter.
+
+      6     Chopping was selected based on several factors, including his position as senior technical partner at the firm, his knowledge of auditing standards in major jurisdictions and the fact that he was the editor of a manual on UK GAAP, produced by the Institute of Chartered Accountants.  
+
+      7     17 CFR § 210.2-02(b)(1).
+
+      8      AU §§ 150.02; 230.01; 230.07; 333.02.
+
+  
+
+       9     AU §§ 150.02; 311.03.
+
+      10     AU §§ 150.02; 326.01.
+
+      11     AU §§ 150.02; 410; 411; 508.20.
+
+      12     AU § 334.
+
+      13     Item 9 of Form 20-F requires a registrant to describe, among other things, internal and external sources of liquidity and events and uncertainties that may result in material changes in the registrant's liquidity.  Palatin's misstatements concerning the collateral as well as his technical default of the sales agreement associated with the pledged collateral raised an uncertainty regarding recoverability of the loan to Palatin.    
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diff --git a/raw/aaer/2002/AAER-1588.txt b/raw/aaer/2002/AAER-1588.txt
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.    46172 / July 9, 2002    
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.     1588 / July 9, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.   3-10823
+
+         In the Matter of     
+      THOMAS F. WRABACK, CPA,     
+         Respondent.   
+     
+    : : : : : :   
+   ORDER INSTITUTING PUBLIC 
+         ADMINISTRATIVE PROCEEDINGS 
+         PURSUANT TO RULE 102(e) OF THE
+            COMMISSION'S RULES OF PRACTICE,
+         MAKING FINDINGS, AND IMPOSING
+         REMEDIAL SANCTIONS       I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted against Thomas F. Wraback ("Respondent" or "Wraback") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1     II. 
+
+  In anticipation of the institution of these public administrative proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except that Respondent admits the jurisdiction of the Commission over him and the subject matter of these proceedings, and that a Final Judgment as to Defendant Thomas F. Wraback ("Final Judgment") has been entered against him as set forth in Section III.C., Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order").
+
+   III. 
+
+   On the basis of this Order and Respondent's Offer, the Commission finds that:  2        Wraback, age 41,   served as Chief Financial Officer and Senior Vice President of Physician Computer Network, Inc ("PCN") from 1996 until his termination in August 1998.  Wraback is, and at all relevant times was, a Certified Public Accountant licensed by the state of New Jersey.  
+
+     PCN was, at all relevant times, a New Jersey corporation with its principal executive offices located in Morris Plains, New Jersey.  PCN was engaged in the business of developing and distributing practice management and clinical data software for physician practice groups.  At all relevant times, PCN's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the NASDAQ National Market.  PCN's stock was suspended from trading in April 1998 and delisted in May 1998.  In March 2000, PCN's assets were acquired in accordance with a plan of reorganization filed by PCN in Chapter 11 bankruptcy proceedings.  PCN no longer operates as a public company.  
+
+     On June 5, 2002, the Commission filed a Complaint against Wraback in  Securities and Exchange Commission v. John F. Mortell, et al.  (" SEC v. Mortell ") (Civil Action No. 1:02CV01090).  On June 5, 2002, Wraback consented to the entry of the Final Judgment against him in  SEC v. Mortell , without admitting or denying the allegations of the Complaint, except as to subject matter jurisdiction, which Wraback admitted.  On June 24, 2002, the United States District Court for the District of Columbia entered the Final Judgment which:  (i) permanently enjoined Wraback from, directly or indirectly, violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; (ii) ordered Wraback to pay a $60,000 civil penalty pursuant to Section 21(d)(3) of the Exchange Act; and (iii) prohibited Wraback, for a period of ten (10) years, from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act, any issuer required to file reports pursuant to Section 15(d) of the Exchange Act, or any issuer which has issued any security traded on any national securities exchange or through any inter-dealer quotation medium.   
+
+     The Commission's Complaint in  SEC v. Mortell  alleged, among other things, that Wraback, at the direction of PCN's former President and Chief Operating Officer, engaged in a fraudulent scheme which resulted in PCN filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 1996, and in the company's quarterly reports on Form 10-Q for the first three quarters of fiscal year 1997.  The Complaint alleged that Wraback engaged in a number of improper accounting practices that materially increased PCN's annual and quarterly revenue and net income in a departure from generally accepted accounting principles ("GAAP").  These practices included, among other things, recognizing revenue on sales that did not exist, improperly capitalizing software costs, prematurely recognizing revenue from customer support and maintenance contracts, and recognizing revenue from out-of-period shipments.  The Complaint further alleged that Wraback falsified certain documents, provided altered documents and made false and misleading statements to PCN's auditors in connection with the audit of PCN's financial statements for fiscal years 1996 and 1997.
+    IV. 
+
+  Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction consented to by Wraback in his Offer. 
+
+    Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
+
+      Wraback is suspended from appearing or practicing before the Commission as an accountant.
+
+     After five (5) years from the date of this Order, Wraback may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Wraback's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
+
+        an independent accountant.  Such an application must satisfy the Commission that:  (a) Wraback, or any firm with which he is or becomes associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("ASEC Practice Section"); (b) Wraback, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Wraback appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.  
+       The Commission's review of any application by Wraback to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Wraback's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.  
+   By the Commission.
+
+     Jonathan G. Katz 
+               Secretary    
+
+			  
+ ___________________________
+      1    Rule 102(e)(3) provides, in relevant part, that: 
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, temporarily suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.  
+
+      2       The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.    
+
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diff --git a/raw/aaer/2002/AAER-1589.txt b/raw/aaer/2002/AAER-1589.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9032d56e20b7c8409c3905e22703b246bfa531aa
--- /dev/null
+++ b/raw/aaer/2002/AAER-1589.txt
@@ -0,0 +1,1476 @@
+
+
+ 
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+              Gregory D. Norton
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.    46174 / July 9, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.    1589 / July 9, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.   3-10824
+
+         In the Matter of      
+      GREGORY D. NORTON, CPA,   
+         Respondent.    
+     
+    : : : : : :   
+   ORDER INSTITUTING PUBLIC 
+ ADMINISTRATIVE PROCEEDINGS 
+ PURSUANT TO RULE 102(e) OF THE
+ COMMISSION'S RULES OF PRACTICE,
+ MAKING FINDINGS, AND IMPOSING
+ REMEDIAL SANCTIONS       I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted against Gregory D. Norton ("Respondent" or "Norton") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1     II. 
+
+  In anticipation of the institution of these public administrative proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except that Respondent admits the jurisdiction of the Commission over him and the subject matter of these proceedings, and admits that a Final Judgment as to Defendant Gregory D. Norton ("Final Judgment") has been entered against him as set forth in Section III.C., Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order").
+
+   III. 
+
+  On the basis of this Order and Respondent's Offer, the Commission finds that:  2        Norton, age 39,   served, at all relevant times, as Manager of Accounting and Reporting of Physician Computer Network, Inc ("PCN").  Norton is, and beginning in June 1997 was, a Certified Public Accountant licensed by the state of New Jersey.  
+
+     PCN was, at all relevant times, a New Jersey corporation with its principal executive offices located in Morris Plains, New Jersey.  PCN was engaged in the business of developing and distributing practice management and clinical data software for physician practice groups.  At all relevant times, PCN's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the NASDAQ National Market.  PCN's stock was suspended from trading in April 1998 and delisted in May 1998.  In March 2000, PCN's assets were acquired in accordance with a plan of reorganization filed by PCN in Chapter 11 bankruptcy proceedings.  PCN no longer operates as a public company.  
+
+     On June 5, 2002, the Commission filed a Complaint against Norton in  Securities and Exchange Commission v. John F. Mortell, et al.  (" SEC v. Mortell ") (Civil Action No. 1:02CV01090).  On June 5, 2002, Norton consented to the entry of the Final Judgment against him in  SEC v. Mortell , without admitting or denying the allegations of the Complaint, except as to subject matter jurisdiction, which Norton admitted.  On June 24, 2002, the United States District Court for the District of Columbia entered the Final Judgment which:  (i) permanently enjoined Norton from, directly or indirectly, violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-2 thereunder; and (ii) ordered Norton to pay a $30,000 civil penalty pursuant to Section 21(d)(3) of the Exchange Act.   
+
+       The Commission's Complaint in  SEC v. Mortell  alleged, among other things, that Norton engaged in a fraudulent scheme which resulted in PCN filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 1996, and in the company's quarterly reports on Form 10-Q for the first three quarters of fiscal year 1997.  The Complaint alleged that Norton engaged in a number of improper accounting practices that materially increased PCN's annual and quarterly revenue and net income in a departure from generally accepted accounting principles ("GAAP").  These practices included, among other things, recognizing revenue on sales that did not exist, improperly capitalizing software costs, prematurely recognizing revenue from customer support and maintenance contracts, and recognizing revenue from out-of-period shipments.  The Complaint further alleged that Norton falsified certain documents, provided altered documents and made false and misleading statements to PCN's auditors in connection with the audit of PCN's financial statements for fiscal years 1996 and 1997.
+    IV. 
+
+  Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction consented to by Norton in his Offer. 
+
+    Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
+      Norton is suspended from appearing or practicing before the Commission as an accountant.
+
+     After five (5) years from the date of this Order, Norton may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Norton's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
+
+       an independent accountant.  Such an application must satisfy the Commission that:  (a) Norton, or any firm with which he is or becomes associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("ASEC Practice Section"); (b) Norton, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Norton appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.  
+       The Commission's review of any application by Norton to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Norton's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.  
+   By the Commission.
+
+     Jonathan G. Katz 
+               Secretary    
+
+ _______________________
+      1       Rule 102(e)(3) provides, in relevant part, that: 
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, temporarily suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. 
+       2       The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.    
+
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diff --git a/raw/aaer/2002/AAER-1590.txt b/raw/aaer/2002/AAER-1590.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2f4da4eccda2bd3bf9f58c76c8a6a03d7f8bba6f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1590.txt
@@ -0,0 +1,1475 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Glen P. Duffy, CPA 
+     
+     
+     
+     
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+     
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+              Glen P. Duffy, CPA
+           
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+        Glen P. Duffy, CPA
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.    46175 / July 9, 2002 
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1590 / July 9, 2002     
+  ADMINISTRATIVE PROCEEDING
+ File No.   3-10825
+
+         In the Matter of      
+      GLEN P. DUFFY, CPA,     
+         Respondent.    
+     
+    : : : : : :   
+   ORDER INSTITUTING PUBLIC 
+        ADMINISTRATIVE PROCEEDINGS 
+ PURSUANT TO RULE 102(e) OF THE
+        COMMISSION'S RULES OF PRACTICE,
+ MAKING FINDINGS, AND IMPOSING
+        REMEDIAL SANCTIONS       I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted against Glen P. Duffy ("Respondent" or "Duffy") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1     II. 
+
+  In anticipation of the institution of these public administrative proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except that Respondent admits the jurisdiction of the Commission over him and the subject matter of these proceedings, and that a Final Judgment as to Defendant Glen P. Duffy ("Final Judgment") has been entered against him as set forth in Section III.C., Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order").
+
+   III. 
+
+  On the basis of this Order and Respondent's Offer, the Commission finds that:  2        Duffy, age 39,   served, at all relevant times, as Director of Accounting of Physician Computer Network, Inc ("PCN").  Duffy is, and at all relevant times was, a Certified Public Accountant licensed by the state of New Jersey.  
+
+     PCN was, at all relevant times, a New Jersey corporation with its principal executive offices located in Morris Plains, New Jersey.  PCN was engaged in the business of developing and distributing practice management and clinical data software for physician practice groups.  At all relevant times, PCN's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the NASDAQ National Market.  PCN's stock was suspended from trading in April 1998 and delisted in May 1998.  In March 2000, PCN's assets were acquired in accordance with a plan of reorganization filed by PCN in Chapter 11 bankruptcy proceedings.  PCN no longer operates as a public company.  
+
+     On June 5, 2002, the Commission filed a Complaint against Duffy in  Securities and Exchange Commission v. John F. Mortell, et al.  (" SEC v. Mortell ") (Civil Action No. 1:02CV01090).  On June 5, 2002, Duffy consented to the entry of the Final Judgment against him in  SEC v. Mortell , without admitting or denying the allegations of the Complaint, except as to subject matter jurisdiction, which Duffy admitted.  On June 24, 2002, the United States District Court for the District of Columbia entered the Final Judgment which:  (i) permanently enjoined Duffy from, directly or indirectly, violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-2 thereunder; and (ii) ordered Duffy to pay a $10,000 civil penalty pursuant to Section 21(d)(3) of the Exchange Act.   
+
+     The Commission's Complaint in  SEC v. Mortell  alleged, among other things, that Duffy engaged in a fraudulent scheme which resulted in PCN filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 1996, and in the company's quarterly reports on Form 10-Q for the first three quarters of fiscal year 1997.  The Complaint alleged that Duffy engaged in, or was aware of, a number of improper accounting practices that materially increased PCN's annual and quarterly revenue and net income in a departure from generally accepted accounting principles ("GAAP").  These practices included, among other things, recognizing revenue on sales that did not exist and recognizing revenue from out-of-period shipments.  The Complaint further alleged that Duffy falsified certain documents and made false or misleading statements to PCN's auditors in connection with PCN's fiscal year 1997 audit.
+    IV. 
+
+  Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction consented to by Duffy in his Offer. 
+
+  Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
+
+      Duffy is suspended from appearing or practicing before the Commission as an accountant.
+
+     After five (5) years from the date of this Order, Duffy may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 
+
+      a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Duffy's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
+
+        an independent accountant.  Such an application must satisfy the Commission that:  (a) Duffy, or any firm with which he is or becomes associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("ASEC Practice Section"); (b) Duffy, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Duffy appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.  
+       The Commission's review of any application by Duffy to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Duffy's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.  
+   By the Commission.
+
+         Jonathan G. Katz 
+               Secretary    
+ __________________________
+      1       Rule 102(e)(3) provides, in relevant part, that: 
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, temporarily suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.        2      The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.    
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diff --git a/raw/aaer/2002/AAER-1592.txt b/raw/aaer/2002/AAER-1592.txt
new file mode 100644
index 0000000000000000000000000000000000000000..52510581adf6045995762c1c7eb7b45f6fb52e2e
--- /dev/null
+++ b/raw/aaer/2002/AAER-1592.txt
@@ -0,0 +1,1368 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Intelliquis International, Inc., Mark W. Tippets, David A. Jones and Kevin E. Orton 
+     
+     
+     
+     
+     
+     
+     
+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Intelliquis International, Inc., Mark W. Tippets, David A. Jones and Kevin E. Orton
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Intelliquis International, Inc., Mark W. Tippets, David A. Jones and Kevin E. Orton
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+             
+
+ Litigation Release No. 17611 / July 12, 2002
+
+  Accounting and Auditing Enforcement Release No. 1592 / July 12, 2002
+
+  S.E.C. v. Intelliquis International, Inc., Mark W. Tippets, David A. Jones and Kevin E. Orton, Docket No. 2:02 CV-0674 TC (U.S.D.C., D.Ut.)
+
+  The Securities and Exchange Commission filed a complaint in the United States District Court for the District of Utah, on July 12, 2002, seeking permanent injunctions against Intelliquis International Inc., Mark W. Tippets, David A. Jones and Kevin E. Orton.  The complaint also seeks disgorgement, civil money penalties, and officer-director bars against Tippets and Jones and a civil money penalty of $110,000 against Orton.  
+
+  The complaint alleges that from May 1999 until May 2001, Intelliquis filed two annual reports, quarterly reports and a registration statement in which it overstated revenues, income and accounts receivable by recording certain consignment transactions, which constituted a significant portion of Intelliquis' retail business, as sales.  It is alleged that the inaccurate financial statements were prepared by Jones, Intelliquis' CFO, and were audited by Orton.  It is further alleged that Tippets, Intelliquis' Vice President for Marketing and Sales and a director of the company, knew that Intelliquis was improperly recognizing revenues based upon a consignment of product rather than actual sales because he entered into the consignment agreements on behalf of Intelliquis.  
+
+  It is alleged that by engaging in such conduct Intelliquis, Tippets, Jones and Orton violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.  It is also alleged that Intelliquis violated Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder, that Tippets and Jones aided and abetted Intelliquis' violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, and that Orton aided and abetted Intelliquis' violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+  
+
+ 
+
+          SEC Complaint  in this matter.    
+
+ 
+ 
+      
+                                   
+               
+     
+
+       
+
+
+   
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diff --git a/raw/aaer/2002/AAER-1593.txt b/raw/aaer/2002/AAER-1593.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9e91f4932632f6e6955ee1c93f7f7d26a24b3778
--- /dev/null
+++ b/raw/aaer/2002/AAER-1593.txt
@@ -0,0 +1,1515 @@
+
+
+ 
+ 
+   
+     
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+ 
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+     SEC.gov | Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge 
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+              Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
+           
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+        Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46205 / July 15, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1593 / July 15, 2002
+  ADMINISTRATIVE PROCEEDING 
+ File No.  3-9793
+
+
+         In the Matter of  
+   Jean-Paul Bolduc, Brian J. Smith, C.P.A.,   
+  Richard N. Sukenik, C.P.A., Philip J.   
+  Ryan III, Constantine L. Hampers,    
+  A. Miles Nogelo, and Robert W.   
+  Armstrong III, C.P.A.,   
+                   Respondents.   
+     
+  : : : : : :   
+ ORDER MAKING FINDINGS AND  IMPOSING A CEASE-AND-DESIST ORDER AGAINST BRIAN J. SMITH, C.P.A.
+     I. 
+
+      The Securities and Exchange Commission ("Commission") deems it appropriate to accept the Offer of Settlement ("Offer") submitted by Brian J. Smith, C.P.A. ("Smith" or "Respondent") pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a), for the purpose of settlement of this public administrative and cease-and-desist proceeding instituted by the Commission against him on December 22, 1998, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice.
+
+   II. 
+
+      Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying any of the findings contained herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which is admitted, Smith consents to the entry by the Commission of this Order.
+
+   III. 
+
+      On the basis of this Order and the Respondent's Offer, the Commission finds that:  1      BACKGROUND  
+
+      1. Respondent Smith was an executive vice president and the chief financial officer of W.R. Grace & Co. ("Grace") from July 1989 until his resignation in July 1995.
+
+  2. Grace was a New York corporation with its principal executive offices in Boca Raton, Florida during at least 1991 through 1996.  Grace's primary businesses were packaging, specialty chemicals and health care services.  During the relevant time period, Grace had a December 31 fiscal year end.
+
+  3. Between at least 1991 to 1995, National Medical Care Inc. ("NMC") was Grace's main health care subsidiary, with its headquarters in Waltham, Massachusetts.  NMC provided kidney dialysis and home health services and manufactured specialized medical products.  During the relevant period, NMC comprised the bulk of Grace's Health Care Group, which group was, until the first quarter of 1995, one of Grace's core businesses and was reported as a segment in Grace's consolidated financial statements.  The Health Care Group contributed a significant portion of the consolidated pretax earnings of Grace during the majority of the period 1991-1995.
+
+    EXCESS RESERVES AT NMC  
+
+  4. As described in greater detail below, during the fiscal years 1991 through 1995 ("relevant period"), Grace engaged in fraudulent conduct by deferring income earned by NMC primarily to smooth the earnings of the Health Care Group.  Grace deferred reporting income by increasing or establishing "excess reserves" that were not in conformity with generally accepted accounting principles ("GAAP").  Grace used the reserves to manipulate the reported quarterly and annual earnings of the Health Care Group and Grace.  2    5. Smith, as Grace's chief financial officer, through his actions or omissions, caused this fraudulent conduct, which resulted in Grace's filing false and misleading periodic reports with the Commission, and making false and misleading statements in press releases and at analyst teleconferences.  Smith, through his actions or omissions, also caused Grace to fail to make and keep books and records which accurately reflected its transactions, and to fail to maintain a system of internal accounting controls sufficient to provide assurances that transactions were recorded as necessary to permit the proper preparation of financial statements in conformity with GAAP.  
+
+            Creation of the Excess Reserves  
+
+  6. Beginning in 1990 or 1991, NMC experienced a significant and unanticipated increase in revenues and earnings, in excess of Grace's internal forecasts, due to changes in Medicare reimbursement procedures.  During the first half of 1991, members of NMC senior management deferred some of the unanticipated income by increasing or establishing reserves (an expense), often referred to as "excess reserves."  Thus, rather than report its actual earnings, NMC, at the direction of certain former members of Grace senior management, including Smith, underreported its earnings for 1991 and 1992.
+
+  7. At some point in mid-1991, as the reserves reached a level of between $10 and $20 million, certain members of NMC senior management realized that the reserves were going to be significant by year end and contacted Smith to determine how Grace wanted NMC to account for the excess reserves.  Smith directed that NMC keep the excess reserves and report Health Care Group earnings consistent with Grace's targeted levels (specifically a 24% growth rate for 1991) because Grace would not be credited by the investing public for growth rates beyond the targeted levels.  
+
+  8. The final reported 1991 growth rate for the Health Care Group was 24%.  Grace directed NMC to report a 27-28% growth rate for the Health Care Group's net income for 1992.  The final reported 1992 growth rate was 27.5%.
+
+            Use of the Excess Reserves  
+
+  9. During the relevant period, the excess reserves were primarily used for profit planning purposes, i.e., to bring the Health Care Group's quarterly reported results of operations in line with Grace's targets for the Health Care Group.  In general, from 1991 through the first quarter of 1995, the reported Health Care Group growth rates remained relatively steady - from about 23% to 37% -- whereas the actual growth rates fluctuated from about an 8% decline in growth to a 61% increase.  
+
+  10. However, at various times, Grace also directed NMC to release some of the excess reserves to increase Grace's earnings per share.  For example, Grace requested NMC to report an additional $1.5 million in income for the fourth quarter of 1994 because Grace needed the additional income for its consolidated results of operations.
+
+  11. During the relevant period, Smith also discussed the creation and use of the excess reserves with Price Waterhouse LLP ("PW"), Grace's independent auditors.  (PW merged with Coopers & Lybrand L.L.P. on July 1, 1998 to form PricewaterhouseCoopers LLP.)  Also during the relevant time period, PW performed audits of Grace's consolidated financial statements and issued audit reports containing unqualified opinions thereon.  3    12. Smith, with the knowledge or at the direction of other members of Grace's management, directed NMC to use the excess reserves to control Grace's consolidated earnings.  Smith knew or should have known that the use of the excess reserves to control Grace's consolidated earnings was improper. 
+
+    FALSE AND MISLEADING FILINGS AND STATEMENTS  
+
+  13. During the relevant period, Grace issued a press release and conducted an analyst teleconference at or about the same time it filed each of its Forms 10-Q and 10-K.  Throughout the relevant period, the Health Care Group and Grace income amounts discussed in the teleconferences and reported in the press releases and filings included the effects of the excess reserves.  Therefore, every filing, press release and teleconference was false and misleading because it included manipulated earnings amounts for the Health Care Group and Grace.  Moreover, the earnings figures were materially misstated in one or more of Grace's Forms 10-K, Forms 10-Q, press releases and teleconferences.
+
+  14. Another aspect of the false and misleading nature of Grace's filings and press releases resulted from the failure to disclose the excess reserves.  During the relevant period, the Management Discussion & Analysis section of Forms 10-Q and 10-K and the press releases included discussions of the results of operations for the Health Care Group and Grace.  These discussions were misleading because they did not provide complete and accurate disclosure of all factors relevant to an assessment of the Health Care Group's and Grace's results of operations.
+
+  15. A third facet of the false and misleading nature of Grace's filings and press releases related to the distortion of the Health Care Group's earnings trends during the relevant period.  The Health Care Group growth rates reported by Grace from 1991 through the first quarter of 1995 fluctuated less than the actual growth rates.  In addition, over the 1991 through 1993 period, Grace reported steadily increasing growth in annual pretax earnings for the Health Care Group.  However, the actual trend was a steady decline in the growth rate for the Health Care Group.
+
+  16. Smith knew, or should have known, that Grace's filings, press releases and analyst teleconferences during the relevant time period contained the misstatements and omissions described above.  Moreover, as the chief financial officer of Grace, Smith caused, through his actions or omissions, Grace to fail to make and keep books and records which accurately reflected its transactions and to fail to maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP.
+
+    VIOLATIONS  
+
+  17. Based upon the aforesaid conduct, Respondent Smith caused Grace's violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.
+
+   IV. 
+
+      Respondent Smith has submitted an Offer of Settlement in which, without admitting or denying the findings herein, he consents to the Commission's entry of this Order, which:   
+(1) makes findings, as set forth above; and (2) orders Smith to cease and desist from committing or causing any violation, or any future violation, of certain provisions of the federal securities laws, as set forth below.  As set forth in Smith's Offer of Settlement, Smith undertakes to  cooperate with the Commission staff in preparing for and presenting any civil litigation or administrative proceedings concerning any transaction that is the subject of this Order.
+
+  V. 
+
+      On the basis of the foregoing, the Commission deems it appropriate to accept Respondent's Offer.  
+
+   ACCORDINGLY, IT IS ORDERED  that:
+
+       Respondent Smith cease and desist from committing or causing any violation and any future violation of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and causing any violation and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; and
+
+      The proceedings against Smith pursuant to Rule 102(e) of the Commission's Rules of Practice are hereby dismissed.
+   By the Commission.
+
+      Jonathan G. Katz
+                     Secretary     
+ __________________________
+      1      The findings herein are made pursuant to Respondent Smith's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+
+      2      On June 30, 1999, Grace consented to the entry of an Order by the Commission (the "Grace Order") requiring Grace to cease-and-desist from committing or causing any violation and any future violation of Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   See   In the Matter of W. R. Grace & Co. , Securities Exchange Act Release No. 41578; Accounting and Auditing Enforcement Release No. 1140 (June 30, 1999).  Pursuant to the Grace Order, Grace also undertook to establish a fund of $1 million for program(s) to further awareness and education relating to financial statements and generally accepted accounting principles.
+
+      3      On June 30, 1999, the Commission, on consent, ordered two PW partners who were involved in the audits of Grace's consolidated financial statements during the relevant period to cease-and-desist from causing any violation and any future violation of Sections 13(a) and 13(b) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.   See   In the Matter of Eugene Gaughan, C.P.A. , Securities Exchange Act Release No. 41580; Accounting and Auditing Enforcement Release No. 1141 (June 30, 1999);  In the Matter of Thomas Scanlon, C.P.A. , Securities Exchange Act Release No. 41581; Accounting and Auditing Enforcement Release No. 1142 (June 30, 1999).      
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diff --git a/raw/aaer/2002/AAER-1594.txt b/raw/aaer/2002/AAER-1594.txt
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46206 / July 15, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1594 / July 15, 2002
+  ADMINISTRATIVE PROCEEDING 
+ File No.  3-9793
+
+         In the Matter of   
+   Jean-Paul Bolduc, Brian J. Smith, C.P.A.,     
+  Richard N. Sukenik, C.P.A., Philip J.   
+  Ryan III, Constantine L. Hampers,    
+  A. Miles Nogelo, and Robert W.  
+  Armstrong III, C.P.A.,   
+                   Respondents.   
+     
+  : : : : : :   
+  ORDER DISMISSING PUBLIC CEASE-AND-DESIST PROCEEDINGS  AND PROVIDING FOR CERTAIN CONDITIONAL RELIEF AS TO RESPONDENT PHILIP J. RYAN III    
+
+I.
+
+	The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to accept the Offer of Settlement ("Offer") submitted by Philip J. Ryan, III ("Ryan" or "Respondent") pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a), for the purpose of settlement of public cease-and-desist proceedings instituted against him by the Commission on December 22, 1998 pursuant to an Order Instituting Public Administrative and Cease-and-Desist Proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice ("OIP").
+
+II.
+
+	Solely for the purpose of this proceeding, Ryan admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, and consents to the entry by the Commission of this Order, which:  (1) dismisses, without prejudice, the public cease-and-desist proceedings against Ryan; and (2) as set forth in paragraph III., below, provides certain conditions under which the Commission may re-institute cease-and-desist proceedings and impose a cease-and-desist order against Ryan.  In his Offer, Ryan has also undertaken to 					
+					
+    I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to accept the Offer of Settlement ("Offer") submitted by Philip J. Ryan, III ("Ryan" or "Respondent") pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a), for the purpose of settlement of public cease-and-desist proceedings instituted against him by the Commission on December 22, 1998 pursuant to an Order Instituting Public Administrative and Cease-and-Desist Proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice ("OIP").
+
+   II. 
+
+      Solely for the purpose of this proceeding, Ryan admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, and consents to the entry by the Commission of this Order, which:  (1) dismisses, without prejudice, the public cease-and-desist proceedings against Ryan; and (2) as set forth in paragraph III., below, provides certain conditions under which the Commission may re-institute cease-and-desist proceedings and impose a cease-and-desist order against Ryan.  In his Offer, Ryan has also undertaken to  cooperate with the Commission staff in preparing for and presenting any civil litigation or administrative proceedings concerning any transaction that is the subject of the OIP.
+
+  III. 
+
+      A. Notwithstanding the dismissal of these proceedings set forth in paragraph IV., below, if Ryan engages within the next three years in conduct other than that alleged in the OIP, and such conduct forms the basis for any of the following events (the "triggering events"): 
+
+     Ryan is found by a court of competent jurisdiction, by the Commission, by any other state or federal regulatory agency, or by any self-regulatory organization, to have violated any federal or state securities law; 
+
+        Ryan has settled any claim brought by the Commission, by any other state or federal regulatory agency, or by any self-regulatory organization involving any violation of any federal or state securities law; 
+
+        Ryan is disciplined by any state accountancy licensing board or other accounting regulatory body; or
+
+        Ryan is subject to a final order pursuant to Rule 102(e) of the Commission's Rules of Practice; 
+   and the triggering event occurs within five years of the entry of the Order, then Ryan consents,  without admitting or denying any of the Commission's findings, to the entry of an Order Re-Instituting Public Cease-And-Desist Proceedings, Making Findings And Imposing Cease-And Desist Order Against Philip J. Ryan, III ("Re-Institution Order"), which will contain the findings and impose the cease-and-desist order set forth in Exhibit A hereto and are incorporated by reference.  In addition, if any proceeding is initiated within five years that could result in any of the triggering events, then the five-year time period is tolled until those proceedings are concluded with respect to Ryan.  Ryan undertakes promptly to inform the Commission if he receives actual notice of any such proceeding or triggering event.
+
+                  B. If any of the triggering events occurs, the Division of Enforcement ("Division"), with prior notice to Ryan, may petition the Commission to enter the Re-Institution Order containing the findings and imposing the cease-and-desist order set forth in Exhibit A hereto and Ryan hereby waives any right to contest the Division's petition or the entry of the Re-Institution Order, which may be entered by the Commission at its sole discretion.  
+
+      C. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party and without admitting or denying any of the Commission's findings, Ryan consents to the entry by the Commission of  the Re-Institution Order containing the findings and imposing the cease-and-desist order set forth in Exhibit A hereto, should such order be entered upon the occurrence of a triggering event as set forth in paragraph III.A. herein.
+
+   IV. 
+
+      On the basis of the foregoing, the Commission deems it appropriate to accept Respondent's Offer.  
+
+   ACCORDINGLY, IT IS ORDERED  that the cease-and-desist proceedings against Ryan pursuant to Section 21C of the Exchange Act are hereby dismissed without prejudice.
+
+      By the Commission.
+
+      Jonathan G. Katz
+                     Secretary     
+
+
+  EXHIBIT A  
+
+  FINDINGS AND CEASE-AND-DESIST ORDER TO BE INCLUDED IN THE  ORDER RE-INSTITUTING PUBLIC CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS AND IMPOSING CEASE-AND DESIST ORDER AGAINST PHILIP J. RYAN, III ("RE-INSTITUTION ORDER") , IF ENTERED PURSUANT TO RYAN'S OFFER OF SETTLEMENT IN ADMINISTRATIVE  PROCEEDING FILE NO. 3-9793 
+
+    BACKGROUND  
+
+      1. Respondent was assistant controller in charge of the financial reporting department of W.R. Grace & Co. ("Grace") from August 1991 through January 1996.
+
+  2. Grace was a New York corporation with its principal executive offices in Boca Raton, Florida during at least 1991 through 1996.  Grace's primary businesses were packaging, specialty chemicals and health care services.  Grace had a December 31 fiscal year end.
+
+  3. Between at least fiscal years 1991 to 1995 (the "relevant period"), National Medical Care Inc. ("NMC") was Grace's main health care subsidiary, with its headquarters in Waltham, Massachusetts.  NMC provided kidney dialysis and home health services and manufactured specialized medical products.  During the relevant period, NMC comprised the bulk of Grace's Health Care Group, which group was, until the first quarter of 1995, one of Grace's core businesses and was reported as a segment in Grace's consolidated financial statements.  The Health Care Group contributed a significant portion of the consolidated pretax earnings of Grace during the majority of the relevant period.
+
+    EXCESS RESERVES AT NMC  
+
+  4. As described in greater detail below, during relevant period, Grace engaged in fraudulent conduct by deferring income earned by NMC from 1991 through 1995, primarily to smooth the earnings of the Health Care Group.  Grace deferred reporting income by increasing or establishing reserves not in conformity with generally accepted accounting principles ("GAAP").  Grace used the reserves to manipulate the reported quarterly and annual earnings of the Health Care Group and Grace.  1    As a result of this activity, Grace made materially false filings with the Commission and publicly disseminated materially false statements.  Grace also failed to make and keep books and records which accurately reflected its transactions, and failed to maintain a system of internal accounting controls sufficient to provide assurances that transactions were recorded as necessary to permit the proper preparation of financial statements in conformity with GAAP.  
+
+            Creation of the Excess Reserves  
+
+  5. Beginning in 1990 or 1991, NMC experienced a significant and unanticipated increase in revenues and earnings, in excess of Grace's forecasts, due to changes in Medicare reimbursement.  During the first half of 1991, former members of NMC senior management deferred some of the unanticipated income by increasing or establishing reserves (an expense), often referred to as "excess reserves."  Thus, rather than report its actual earnings, NMC, at the direction of certain former members of Grace management, underreported its earnings for 1991 and 1992.
+
+  6. At some point in mid-1991, as the reserves reached a level of between $10 and $20 million, certain former members of NMC senior management realized that the reserves were going to be significant by year end and contacted Grace management to determine how Grace wanted NMC to account for the excess reserves.  Grace management directed that NMC keep the excess reserves and report Health Care Group earnings consistent with Grace's targeted levels (specifically a 24% growth rate for 1991) because Grace would not be credited by the investing public for growth rates beyond the targeted levels.  
+
+  7. The final reported 1991 growth rate for the Health Care Group was 24%.  Grace directed NMC to report a 27-28% growth rate for the Health Care Group's net income for 1992.  The final reported 1992 growth rate was 27.5%.
+
+            Use of the Excess Reserves  
+
+  8. During the relevant period, the excess reserves were primarily used for profit planning purposes, i.e., to bring the Health Care Group's quarterly reported results of operations in line with Grace's targets for the Health Care Group.  In general, from 1991 through the first quarter of 1995, the reported Health Care Group growth rates remained relatively steady - from about 23% to 37% -- whereas the actual growth rates fluctuated from about an 8% decline in growth to a 61% increase.  
+
+  9. However, at various times, Grace also directed NMC to release some of the excess reserves to increase Grace's earnings per share.  For example, Grace requested NMC to report an additional $1.5 million in income for the fourth quarter of 1994 because Grace needed the additional income for its consolidated results of operations.
+
+    RESPONDENT'S CONDUCT  
+
+  10. Respondent, as Grace's assistant controller, became aware of the purpose of the excess reserves late in 1991.  He supervised the financial reporting department that prepared initial drafts of Grace's periodic reports with the Commission, including its consolidated financial statements and accompanying disclosures.  Respondent, through his actions or omissions, caused Grace to file periodic reports that contained material misstatements and omissions.  Respondent, through his actions or omissions, also caused Grace to fail to make and keep books and records which accurately reflected its transactions.  
+
+  11. As a result of the above stated conduct, on December 22, 1998 the Commission issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice ("OIP") against Respondent and senior management of Grace and NMC.   In re Bolduc, et al. , Administrative Proceeding File No. 3-9793.  Respondent was charged with causing false filings and books and records violations by his former employer, Grace.  On August 31, 1999, that proceeding was stayed against Respondent and others pending a determination by the Commission of an interlocutory appeal brought by the Division of Enforcement ("Division"), the result of which did not have any impact on Respondent.  Prior to the Commission's decision on the interlocutory appeal, the Division and Respondent executed the Stipulation providing for dismissal of that proceeding as to Respondent without prejudice and subject to the re-institution of the proceeding, entry of findings and a cease-and-desist Order upon the occurrence of any of the conditions set forth therein.  
+
+    VIOLATIONS  
+
+  12. Based upon the foregoing, Respondent caused Grace's violations of Sections 13(a) and 13(b)(2) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.
+
+        CEASE-AND-DESIST ORDER  
+
+      In view of the foregoing, the Commission finds that it is appropriate to impose the cease-and-desist order specified in Ryan's Offer.  Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Ryan cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 thereunder, and from committing or causing any violation and any future violation of Rule 13b2-1 under the Exchange Act.
+
+  ________________________________
+      1      On June 30, 1999, Grace consented to the entry of an Order by the Commission (the "Grace Order") requiring Grace to cease-and-desist from committing or causing any violation and any future violation of Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   See   In the Matter of W. R. Grace & Co. , Securities Exchange Act Release No. 41578; Accounting and Auditing Enforcement Release No. 1140 (June 30, 1999).  Pursuant to the Grace Order, Grace also undertook to establish a fund of $1 million for program(s) to further awareness and education relating to financial statements and generally accepted accounting principles.    
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diff --git a/raw/aaer/2002/AAER-1596.txt b/raw/aaer/2002/AAER-1596.txt
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+              PricewaterhouseCoopers LLP, and PricewaterhouseCoopers Securities LLC
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+        PricewaterhouseCoopers LLP, and PricewaterhouseCoopers Securities LLC
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ RELEASE NO.   46216 / July 17, 2002 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO.     1596 / July 17, 2002 
+
+ ADMINISTRATIVE PROCEEDING  
+FILE NO.  3-10835 
+
+
+         In the Matter of   
+    PRICEWATERHOUSECOOPERS LLP,  AND PRICEWATERHOUSECOOPERS  SECURITIES LLC,   
+                   Respondents.   
+     
+  : : : : : : : :   
+  ORDER INSTITUTING PROCEEDINGS  PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE,  AND SECTION 21C OF THE  SECURITIES EXCHANGE ACT OF 1934,  MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER AND  OTHER RELIEF      I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings pursuant to Rule 102(e)(1) of the Commission's Rules of Practice  1   ("Rule 102(e)") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), be and hereby are instituted against PricewaterhouseCoopers LLP and PricewaterhouseCoopers Securities LLC (collectively, "Respondents").   II. 
+
+  In anticipation of the institution of these proceedings, the Respondents have submitted an Offer of Settlement ("Offer") to the Commission, 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, the Respondents, without admitting or denying the facts, findings or conclusions herein, except as to the Commission's jurisdiction over them and over the subject matter of these proceedings, consent to the entry of this Order Instituting Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing A Cease-and-Desist Order and Other Relief ("Order").    III. 
+
+  The Commission finds that:  2     A. RELEVANT PERSONS      1. Respondents      PricewaterhouseCoopers LLP  ("PwC") is a public accounting firm formed as a result of the merger of Coopers & Lybrand L.L.P. ("C&L") and Price Waterhouse LLP ("PW") on or about July 1, 1998 (collectively, the "Audit Firm").  PwC offers a wide variety of professional services, including audit services, through offices in over 100 U.S. cities.         PricewaterhouseCoopers Securities LLC  ("PwCS") is a broker-dealer registered with the Commission.  It is the successor broker-dealer to Coopers & Lybrand Securities L.L.C. ("CLS"), which was organized in July 1996, began operations on December 1, 1996, and was a wholly-owned subsidiary of C&L (collectively, the "Broker-Dealer").  PwCS was a wholly-owned subsidiary of PwC until November 1999, when it was acquired by PwC Global Holdings B.V., a PwC affiliate.  PwCS remained under PwC's control after this transaction.       2. Other Relevant Persons         Pinnacle Holdings, Inc.  ("Pinnacle") is a holding company structured as a real estate investment trust whose primary subsidiaries and operating divisions are engaged in the business of acquiring, integrating, operating and leasing communications site space, principally antenna space for wireless telephony, land mobile, two-way radio systems and paging service providers and other wireless devices.  3    PwC rendered professional services to Pinnacle from Pinnacle's inception in 1995 until March 2001, and served as Pinnacle's auditor until March 14, 2001.  Pinnacle's headquarters are in Sarasota, Florida, and its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act.  During the relevant period, Pinnacle's common stock was quoted on the Nasdaq National Market System.  Pinnacle conducted an initial public offering in February 1999.  On December 6, 2001, the Commission instituted and simultaneously settled public administrative cease-and-desist proceedings against Pinnacle based upon violations of the periodic reporting, books and records and internal control provisions of the federal securities laws.   In the Matter of Pinnacle Holdings, Inc.,  Exchange Act Release No. 45135 (December 6, 2001).    Avon Products, Inc.  ("Avon") is a New York corporation headquartered in New York, New York.  Avon is a leading direct seller of beauty and related products.  4    Avon's stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act, and is listed on the New York Stock Exchange.  PwC has been Avon's outside auditor since 1989.  PwC also provided non-audit services to Avon, including software consulting services.   B. SUMMARY 
+
+  This action concerns violations of auditor independence standards and related improper conduct by PwC, a "Big 5" accounting firm; PwCS, a registered broker-dealer affiliate of PwC; and their predecessor firms, C&L and CLS.  The violations in this action span a five-year period from 1996 through 2001, and come within three topical categories:       Charging Contingent Fees to Audit Clients.   In 14 instances, PwCS and CLS performed investment banking services for public audit clients of PwC and C&L pursuant to arrangements under which the clients would pay a contingent fee.  These fees violated the express prohibition on contingent fees contained in Rule 302 of the American  Institute of Certified Public Accountants ("AICPA") Code of Professional Conduct  5   and caused the Audit Firm to lack the requisite independence when the audits were performed for the public audit clients in question.  6     Improper Accounting for Non-Audit Fees paid by Audit Client to PwC.   PwC issued an unqualified audit report on Pinnacle's 1999 financial statements and performed interim reviews of Pinnacle's quarterly reports for the first three quarters of 2000.  In connection with the audit and quarterly reviews, PwC was a cause of Pinnacle's failure to account properly for certain costs, including non-audit fees paid by Pinnacle to PwC, related to Pinnacle's acquisition of communications site space from Motorola, Inc. ("Motorola").  Pinnacle improperly established at least $24 million in liabilities and improperly capitalized approximately $8.5 million in costs, of which approximately $6.8 million involved fees paid to PwC for non-audit services.  As a result, PwC was a cause of Pinnacle's periodic reporting, books and records and internal control violations.  PwC also failed to exercise objective and impartial judgment as required by the independence rules and therefore lacked the requisite independence in its audit of Pinnacle's 1999 financial statements and in its interim reviews of Pinnacle's quarterly reports for the first three quarters of 2000.      Improper Accounting for Software Project.   PwC issued an unqualified audit report on Avon's 1999 financial statements.  In connection with the audit, PwC was a cause of Avon's failure to write off all of the capitalized costs of an uncompleted software project that PwC consultants had been developing for Avon, but which Avon stopped and wound down.  In violation of generally accepted accounting principles (GAAP), Avon wrote off only part of the project's $42 million of costs, improperly retaining on its books $26 million that was comprised mostly of PwC's own consulting fees.  As a result, PwC was a cause of Avon's reporting and recordkeeping violations and failed to exercise objective and impartial judgment as required by the independence rules and therefore lacked the requisite independence in its audit of Avon's 1999 financial statements.           As explained in detail below, PwC (a) failed to comply with the independence requirements of Commission Regulation S-X; (b) was a cause of violations of periodic filing and books and records provisions of Section 13(a) and (b) of the Exchange Act and the rules thereunder by public issuers who were PwC and C&L audit clients; and (c) engaged in improper professional conduct under Rule 102(e).  PwCS was a cause of violations of Regulation S-X by PwC, and violations of periodic filing provisions in Exchange Act Section 13(a) and Rule 13a-1 by PwC audit clients.  
+
+   C. IMPROPER CONTINGENT FEE ARRANGEMENTS      1. Prohibition on Contingent Fees   Between 1996 and 2001, C&L's and PwC's broker-dealer subsidiaries, CLS and PwCS, provided investment banking services to various clients, including public audit clients of C&L and PwC.  During that period, AICPA Rule 302 specifically prohibited audit firms from performing services for audit clients for contingent fees:         A member in public practice shall not... [p]erform for a contingent fee any professional services for, or receive such a fee from a client for whom the member or the member's firm performs... an audit or review of a financial statement.  7      Because of the Broker-Dealer's affiliation with the Audit Firm, Respondents at all times recognized that the Broker-Dealer remained subject to auditor independence rules, understood that it therefore should not charge contingent fees to audit clients, and had written guidelines that prohibited charging contingent fees to audit clients.  8    In a February 1997 memorandum, a C&L Vice Chairman advised all C&L partners that "[b]ecause CLS is wholly owned by the Firm, it is subject to, and we intend to comply with, the rules of the [AICPA] and the Securities and Exchange Commission governing independence, conflicts of interest, and contingent fees."  9    At the same time, professionals at the Broker-Dealer sought to create fee structures that resembled the "success fee" or contingent fee arrangements most often employed by investment bankers, which typically are determined based on a percentage of the amount raised or the success of the engagement.  
+
+   2. The Particular Contingent Fee Arrangements 
+
+  In a number of instances, Respondents, by virtue of engagements between the Broker-Dealer and audit clients, had arrangements that were, in substance, contingent fee arrangements that ran afoul of Respondents' obligations under independence standards.  Specifically, between 1996 and 2001, CLS and PwCS performed services for 14 public Audit Firm clients pursuant to arrangements in which the audit clients expressly or otherwise agreed to pay contingent fees.  With some clients, the Broker-Dealer included the contingent fee within the express terms of the engagement letter.  With other clients, the Broker-Dealer used engagement letters that purported to create permissible "value-added fee" arrangements, but issued side letters or entered into oral understandings that created forbidden contingent fee arrangements.  In aggregate, Respondents, by virtue of fees paid to the Broker-Dealer, received several million dollars in contingent fees.      Contingent Fees in Engagement Letters  .  With four public audit clients, the contingent fees were expressly agreed upon in the formal engagement letter between CLS or PwCS and the client.  In one case, PwC became Company A's auditors in November 1999, several months after Company A had retained PwCS to sell a subsidiary and signed an engagement letter containing a contingent fee.  PwC knew about Company A's retention of PwCS, recognized that it presented independence issues, but concluded, mistakenly, that the PwCS engagement somehow had terminated even though it continued for another year and a half.  In another engagement during 1998, the PwC auditors for Company B learned that PwCS had agreed to sell a unit of a subsidiary of Company B for a contingent fee, but were told by PwCS' investment bankers that the fee had been approved during the client review process.  The PwC audit partner specifically informed his supervisor that PwCS' fees were "success based" -  i.e.,  "[i]f we are successful in aiding with a sale in the `expected' $15 to $20 million range we would generate fees in the ball park $0.5 million range."  These examples illustrate that PwC and PwCS lacked procedures sufficient to identify and prevent certain contingent fee arrangements that could compromise PwC's independence.    Contingent Fees Labeled as Value Added Fees.    Respondents correctly believed they could comply with AICPA Rule 302 by charging "value added fees" to audit clients instead of contingent fees.  Unlike contingent fees, value added fees are arrangements in which the client, at its unfettered discretion, determines at the end of the engagement whether the services rendered warrant an additional fee based on qualitative factors.  In 10 instances, however, the Broker-Dealer purported to use value added fee agreements when in substance, they were using impermissible contingent fee arrangements.  In these cases, the formal engagement letter typically described, in addition to a fixed retainer, a "value added fee" based upon various qualitative factors, such as the complexity of the assignment, the typical market compensation, the expertise of the PwCS staff, opportunity cost, hours worked, and time constraints.  But, through side letters or oral understandings, the parties created contingent fee arrangements.  For example:        In May 1999, PwCS agreed to help a PwC public audit client, Company C, sell an operating unit pursuant to an engagement letter stating that, under AICPA guidelines,  "PwCS does not bill on a `success' or `contingent' fee basis.  Rather, our fees . . . are based upon the time expended, the complexity of the services provided, the experience of PwCS team members and the value of the services provided."  In a side letter bearing the same date as the engagement letter, however, PwCS created, in substance, a contingent fee arrangement by proposing a "fee structure . . . equivalent to the market compensation for services of this nature, a minimum total fee of $155,000; plus an additional incentive fee equal to 2% of the excess of the transaction value over $7,000,000."  
+
+     In February 1998, Company D, a C&L public audit client, engaged CLS to help it raise $10 million.  Although the engagement letter provided for a fee "based on the Company's qualitative assessment of the value of the services provided," the Company orally agreed to pay CLS a contingent fee of 5% of the amount raised.  Company D's CEO understood from his discussions with CLS that the Broker-Dealer expected to receive investment banker-type compensation but could not specify a contingent fee in writing because Company D was a C&L audit client.  The CEO believed Company D was obligated to pay CLS a 5% fee if Company D raised capital.  After Company D raised $10 million, Company D paid CLS 5%, or $500,000, plus expenses.       In a 1997 engagement in which CLS used value added language in the engagement letter with a C&L public audit client, CLS itself indicated in subsequent correspondence that the arrangement was a contingent fee.  When the client, Company E, refused to pay more than $150,000 in success fees for CLS' services, the CLS professional pointed toward the "business understanding which we discussed" when demanding a $200,000 "success fee."     3. Involvement of Senior Management    Senior management at the Broker-Dealer and Audit Firm helped contribute to the conditions that led to improper contingent fee arrangements.  Senior management at the Broker-Dealer approved of a general practice to use "side letters" to amplify the fee provisions of engagement letters.  A top senior executive of the Broker-Dealer, for example, reviewed side letters and provided specific guidance to Broker-Dealer professionals on the use of side letters.  Professionals at the Broker-Dealer came to believe that side letters were not only an approved medium for documenting fee arrangements, but that they actually could be used to set forth fee arrangements that could not be presented in engagement letters.
+
+  In addition, in June 1998, professionals from the Broker-Dealer prepared a PowerPoint marketing presentation for the Broker-Dealer's Technology Group that stated: "Registration with the SEC allows CLS to accept `success fees', `contingent fees' and `value-added fees[;]' [and that] Investment banking services and success fees may be applied to C&L audit clients subject to the following: [a] Side Letter[; and] Materiality, or `SX test'[.]"  Prior to the PW/C&L merger, a member of senior Audit Firm management from the Financial Advisory Services group distributed the PowerPoint presentation to C&L Financial Advisory Service partners and C&L Entrepreneurial Advisory Services partners, which included audit partners who provided services to small and medium-sized businesses.  
+
+   D. IMPROPER ACCOUNTING FOR NON-AUDIT FEES PAID BY AUDIT CLIENT TO PWC 
+
+   1.   Summary 
+
+  This matter involves PwC's audit and review of Pinnacle's improper accounting for its acquisition of Motorola's North American Antenna Site Business (the "Motorola Acquisition").  Pinnacle improperly established liabilities of at least $24 million and improperly capitalized over $8.5 million in costs that related to the integration and ongoing business operations of assets acquired from Motorola.  Almost all of the improperly capitalized costs involved fees paid to PwC for non-audit services.  As a result, Pinnacle understated reported expenses for the year 1999 and the first three quarters of 2000.  Pinnacle's accounting treatment of the liabilities and costs associated with the Motorola Acquisition did not comply with GAAP and resulted in violations of the periodic reporting, books and records and internal control provisions of the federal securities laws.  10    PwC was a cause of Pinnacle's violations by virtue of its actions in assisting in establishing the improper liabilities and approving the improper capitalization of costs.  In addition, PwC failed to exercise objective and impartial judgment as required by the independence rules and therefore lacked the requisite independence to audit or review Pinnacle's financial statements.       2. PwC's Role in Pinnacle's Improper Accounting   Pinnacle's business strategy was premised on aggressive growth.  In furtherance of that strategy, in August 1999 Pinnacle acquired from Motorola over 1,800 antenna sites, management agreements and leases for $254 million, the result of which was effectively to double the number of communications sites operated by Pinnacle.  The transaction closed on August 31, 1999, but a working capital adjustment provision allowed for subsequent adjustment of the purchase price. The size and complexity of the acquisition presented a significant challenge to Pinnacle's management in conducting pre-closing due diligence on the towers.  In addition, the transaction posed a significant challenge to Pinnacle's management in gaining operational control of the towers and effectively integrating the towers, and information related to the towers, into Pinnacle's operations.  Pinnacle engaged PwC and others to assist it in due diligence and post-closing integration projects.
+
+  In accounting for the Motorola Acquisition, Pinnacle established a liability of $31.45 million for estimated acquisition costs ("the acquisition liability").  In connection with its audit and review responsibilities, PwC signed off on the establishment of the acquisition liability.  The acquisition liability included several categories of estimated costs, including a $5 million reserve for "non-specific liabilities."  More than $24 million of the acquisition liability represented estimates that included fees for services that had not yet been performed.  PwC personnel assisted Pinnacle when it established the acquisition liability.  In the Fall of 1999, Pinnacle management and a PwC employee (the "Engagement Director") met regarding the acquisition liability.  Pinnacle allocated the $31.45 million among the various categories of anticipated expenditures.  Pinnacle directed the Engagement Director to create a spreadsheet reflecting that allocation.  PwC's Engagement Director prepared an initial draft of the schedule of reserves, which Pinnacle later used as support for establishing the acquisition liability.  
+
+  Pinnacle's recording of the acquisition liability did not comply with the requirements of Statement of Financial Accounting Standards No. 5 ("FAS 5")  Accounting for Contingencies , as interpreted by Emerging Issues Task Force Issue No. 95-3 and No. 94-3 for planned business integration and restructuring costs.  11    Further, the acquisition liability did not meet the requirements of Statement of Financial Accounting Concepts No. 6 because the company did not have "a present duty or responsibility" to pay third parties for the planned activities before they were performed.  Finally, Pinnacle recorded reserves for "non-specific liabilities" that may not be accrued under FAS 5, paragraph 14.
+
+  Pinnacle ultimately paid PwC approximately $14 million in fees associated with consulting work on the Motorola Acquisition and capitalized substantially all of those fees, charging them against the acquisition liability.  Included in the fees that Pinnacle improperly applied against the accruals and capitalized, and subsequently restated, were approximately $6.8 million in post-closing fees for services that Pinnacle incurred as a result of its ongoing business practices and obligations, such as (1) operating, managing and integrating Motorola's assets into existing operations, (2) assessing the Motorola assets for impairment, and (3) assisting Pinnacle in identifying revenue enhancement opportunities after closing.  
+
+  Pinnacle's capitalization of indirect and general costs associated with the integration of acquired assets into Pinnacle's operations, as well as costs associated with the management and operation of the acquired assets, were in violation of Accounting Principles Board Opinion No. 16,  Business Combinations  ("APB 16"), paragraph 76, and Accounting Interpretation No. 33 of APB 16.  12      
+
+  To determine the accurate accounting treatment of the PwC fees charged to the acquisition liability, it was necessary for Pinnacle's management to understand the services that PwC rendered and the fees associated with those services.  However, Pinnacle failed to maintain records sufficient to determine what services were included in PwC's invoices or the appropriate accounting treatment for those services based upon the nature of the services provided.  Pinnacle met with the Engagement Director on a regular basis to receive presentations relating to the nature of the PwC services.  Subsequently, Pinnacle determined that substantially all of the PwC fees relating to the Motorola Acquisition should be capitalized.  PwC's invoices to Pinnacle provided little or no detail about the work that supported the Motorola acquisition-related non-audit fees, and Pinnacle failed to keep written records summarizing the oral presentations made by the PwC Engagement Director.  
+
+  Pinnacle thus had insufficient records to allocate accurately the PwC fees among the various categories of the acquisition liability, or even to determine whether the fees should be charged to the reserves at all.  As Pinnacle completed its quarterly and annual financial reports, Pinnacle contacted and relied upon the Engagement Director for detailed information regarding the nature of PwC's services, which Pinnacle used in determining how to allocate PwC fees across the various reserve categories.  
+
+  PwC approved Pinnacle's accounting treatment of the costs associated with the Motorola Acquisition and issued an unqualified audit report that Pinnacle's financial statements for the year ended December 31, 1999 were presented in conformity with GAAP.  Similarly, PwC took no exception to Pinnacle's accounting treatment of the costs in connection with its reviews of the first three quarters of 2000.  
+
+  On April 26, 2001, Pinnacle filed amended annual and quarterly report forms with the Commission, and restated its financial statements for fiscal year 1999, and the first three quarters of fiscal year 2000.  The restatements reflected Pinnacle's determination (1) to accrue direct costs of the Motorola Acquisition only as the related services were performed, and (2) to expense approximately $8.5 million in professional fees and other miscellaneous adjustments related to ongoing business expenses necessary to integrate the Motorola assets and liabilities into Pinnacle's operations.  Of this $8.5 million, 80 % represented consulting fees paid to PwC in connection with the acquisition.
+
+  The failure to account properly for the PwC fees and other expenses related to the Motorola Acquisition caused Pinnacle to understate its general and administrative expenses and its corporate development expenses for the relevant time periods.  The changes in Pinnacle's restated financial statements placed Pinnacle in violation of certain negotiated debt covenants contained in certain credit agreements with institutional lenders.  Pinnacle was required to obtain a waiver from its lenders of those debt covenants.     3. PwC's Audit of Pinnacle's Improper Accounting for PwC's Non-Audit Fees    
+
+  In 1999 and 2000, members of Pinnacle management, including those principally responsible for its accounting and financial reporting functions, as well as officers with other management functions, were former partners or managers of PwC or its legacy firm, Price Waterhouse LLP. 
+
+  Over those two years, PwC billed Pinnacle approximately $20.5 million for non-audit fees, compared to less than $300,000 in audit fees.  Of the $20.5 million in non-audit fees, approximately $14 million involved services related to the Motorola Acquisition.  In addition, PwC staff anticipated that in subsequent years PwC could receive substantial fees as a result of providing additional non-audit services. 
+
+  In 1999 and 2000, Pinnacle and PwC interpreted accounting standards improperly, thereby allowing Pinnacle to capitalize a large part of the fees associated with the PwC non-audit services, regardless of their impact on integration and ongoing operations.  In view of the extensive documentary evidence that PwC was actually assisting Pinnacle in integrating the Motorola assets and liabilities into Pinnacle's ongoing operations, PwC's audit staff should have given particular care to whether Pinnacle had properly accounted for PwC's fees.  However, PwC's audit staff never determined the extent to which PwC non-audit services provided benefits to integration and ongoing operations, and never required Pinnacle to allocate costs between direct costs of acquisitions and costs that primarily benefited integration and ongoing operations.  In addition, PwC's audit testing of Pinnacle's estimates related to the Motorola transaction was not adequate, and its audit of Pinnacle's purchase accounting was inadequately documented and therefore deficient.
+
+   E. IMPROPER ACCOUNTING FOR SOFTWARE PROJECT 
+
+   1. Summary 
+
+  In the first quarter of 1999, PwC was a cause of Avon's failure to write off all of the capitalized costs of an uncompleted internal-use software project that PwC consultants had attempted to develop for Avon.  After nearly three years and an investment of approximately $42 million, Avon stopped the project in April 1999 and wound it down.  Avon failed, however, to comply with GAAP by retaining $26 million of the project's costs on its books, instead of taking a complete write-off.  As a result of this improper accounting, Avon filed with the Commission misstated and misleading periodic reports for the quarter ended March 31, 1999, and the year ended December 31, 1999.  Accordingly, Avon violated the reporting and recordkeeping provisions of the Exchange Act.  13    Furthermore, PwC was a cause of Avon's improper accounting for costs that largely consisted of PwC's own consulting fees.  PwC also failed to exercise objective and impartial judgment as required by the independence rules and therefore lacked the requisite independence in its audit of Avon's 1999 financial statements.          2. Background of the FIRST Project and PwC's Consulting Services     From late 1996 through early 1999, Avon attempted to develop a new, Y2K-compliant order management software system for ten of its mid-sized markets.  The project, known as the Fully Integrated Representative Service Toolkit ("FIRST"), was Avon's largest single information technology ("IT") project.  Avon's legacy IT systems were decades-old and lacked the functionality, flexibility, and operational efficiencies of contemporary IT applications.  FIRST was intended to modernize Avon's order management systems in certain markets and improve order processing, reduce the unavailability of products promised to customers, allow its markets to share real-time information and enhancements, and help reduce the high turnover rate of Avon sales representatives.  As originally planned, for a fixed price of $30 million, PwC consultants were to design and develop a customized software system around a purchased software platform known as BPCS, and implement it by September 1998 in Canada and nine other (mostly European) countries.  Avon stopped FIRST in April 1999, but wrote down only 35% of its costs.    During the course of the FIRST engagement, PwC's non-audit fees and expenses increased significantly.  PwC's fees and expenses from non-audit services grew ten fold from $1.8 million in 1996 to an average of $22 million annually in 1997 and 1998-seven times PwC's $3 million annual audit fees.  14     3. PwC's Role in Avon's Improper Accounting         a. The Impairment of FIRST     Throughout the project, FIRST had experienced substantial delays, disruptions, and cost overruns.  In late 1998, PwC finally delivered software to Avon, which was completely customized because PwC had written additional custom software code to remove the functionality of BPCS from the FIRST system due to BPCS's technical limitations.  But FIRST was nearly one year behind schedule, projected costs continued to escalate, and Avon had begun considering shutting down the project, writing it off completely, and identifying alternative software to FIRST, as opposed to continuing with FIRST.  As a result, although Avon continued with the project, it restricted FIRST's scope in late 1998 by ceasing all activity to implement FIRST in Europe and focusing solely on attempting to implement it in Canada.  By March 1999, however, the system was not finished, testing of the software was just beginning, additional change orders were being generated, and further delays and project management difficulties continued to occur.    On April 1, 1999, Avon shut down all remaining development work on FIRST due to PwC's high cost projections and Avon's loss of confidence in the FIRST team.  At this time, and continuing through 1999, Avon had no defined plans or budget to re-start FIRST, and had performed no analysis of the conditions that would justify re-starting the project.       b. GAAP Required a Complete Write-Off of FIRST      Under GAAP,  15   the shut-down and other facts surrounding FIRST were triggering events that required an impairment analysis to determine whether the FIRST asset was recoverable.  Because it was not probable that FIRST would be completed and placed in service, GAAP dictated that FIRST should have been considered abandoned and written down to the lower of its carrying costs or its fair value.  The rebuttable presumption under GAAP is that uncompleted internal-use software has a fair value of zero and should be written off entirely.  Accordingly, under GAAP, the entire FIRST asset was impaired and should have been written off in the first quarter of 1999.  Avon, however, improperly treated FIRST as only partially impaired and wrote down only $15 million of the $42 million of total costs incurred on the project, approximately $32 million of which was paid to PwC for consulting services and related expenses.       c. The Improper Accounting for FIRST       In a meeting on April 1, 1999, following an internal PwC review of FIRST, PwC provided Avon's senior management significantly higher cost and time projections to complete FIRST and recommended that Avon wind down and "pause" the project.  Avon's senior management decided in this meeting to stop the project because of its high costs and a lack of confidence in the FIRST team, including PwC consultants.  In addition, PwC recommended to Avon management that Avon only write down approximately one-half of the project's costs.    In the week following April 1, PwC auditors and consultants worked closely with Avon's financial staff to determine the accounting for FIRST.  It was determined that costs associated with certain discontinued project activities, such as the removal of BPCS, would be written down and that the remaining costs would be retained as an asset.  This approach resulted in Avon writing down $15 million.  PwC's consultants estimated which portion of $22 million of PwC's fees and expenses corresponded to BPCS work, and thus would be written off.  PwC's estimate was made because there was no way to trace its fees and expenses to the BPCS work through invoices or time records.  PwC's valuation allocated $3 million of its fees and expenses to the write-down and $19 million to the costs Avon retained as an asset.  As a result of this allocation and certain other PwC fees and expenses that Avon kept on its books, PwC fees and expenses comprised $21 million, or 81%, of the $26 million Avon retained as an asset.    The accounting for the partial write-down departed from GAAP.  It failed to assess and conclude that the entire FIRST software system was improbable of being completed and placed in service.  The accounting likewise failed to analyze whether Avon could overcome the presumption that such uncompleted software, which had been totally customized for Avon's unique requirements, had no fair value under the circumstances.        In PwC's audit of Avon's 1999 financial statements, PwC continued to permit Avon's improper retention of the FIRST costs.  PwC also relied on the advice of a PwC non-audit consultant for the view that FIRST was technically "feasible" of being used, although the consultant had been a technical advisor on FIRST and was the project leader for three different IT projects that PwC performed for Avon.  
+
+  Avon's improper accounting caused the company to retain $26 million of FIRST costs as an asset,  16   resulting in Avon understating by 38% the pretax loss reported in its first quarter 1999 Form 10-Q, and overstating by 5% the pretax profits reported in its 1999 Form 10-K.  17     F. LEGAL ANALYSIS  
+
+   1. Legal Standards     Section 13(a) of the Exchange Act requires that financial statements filed with the Commission be certified by "independent accountants."  Rule 13a-1 specifically requires issuers to file annual reports containing financial statements certified by independent public accountants.  Regulation S-X under the Exchange Act sets forth, among other things, the requirements applicable to audited financial statements included in periodic reports filed by an issuer pursuant to Section 13 of the Exchange Act.  Rule 2-02(b)(1) of Regulation S-X requires an auditor's report to state, "whether the audit was made in accordance with generally accepted auditing standards [GAAS]."  Consistent with the Commission's rules and pronouncements, GAAS requires auditors to maintain strict independence from their audit clients.  Statement on Auditing Standards ("SAS") No.1 explains the independence requirement as follows:         It is of utmost importance to the profession that the general public maintain confidence in the independence of independent auditors.  Public confidence would be impaired by evidence that independence was actually lacking, and it also might be impaired by the existence of circumstances which reasonable people might believe likely to influence independence.  To be independent, the auditor must be intellectually honest; to be recognized as independent, he must be free from any obligation to or interest in the client, its management or its owners. . . .  Independent auditors should not only be independent in fact; they should avoid situations that may lead outsiders to doubt their independence.    Rule 2-01(b)(1) of Regulation S-X, in effect during the relevant period, states that "[t]he Commission will not recognize any certified public accountant or public accountant who is not in fact independent."  To determine whether auditors are independent for purposes of GAAS, the Commission looks to the AICPA rules, among other things.  SAS No. 1 provides that the independence rules of the AICPA Code of Professional Conduct "[h]ave the force of professional law for the independent auditor."  AICPA Rule 302 prohibited charging contingent fees to audit clients during the period of the conduct in question.  Thus, under GAAS, contingent fee arrangements with audit clients are impermissible relationships that impair independence. 
+
+  Annual and quarterly reports filed by issuers under Section 13(a) of the Exchange Act, and Rules 13a-1 and 13a-13 thereunder, must accurately reflect the financial condition and operating results of the issuer.  Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading.  Section 13(b)(2)(A) of the Exchange Act requires issuers to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer."  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain the accountability of assets.       2. Discussion   In each of the three instances described above, PwC lacked the requisite independence with respect to its audit clients.  First, PwC and C&L, by virtue of engagements between the Broker-Dealer and audit clients, had numerous arrangements with audit clients that were, in substance, contingent fee arrangements.  This conduct constituted improper professional conduct within the meaning of Rule 102(e)(1)(iv)(A).  PwC, by its own conduct and that of its legacy firm C&L, failed to comply with Rule 2-02(b)(1) of Regulation S-X by issuing audit reports stating that the audits were done in accordance with GAAS, when, in fact, PwC and C&L lacked the requisite independence when the audits were performed.  PwC was a cause of violations by 14 issuers of Section 13(a) of the Exchange Act and Rule 13a-1 because the issuers' financial statements filed with the Commission were not audited by independent accountants.  PwCS, through its own conduct and that of CLS, was a cause of PwC's violations of Regulation S-X, and the issuers' violations of Exchange Act Section 13(a) and Rule 13a-1.    In the Pinnacle and Avon matters, PwC was a cause of the improper accounting.  With respect to the Pinnacle case, PwC assisted in establishing the improper liabilities and allocating substantially all of its non-audit fees to the acquisition liability, and approved Pinnacle's improper capitalization of PwC's non-audit fees.  In the Avon matter, PwC participated in and permitted Avon's improper accounting that enabled Avon to retain $26 million of the uncompleted FIRST software project's costs as an asset consisting mostly of PwC's own consulting fees and expenses.  As a result, PwC failed to exercise objective and impartial judgment as to the accounting for its own non-audit fees and therefore lacked the requisite independence in the audits and interim reviews in question.  In addition, PwC was a cause of Pinnacle and Avon's filing financial statements for the year ended December 31, 1999 (Pinnacle), interim financial statements for the first three quarters of 2000 (Pinnacle), for the quarter ended March 31, 1999 (Avon) and the year ended December 31, 1999 (Avon) that violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  18    PwC also was a cause of Pinnacle and Avon's violation of Exchange Act Section 13(b)(2)(A), and was a cause of Pinnacle's violation of Exchange Act Section 13(b)(2)(B).   IV. 
+
+  Based on the foregoing and Respondents' Offer of Settlement, the Commission finds that:  
+
+  1. With respect to the charging of contingent fees to PwC audit clients:      a. PwC (i) violated Rule 2-02 of Commission Regulation S-X; (ii) was a cause of violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder by the PwC audit clients for whom PwCS and CLS performed investment banking services for contingent fees; and (iii) engaged in improper professional conduct under Rule 102(e)(1).      b. PwCS was a cause of violations of Rule 2-02 of Regulation S-X by PwC, and violations of Exchange Act Section 13(a) and Rule 13a-1 thereunder by PwC audit clients referred to in paragraph 1, clause (a)(ii), above.    2. With respect to Pinnacle, PwC was a cause of violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1 and 13a-13 thereunder by Pinnacle.    3. With respect to Avon, PwC was a cause of violations of Exchange Act Sections 13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-1 and 13a-13 thereunder by Avon.              V.     Based on the foregoing, the Respondents hereby consent to the entry of an order, effective immediately, ordering that:    A. PwC, pursuant to Section 21C of the Exchange Act, cease and desist from committing any violation and any future violation of Rule 2-02 of Regulation S-X, and from causing any violation and any future violation of Sections 13(a) and 13(b) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder.   B. PwCS, pursuant to Section 21C of the Exchange Act, cease and desist from causing any violation and any future violation of Rule 2-02 of Regulation S-X, Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.    C. PwC is censured pursuant to Rule 102(e)(1).        D. PwC shall comply (within 90 days of this Order unless otherwise specified below) with the following undertakings, as set forth in its Offer of Settlement:      1. Within 21 days of the entry of this Order, Respondents shall make a payment in the amount of $5 million to the United States Treasury, to be apportioned as follows:  $2.75 million for PwC and $2.25 million for PwCS.  Such payment shall be:       (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies PwC and PwCS as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Barry W. Rashkover, Esq., Associate Regional Director, Securities and Exchange Commission, Northeast Regional Office, 233 Broadway, New York, New York 10279.      2. Before execution of any new value added fee agreement or any modification or clarification to an existing value added fee agreement for non-audit services, PwC's independence office will review the agreement (and/or modification or clarification) to ensure that any value added fee arrangement does not violate the independence rules promulgated by the AICPA and the Commission ("independence rules").  For the purpose of these Undertakings, "fee agreement" means any written or oral arrangement or understanding for the payment of fees to PwC or its affiliates, including any contract, correspondence, or other document that memorializes or clarifies such arrangements or understandings; "non-audit services" means services rendered by PwC (or its affiliates) pursuant to an agreement with an SEC-registered audit client (or its affiliates) for consulting or other work that does not involve auditing or interim reviews of the client's financial statements; and "value added fees" means fees that the client, in its discretion, decides to pay PwC (or its affiliates) based upon the client's determination at the end of the engagement that the non-audit services warrant the payment of an additional fee.      3. PwC will require an "independent reviewing partner" to review audits of SEC-registrants in which the client capitalizes PwC non-audit fees that are more than de minimis or records such fees as other than an expense.  The reviews will be performed to ensure that PwC is independent, that the accounting for PwC non-audit fees is in conformity with GAAP, and that PwC's audit of the accounting for PwC non-audit fees was performed in accordance with GAAS.  For the purpose of these Undertakings, "non-audit fees" means the payment by the audit client of any remuneration to PwC (or its affiliates) for the provision of non-audit services, including payment for labor, equipment, materials, and expenses.        4. PwC will require an "independent reviewing partner" to review at least 5% of all other PwC audits of SEC-registrants in addition to those specified in Paragraph 3, above.  With respect to reviews subject to this paragraph, the "independent reviewing partner" will perform the concurring partner review procedures required by the AICPA SEC Practice Section.  In selecting the other audits that will be reviewed, PwC will develop enhanced risk rating scores that give consideration to the following circumstances and factors:      (a) the relationship and magnitude of PwC audit and non-audit fees; and      (b) situations in which the chief executive officer, chief financial officer, or controller of the client (or a principal subsidiary of the client) is a former PwC audit partner or manager whose employment with PwC ceased no more than three years prior to the fiscal period subject to the audit.      5. PwC will adopt and implement written procedures for the "independent reviewing partner" to conduct the reviews required by Paragraphs 3 and 4, above, which shall include at least the following:      (a) designation of "independent reviewing partners" from among the Risk Management partners who devote substantial time to risk management functions and who also report to someone outside the performing office to which the audit engagement partner reports, and the "independent reviewing partners" will report to senior partners in the Risk Management function with respect to the reviews required by Paragraphs 3 and 4 above; and      (b) documentation maintained in the audit work papers that evidences the procedures, findings, and conclusions of the reviews conducted by the independent reviewing partners.       6.  PwC will provide for annual training for all professionals on auditor independence issues.      7.  PwC will distribute a copy of this Order to all of its partners and principals within 10 business days after entry of the Order.      8.  Upon written request and good cause being shown, the Commission staff may grant PwC such additional time as the Commission staff deems necessary to comply with the above Undertakings. 
+
+  By the Commission.              
+  Jonathan G. Katz              
+ Secretary
+
+  
+  Footnotes 
+ 
+
+  1     Rule 102(e)(1) of the Commission's Rules of Practice, 17 C.F.R. § 201.102(e), provides in pertinent part:    The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission ... to have engaged in . . . improper professional conduct.     2     The findings herein are made pursuant to Respondents' Offer and are not binding on any other person or entity in these or any other proceedings.
+
+    3     For its fiscal years ended December 31, 1999, 2000, and 2001, Pinnacle reported revenue of approximately $85 million, $176 million and $191 million, and net losses of $61 million, $124 million and $448 million, respectively.
+
+    4     For its fiscal years ended December 31, 1999, 2000, and 2001, Avon reported total revenues of approximately $5.3 billion, $5.7 billion and $5.9 billion, and net income of $302 million, $478 million and $430 million, respectively.
+
+    5     Effective November 21, 2000, the Commission promulgated more detailed auditor independence standards in amendments to Rule 2-01 of Commission Regulation S-X.   Revision of the Commission's Auditor Independence Requirements , Sec. Rel. No. 34-43602, 2000 WL 1726933 (November 21, 2000) (the "New Rules").  The New Rules expressly prohibit contingent fee arrangements with audit clients (17 C.F.R. § 210.2-01(c)(5) (prohibiting contingent fees), 
+
+ § 210.2-01(f)(10) (defining contingent fees)).  The contingent fees at issue here were all in place prior to November 21, 2000, but nonetheless come within the general prohibition in the then applicable AICPA Rule 302. 
+
+
+ 
+
+    6      This action is only against PwC and PwCS and is not against the individual issuers that were public audit clients of PwC or C&L.  This Order makes no allegations that any of these issuers materially misstated their financial statements during the period in which the issuer entered into, or received services under, a contingent fee arrangement with Respondents, by virtue of an engagement between the Broker-Dealer and the issuer.
+
+    7     Rule 302 defined a contingent fee as "a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service."  
+
+    8     While AICPA Rule 302 prohibited contingent fees with audit clients of the Audit Firm, no regulatory restrictions prohibited the Broker-Dealer from having contingent fees with clients that were not audit clients.
+
+    9     In a June 27, 1996 letter to the Commission's Chief Accountant, C&L acknowledged that "because CLS is wholly-owned by C&L, CLS will be subject to the AICPA's, SEC's and C&L's own independence rules."
+
+    10     Pinnacle's financial statements included in its initial public filings following the Motorola Acquisition violated Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13 thereunder.  In addition, Pinnacle's failure to maintain records that accurately accounted for its assets, liabilities and certain expenses violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.   In the Matter of Pinnacle Holdings, Inc.,  Exchange Act Release No. 45135 (December 6, 2001), at 8-9.
+
+    11     See   In the Matter of Pinnacle Holdings, Inc.,  Exchange Act Release No. 45135 (December 6, 2001), at 6-8.
+
+    12     Pinnacle also improperly capitalized other costs totaling approximately $1.7 million.
+
+    13     Simultaneous with the issuance of this Order, the Commission issued a settled cease-and-desist order against Avon.   See   In the Matter of Avon Products, Inc. , 34-46215.
+
+    14       Revenues generated from the cross-selling of non-audit services was one of the factors in determining the compensation of PwC audit partners.
+
+    15       AICPA Statement of Position ("SOP") 98-1,  Accounting for the Costs of Computer Software Developed or Obtained for Internal Use ; Statement of Financial Accounting Standards ("FAS") 121,  Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of .
+
+    16        This amount represents the costs remaining from the $42 million of total project costs after subtracting the $15 million write-down and approximately $639,000 for other items that Avon used for other purposes.
+
+   
+
+    17     In addition, Avon also made misleading disclosures and omissions concerning the write-down in its first quarter 1999 and fiscal 1999 financial statements.  PwC was a cause of Avon's misleading disclosures and omissions by suggesting language that Avon used to describe the write-down and by permitting the disclosure to be included in a footnote that itemized special charges of a business process redesign program that was not related to FIRST or the write-down.
+
+    18         Rule 10-10(d) of Regulation S-X, effective for fiscal quarters ended on or after March 15, 2000, specifies that interim financial statements included in quarterly reports on Form 10-Q must be reviewed by an independent accountant.
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diff --git a/raw/aaer/2002/AAER-1597.txt b/raw/aaer/2002/AAER-1597.txt
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+++ b/raw/aaer/2002/AAER-1597.txt
@@ -0,0 +1,1568 @@
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+              PNC Financial Services Group, Inc.
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+        PNC Financial Services Group, Inc.
+       
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+Written Agreement by and between    
+
+THE PNC FINANCIAL SERVICES 
+GROUP, INC. 
+Pittsburgh, Pennsylvania   
+
+and   
+
+FEDERAL RESERVE BANK 
+OF CLEVELAND 
+Cleveland, Ohio     
+ : : : : : : : : : : 
+ 
+ Docket No.  02-011-WA/RB-HC    WHEREAS, the Board of Governors of the Federal Reserve System (the "Board") seeks to address matters at The PNC Financial Services Group, Inc., Pittsburgh, Pennsylvania ("PNC"), a bank holding company, relating to compliance with generally accepted accounting principles ("GAAP"); consolidation of assets of special purpose entities on PNC's regulatory reports and public financial statements; corporate governance policies and practices; and provision of sufficient and timely information to bank holding company supervisors;  
+
+ WHEREAS, in furtherance of the common goal of the Board and PNC to ensure that PNC has implemented all necessary risk management systems, internal controls, and compliance procedures to assure the continued safe and sound operation of PNC and its nonbank subsidiaries and to comply with all applicable laws, rules, and regulations, PNC's board of directors has adopted an Action Plan designed to improve PNC's management structure, corporate governance, risk management practices, regulatory communications, and internal controls;  
+
+ WHEREAS, PNC and the Federal Reserve Bank of Cleveland (the "Reserve Bank") have mutually agreed to enter into this Written Agreement (the "Board Agreement"); and 
+
+ WHEREAS, on July 2, 2002, the board of directors of PNC adopted a resolution authorizing and directing James E. Rohr to enter into the Board Agreement on behalf of PNC and consenting to compliance by the board of directors of PNC and PNC's institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act (the "FDI Act") (12 U.S.C. 1813(u) and 1818(b)(3)), to comply with each and every provision of the Board Agreement. 
+
+ NOW, THEREFORE, the Reserve Bank and PNC agree as follows: 
+
+ Management 
+
+ 1. (a) Within 10 days of the Board Agreement, to the extent not already provided, PNC shall provide to the Reserve Bank for its review copies of PNC's engagement letters with the consultants hired prior to the date of the Board Agreement to address the areas of risk management, capital planning, corporate governance, and internal controls.   
+
+ (b) Within 30 days of the Board Agreement, PNC's board of directors shall engage an independent consultant (the "Corporate Consultant") acceptable to the Reserve Bank to conduct a review of the structure, functions, and performance of PNC's management and the board of directors oversight of management activities (the "Corporate Review"), and to prepare a written report (the "Corporate Consultant's Report") that includes findings, conclusions, and written descriptions of any management or operational changes recommended as a result of the Corporate Review.  The board of directors may engage a consultant(s) who has been previously retained to conduct the review required by this paragraph.  The primary purpose of the Corporate Review shall be to assist the board of directors in the development of a management structure that is adequately staffed by qualified and trained personnel suitable to PNC's needs.  The Corporate Review shall, at a minimum, address, consider, and include: 
+
+ (i) Board of directors' oversight of management activities and major operations of PNC, and the information provided to the board of directors in conducting its oversight; 
+
+ (ii) services rendered to PNC by independent advisers in all areas with respect to audit services and advice on complex financial transactions and the  controls in place for hiring and retaining such advisers to ensure that PNC receives competent, independent services; and 
+
+ (iii)  compliance with PNC's policies and procedures relating to internal reporting and approval protocols and relations with bank holding company supervisors as it relates to the three PAGIC transactions in 2001, in which PNC transferred certain loans and other assets to special purpose entities. 
+
+ (c) Within 10 days of the engagement of the Corporate Consultant, but prior to the commencement of the Corporate Review, PNC shall submit to the Reserve Bank for approval an engagement letter that delineates:  (i) the scope of the Corporate Review; (ii) the date of submission of the Corporate Consultant's Report, not to exceed 90 days after the date of the Reserve Bank's approval of the engagement letter; and  
+
+ (iii) the proposed resources to be dedicated to the Corporate Review. 
+
+ (d) PNC shall fully cooperate with the Corporate Consultant and agrees that the Corporate Consultant will have complete access to all employees, books, records, documents, and communications necessary to conduct the Corporate Review.  A copy of the Corporate Consultant's Report shall be provided to the Reserve Bank at the same time that it is provided to PNC, and all information including, but not limited to, work papers, programs and procedures related to the Corporate Review shall be made available to the Reserve Bank by the Corporate Consultant upon request. 
+
+ (e) Within 60 days after PNC's receipt of the Corporate Consultant's Report, PNC shall submit a written management plan to the Reserve Bank describing specific actions that the board of directors proposes to take to fully address the findings and recommendations of the Corporate Consultant's Report. 
+
+ 2. Within 180 days of completion of the Corporate Consultant's Report, and thereafter not less frequently than semi-annually, the board of directors shall review management's adherence to PNC's written policies and procedures in the areas of risk management, internal controls, corporate governance, financial and regulatory reporting, and compliance, and shall prepare written findings and conclusions of this review along with written descriptions of any management or operational changes that are made as a result of the review.  These written findings shall be included in the minutes of the board of directors meetings and maintained for subsequent review by bank holding company supervisors. 
+
+ Regulatory Communications and Cooperation 
+
+ 3. Within 90 days of the Board Agreement, PNC shall submit to the Reserve Bank an acceptable written plan designed to ensure the continued improvement and ongoing effectiveness of communications with bank holding company supervisors.  The plan shall, at a minimum, address, consider, and include: 
+
+ (a) Identification of the individuals at PNC who will have primary responsibility for ensuring full cooperation between PNC and the Reserve Bank, and the scope of duties of each such individual; 
+
+ (b) complete and prompt access to all documentation requested by the Reserve Bank as needed to fulfill regulatory and supervisory responsibilities; 
+
+ (c) complete and prompt access to all PNC staff and management upon request by the Reserve Bank; 
+
+ (d) meetings with the board of directors or committees thereof upon the request of the Reserve Bank;  
+
+ (e) regular meetings with the Reserve Bank to ensure that new business initiatives, proposed complex transactions involving third party advisers, and other material events are disclosed and discussed; and 
+
+ (f) training for PNC personnel designed to improve communication and cooperation with the Reserve Bank. 
+
+ Risk Management  
+
+ 4. Within 90 days of the Board Agreement, PNC shall submit to the Reserve Bank an acceptable written plan designed to strengthen and improve management of the overall risk exposures of the consolidated organization.  The plan shall, at a minimum, address, consider, and include:  
+
+ (a) Enhanced policies and procedures designed to identify, assess, manage, and monitor risk exposures of the consolidated organization, including but not limited to, the areas of market, credit, operational, liquidity, legal and reputational risks; 
+
+ (b)  board of directors and management oversight designed to ensure adherence to risk management policies and procedures;  
+
+ (c) management information systems and reporting procedures designed to ensure that appropriate management personnel, the board of directors, and its committees receive timely and accurate reports necessary to effectively manage risks and correct weaknesses and deficiencies;  
+
+ (d) internal controls designed to effectively manage risks and observe acceptable risk parameters;  
+
+ (e) capital maintenance policies that include, at a minimum, (i) cash flow guidelines; (ii) guidelines for minimum and maximum levels of retained earnings, dividend payments, and repurchases of treasury stock; and (iii) guidelines for levels of debt throughout the consolidated organization that take into consideration the terms of existing borrowings, any anticipated future borrowings, and planned sources for repayment; and 
+
+ (f)  enhanced policies and procedures for compliance with all applicable banking and securities laws and regulations, including but not limited to,  
+
+ (i) restrictions on holding property under section 4(c)(2) of the Bank Holding Company Act; (ii) sections 23A and 23B of the Federal Reserve Act; and (iii) any commitments or conditions imposed by the Board in connection with the granting of any application or other request by PNC. 
+
+ Internal Controls 
+
+ 5. Within 90 days of the Board Agreement, PNC shall submit to the Reserve Bank acceptable written procedures designed to enhance and maintain PNC's internal controls.  These procedures shall, at a minimum, address, consider, and include: 
+
+ (a) The completeness and accuracy of books and records of PNC, including consistent application of GAAP; 
+
+ (b) appropriate segregation of duties in PNC's operations; 
+
+ (c) public financial disclosures as required by applicable banking and securities laws and regulations; and 
+
+ (d) full reports to the board of directors or the appropriate committee thereof on any material transaction. 
+
+ Financial Statements and Regulatory Reports 
+
+ 6. PNC shall take actions designed to ensure that all balance sheet and income statements are reconciled on at least a monthly basis and reflect all transactions as necessary to ensure accurate regulatory reporting and disclosures required under banking and securities laws.  Records of such reconcilements shall be maintained for internal and external audit review and for subsequent supervisory review. 
+
+ 7. PNC shall ensure that all regulatory reports, including Forms Y-9C, accurately reflect PNC's condition on the date for which it is filed and all material transactions undertaken by the bank holding company and its subsidiaries, and that all records indicating how the report was prepared are maintained for subsequent supervisory review. 
+
+ Nonbank Subsidiary Policies 
+
+ 8. Within 60 days of the Board Agreement, PNC shall submit to the Reserve Bank an acceptable revised written policy for any extension of credit by a nonbank subsidiary of PNC.  The policy shall, at a minimum, address, consider and include: 
+
+ (a) The establishment of reporting, review, and approval procedures to and by the appropriate board of directors; 
+
+ (b) required documentation and procedures, including pricing support, repayment analysis, collateral analysis, obligor and facility risk ratings, and loan agreement covenant requirements; and  
+
+ (c) ongoing maintenance of credit quality support information, including minimum time frames for risk rating reviews, for updating financial information and for inclusion in all corporate loan loss reserve analyses.  
+
+ Effect and Terms of Board Agreement 
+
+ 9. The written plans, policies, and procedures and the engagement letter required by paragraphs 1(c), 3, 4, 5, and 8 of the Board Agreement shall be submitted to the Reserve Bank for review and approval.  Acceptable plans, policies, and procedures and an acceptable engagement letter shall be submitted within the time periods set forth in the Board Agreement.  PNC shall adopt the approved plans, policies, and procedures and the approved engagement letter within 10 days of approval by the Reserve Bank and then shall fully comply with them.  During the term of the Board Agreement, the approved plans, policies, and procedures and the engagement letter shall not be amended or rescinded without the prior written approval of the Reserve Bank. 
+
+ 10. Within 30 days after the end of each calendar quarter (September 30, December 31, March 31, and June 30) following the date of the Board Agreement, PNC shall furnish a written progress report detailing the form and manner of all actions taken to secure compliance with the provision of the Board Agreement, and the results thereof, to the Reserve Bank.   
+
+ 11. All communications regarding the Board Agreement shall be sent to: 
+
+ (a) Thomas Whitford 
+The PNC Financial Services Group, Inc. 
+249 Fifth Avenue 
+One PNC Plaza 
+Pittsburgh, PA 15222-2707 
+
+ (b) R. Chris Moore 
+Senior Vice President 
+Federal Reserve Bank of Cleveland 
+P.O. Box 6387 
+Cleveland, OH 44101-1387 
+
+ 12. The provisions of the Board Agreement shall be binding on PNC and each of its institution-affiliated parties in their capacities as such, and their successors and assigns. 
+
+ 13. Each provision of the Board Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended by the Reserve Bank. 
+
+ 14. Notwithstanding any provision of the Board Agreement, the Reserve Bank may, in its discretion, grant written extensions of time to PNC to comply with any provision of the Board Agreement. 
+
+ 15. The provisions of the Board Agreement shall not bar, estop or otherwise prevent the Board, the U.S. Securities and Exchange Commission or any other federal or state agency or department from taking any other action affecting PNC or any of its current or former institution-affiliated parties and their successors and assigns. 
+
+ 16. The Board Agreement is a "written agreement" for the purposes of, and is enforceable by the Board as an order issued under, section 8 of the FDI Act (12 U.S.C. 1818). 
+
+ IN WITNESS WHEREOF, the parties have caused the Board Agreement to be executed as of the     12th     day of     July    , 2002. 
+
+   The PNC Financial Services Group, Inc.  Federal Reserve Bank of Cleveland         By:        /s/ James E. Rohr        
+             /s/ R. Chris Moore        
+R. Chris Moore 
+Senior Vice President     
+ 
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diff --git a/raw/aaer/2002/AAER-1598.txt b/raw/aaer/2002/AAER-1598.txt
new file mode 100644
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+++ b/raw/aaer/2002/AAER-1598.txt
@@ -0,0 +1,1380 @@
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+              Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson
+           
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+        Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson
+       
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+ Litigation Release No.17623  /  July 22 , 2002 
+
+  Accounting and Auditing Enforcement Release No.  1598 / July 22, 2002
+
+   U.S. Securities and Exchange Commission v. Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson , U.S. District Court for the Southern District of Indiana, Cause No. IP 02-1118 CH/S (S.D. Indiana 2002).
+
+   SEC Charges Indiana-Based Religious Entity for Defrauding Church Members Nationwide in an $85 Million Financial and Offering Fraud 
+
+  On July 22, 2002, the U.S. Securities and Exchange Commission ("Commission") filed a civil enforcement action alleging that from at least 1996 though at least April 2002, Church Extension of the Church of God, Inc. ("Church Extension"), United Management Services, Inc. ("United Management"), a Church Extension affiliate, James Perry Grubbs ("Grubbs"), the president of Church Extension, and Shearon Louis Jackson ("Jackson"), the president of United Management (collectively, "Defendants"), fraudulently raised approximately $85 million from the sale of investment notes to thousands of investors nationwide.  Church Extension, the fundraising entity of a long-established church, was formed in 1921 for the primary purpose of raising funds to loan to churches for the construction of new churches and to fund renovations of existing churches of the Church of God.
+
+  In its Complaint, the Commission alleges that, in connection with the offer and sale of the investment notes, the Defendants repeatedly made material misrepresentations and omitted to state material facts in Church Extension's solicitation materials and offering circulars, concerning, among others:  the financial condition of Church Extension and United Management, the primary use of investment note proceeds and the safety and risks associated with the investment notes.  Each of Church Extension's offering circulars included an unqualified, independent auditor's report and a consolidated statement of financial condition. 
+
+  Specifically, the Complaint alleges that Grubbs and Jackson, through Church Extension and United Management, embarked on a fraudulent scheme to cover up financial difficulties suffered by Church Extension and United Management from investors.  For example, the Defendants improperly used a provision of the Internal Revenue Code, afforded non-profit corporations, as a vehicle to generate non-existent income.  This income was recognized by Church Extension on its consolidated statement of financial condition and was used to offset Church Extension's losses.  As a result, from at least 1996 through at least April 2000, Church Extension improperly recognized at least $24,052,667 in non-existent income that was used to offset other losses and thereby avoided recording at least $26,066,879 in losses.
+
+    The Complaint further alleges that, instead of using investment proceeds primarily to fund church loans, the Defendants used the proceeds to, among other things:  a) fund speculative real estate transactions; b) fund losses at these failing properties; and c) make interest and principal payments to prior investors.  Finally, the Complaint alleges that as a result of Church Extension's deteriorating financial condition, it was unable to maintain the promised reserves stated in its offering circulars, which were distributed to prospective and current investors nationwide.
+
+  The Commission asked the Court to impose a permanent injunction against each defendant for violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Commission also asked the Court to order disgorgement of approximately $81 million in ill-gotten gains, plus prejudgment and post-judgment interest, from Church Extension and asked the Court to order disgorgement of any ill-gotten gains received by Grubbs and Jackson and civil penalties from Grubbs and Jackson.
+
+  In addition, the Commission recommended that the Court appoint Jeff J.  Marwil, a partner at the law firm of Jenner & Block in Chicago, Illinois, as a Conservator in this matter.  The proposed Conservator's mandate is to protect the interests of the investors who invested or reinvested in Church Extension's investment note program.
+
+   Church Extension and United Management have established a Joint Oversight Committee ("Joint Committee") for the purpose of drafting a joint corporate restructuring plan ("Restructuring Plan").  The Restructuring Plan will address, among other things, a manner in which to meet Church Extension and United Management's proposed $81 million disgorgement obligations.  During the time period when the Joint Committee is drafting the Restructuring Plan, the Commission and the proposed Conservator will aggressively monitor the activities of Church Extension and United Management.  Within 60 days, the Joint Committee will submit the Restructuring Plan to the Court, the Commission and the proposed Conservator.  After a limited period of review, the Restructuring Plan will be presented to the Court for its ultimate determination, including, its approval, modification or rejection of the plan.  At all times, the Commission and the proposed Conservator will reserve the right to petition the Court for immediate relief, including, the appointment of a federal receiver, if either deems any activity, transaction or expenditure contemplated by Church Extension and United Management is not in the best interests of investors.    
+
+  The Commission wishes to acknowledge and thank the Indiana Securities Division of the Secretary of State for their assistance in this matter.
+  
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+          SEC Complaint  in this matter.    
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diff --git a/raw/aaer/2002/AAER-1599.txt b/raw/aaer/2002/AAER-1599.txt
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index 0000000000000000000000000000000000000000..49ad21968597ba2ba2b0c71750a07af34ce1b65c
--- /dev/null
+++ b/raw/aaer/2002/AAER-1599.txt
@@ -0,0 +1,1391 @@
+
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+ Washington, D.C. 
+
+ Litigation Release No. 17627 / July 24, 2002 
+
+ Accounting and Auditing Enforcement Release No. 1599 / July 24, 2002 
+
+ Securities and Exchange Commission v. Adelphia Communications Corporation, John J. Rigas, Timothy J. Rigas, Michael J. Rigas, James P. Rigas, James R. Brown, and Michael C. Mulcahey, 02 Civ. 5776 (KW) (S.D.N.Y.) 
+
+ The Securities and Exchange Commission today filed suit in the United States District Court for the Southern District of New York charging major cable television provider Adelphia Communications Corporation; its founder John J. Rigas; his three sons, Timothy J. Rigas, Michael J. Rigas, and James P. Rigas; and two senior executives at Adelphia, James R. Brown and Michael C. Mulcahey, in one of the most extensive financial frauds ever to take place at a public company.   In its complaint , the Commission charges that Adelphia, at the direction of the individual defendants: (1) fraudulently excluded billions of dollars in liabilities from its consolidated financial statements by hiding them in off-balance sheet affiliates; (2) falsified operations statistics and inflated Adelphia's earnings to meet Wall Street's expectations; and (3) concealed rampant self-dealing by the Rigas Family, including the undisclosed use of corporate funds for Rigas Family stock purchases and the acquisition of luxury condominiums in New York and elsewhere.   
+
+ The Commission seeks a final judgment ordering the defendants to account for and disgorge all ill-gotten gains including - as to the individuals - all compensation received during the fraud, all property unlawfully taken from Adelphia through undisclosed related-party transactions, and any severance payments related to their resignations from the company.  The Commission also seeks civil penalties from each defendant, and permanent injunctions from violating the securities laws. The Commission further seeks an order barring each of the individual defendants from acting as an officer or director of a public company. 
+
+ Named in the Complaint are: 
+
+  Adelphia,  a Delaware corporation headquartered in Coudersport, Pennsylvania.  Adelphia   is the sixth largest cable television provider in the United States and, through various subsidiaries, provides cable television and local telephone service to customers in twenty-nine states and Puerto Rico.  Shares of Adelphia stock were listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") until June 3, 2002, and are now quoted by the Pink Sheets, LLC.  Adelphia filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code on June 25, 2002. 
+
+  John J. Rigas  ("J. Rigas"), a 77 year-old resident of Coudersport, Pennsylvania.  J. Rigas founded Adelphia in 1952 and was its CEO and Chairman of Adelphia's Board of Directors until May 15, 2002 when he resigned pursuant to a request by the Special Committee created by Adelphia's Board of Directors. 
+
+  Timothy J. Rigas  ("T. Rigas"), a 46 year-old resident of Coudersport, Pennsylvania and a son of J. Rigas.  T. Rigas served as a director of Adelphia, as well as Adelphia's CFO, CAO, and Treasurer until May 16, 2002 when he resigned pursuant to a request by the Special Committee.  Between December 1992 and June 2001, T. Rigas was chairman of the Audit Committee of Adelphia's Board of Directors. 
+
+  Michael J. Rigas  ("M. Rigas"), a 48 year-old resident of Coudersport, Pennsylvania and a son of J. Rigas.  M. Rigas served as a director of Adelphia, as well as Adelphia's Executive Vice President for Operations and Secretary of Adelphia until May 23, 2002 when he resigned pursuant to a request by the Special Committee. 
+
+  James P. Rigas  ("J.P. Rigas"), a 44 year-old resident of Coudersport, Pennsylvania and a son of J. Rigas.  J.P. Rigas served as a director of Adelphia, as well as Adelphia's Executive Vice President for Strategic Planning until May 23, 2002 when he resigned pursuant to a request by the Special Committee. 
+
+  James R. Brown  ("Brown"), a 40 year-old  resident of Coudersport, Pennsylvania.  Brown was Adelphia's Vice President of Finance   until May 19, 2002 when he resigned pursuant to a request by the Special Committee.   
+
+  Michael C. Mulcahey  ("Mulcahey"), a 45 year-old resident of Port Allegheny, Pennsylvania.  Mulcahey is Adelphia's Vice President and Assistant Treasurer.   
+
+ Specifically, the Commission's complaint alleges as follows: 
+
+  Between mid-1999 and the end of 2001, John J. Rigas, Timothy J. Rigas, Michael J. Rigas, James P. Rigas, and James R. Brown, with the assistance of Michael C. Mulcahey, caused Adelphia to fraudulently exclude from the Company's annual and quarterly consolidated financial statements over $2.3 billion in bank debt by deliberately shifting those liabilities onto the books of Adelphia's off-balance sheet, unconsolidated affiliates.  Failure to record this debt violated GAAP requirements and precipitated a series of misrepresentations about those liabilities by Adelphia and the defendants, including the creation of: (1) sham transactions backed by fictitious documents to give the false appearance that Adelphia had actually repaid debts when, in truth, it had simply shifted them to unconsolidated Rigas-controlled entities, and (2) misleading financial statements by giving the false impression through the use of footnotes that liabilities listed in the Company's financials included all outstanding bank debt.   
+
+ Timothy J. Rigas, Michael J. Rigas, and James R. Brown made repeated misstatements in press releases, earnings reports, and Commission filings about Adelphia's performance in the cable industry, by inflating: (1) Adelphia's basic cable subscriber numbers; (2) the extent of Adelphia's cable plant "rebuild" or upgrade; and (3) Adelphia's earnings, including its net income and quarterly earnings before interest, taxes, depreciation, and amortization ("EBITDA").  Each of these represent crucial aspects by which Wall Street evaluates cable companies.   
+
+ Since at least 1998, Adelphia, through the Rigas Family and Brown, made fraudulent misrepresentations and omissions of material fact to conceal extensive self-dealing by the Rigas Family.  Such self-dealing included the use of Adelphia funds to finance undisclosed open market stock purchases by the Rigas Family, purchase timber rights to land in Pennsylvania, construct a golf course for $12.8 million, pay off personal margin loans and other Rigas Family debts, and purchase luxury condominiums in Colorado, Mexico, and New York City for the Rigas Family.   The Commission's complaint alleges that based on the conduct set forth above, the defendants violated the antifraud, periodic reporting, record keeping, and internal controls provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2.   
+
+ The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation by the U.S. Attorney's Office for the Southern District of New York and the U.S. Postal Inspection Service in this matter.   
+
+       SEC Complaint  in this matter.     
+ 
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diff --git a/raw/aaer/2002/AAER-1600.txt b/raw/aaer/2002/AAER-1600.txt
new file mode 100644
index 0000000000000000000000000000000000000000..643fd9f36c1f9815d373b10344d4f2bffe42f016
--- /dev/null
+++ b/raw/aaer/2002/AAER-1600.txt
@@ -0,0 +1,1568 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Oxford Health Plans, Inc., Andrew B. Cassidy, and Brendan R. Shanahan 
+     
+     
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+     
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+     
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+              Oxford Health Plans, Inc., Andrew B. Cassidy, and Brendan R. Shanahan
+           
+     
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+        Oxford Health Plans, Inc., Andrew B. Cassidy, and Brendan R. Shanahan
+       
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+
+ Securities Exchange Act of 1934
+ Release No.  46254 / July 25, 2002
+  Accounting and Auditing Enforcement
+ Release No.   1600 / July 25, 2002
+  Administrative Proceeding 
+ File No. 3-10845 
+
+         In the Matter of       
+   Oxford Health Plans, Inc.,       
+   Andrew B. Cassidy,      
+   and Brendan R. Shanahan,     
+       Respondents.        
+     
+    : : : : : : : :   
+      ORDER INSTITUTING PUBLIC
+   PROCEEDINGS PURSUANT TO
+         SECTION 21C OF THE 
+    SECURITIES EXCHANGE ACT 
+    OF 1934 AND IMPOSING A 
+    CEASE-AND-DESIST ORDER      I. 
+
+
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Oxford Health Plans, Inc. ("Oxford"), Andrew B. Cassidy ("Cassidy"), and Brendan R. Shanahan ("Shanahan") (collectively, the "Respondents"), pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+      II. 
+
+    In anticipation of the institution of these administrative proceedings, the Respondents have submitted Offers of Settlement (the "Offers"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's finding of jurisdiction over the Respondents and the subject matter of this proceeding, which the Respondents admit, the Respondents consent to the issuance of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Imposing a Cease-And-Desist Order ("Order") and to the entry of the findings and imposition of relief set forth below.
+
+     III. 
+
+     FINDINGS 
+
+    On the basis of this Order and the Offers submitted by the Respondents, the Commission finds that:
+
+   FACTUAL FINDINGS 
+
+     Respondents  
+
+  A. Oxford is a Delaware corporation with principal offices located in Trumbull, Connecticut. Oxford is a provider of health benefit plans, including point-of-service plans, health maintenance organizations, and Medicare programs.  Oxford's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act.  Oxford's stock, which traded on the NASDAQ during the relevant period, is listed on the New York Stock Exchange.  Oxford is an "issuer" for purposes of the Exchange Act.
+
+  B. Cassidy at all relevant times was the Chief Financial Officer ("CFO") of Oxford. 
+
+  C. Shanahan at all relevant times was the controller and vice president of finance of Oxford.  Shanahan is a CPA licensed in the State of New York.
+
+      Oxford Erroneously Recorded $81 Million of Revenue On Its Books and Records Because Its System of Internal Accounting Controls Failed To Prevent the Error 
+
+   D. For the months of January 1997 through September 1997, Oxford erroneously recorded on its internal books and records an aggregate of $81 million of revenue that it should not have recorded.  This occurred because Oxford incorrectly recorded into the current revenue account certain items from the deferred and unearned revenue accounts.  Oxford recorded revenue based on revenue reports that incorrectly included unearned revenue in the report's computation of deferred revenue.  1    As a result, Oxford failed to perform appropriate reversing entries when reclassifying the deferred and unearned revenues into current revenue.  Therefore, for the months January through September 1997, Oxford erroneously counted the prior month's unearned revenue as current revenue twice, when such unearned revenue should have been counted once.  On a quarterly basis, this error caused Oxford's revenues to be overstated on its internal books and records as follows:
+  
+        Period  
+ 
+   Overstatement Amount  
+     First Quarter 1997 
+ 
+   $3 million
+     Second Quarter 1997 
+ 
+ $25 million
+     Third Quarter 1997 (through September 97) 
+ 
+ $53 million  2       Total 
+ 
+ $81 million
+    
+
+ E. Oxford discovered the erroneously recorded revenues during the preparation of its third quarter 1997 financial reports.  Oxford's system of internal accounting controls did not detect or prevent the company from erroneously recording the $81 million of revenues on its internal books and records.  As a result, for the months of January through September 1997, Oxford's system of internal accounting controls failed reasonably to ensure that revenues were booked correctly. 
+
+   Oxford Failed to Restate Net Income That It Had Materially 
+  Overstated In Its Form 10-Q for the Period Ended June 30, 1997, 
+  and Oxford Did Not Specifically Disclose That It Had Erroneously 
+  Recorded $81 Million of Revenues On Its Books and Records 
+
+  F.  On August 5, 1997, Oxford filed with the Commission on Form 10-Q Oxford's unaudited financial statements for the period ended June 30, 1997 (the second quarter).  Oxford reported that its net income for that quarter was $37 million.  
+
+  G. Oxford planned to file with the Commission in early November 1997 a Form    10-Q reporting its unaudited financial statements for the period ended September 30, 1997.  Shortly before October 27, 1997, Oxford determined that certain problems had materially affected and would affect Oxford's financial condition.  These problems included that Oxford erroneously had recorded on its internal books and records $81 million in revenue for the months of January through September 1997, including revenue reported in the second quarter financial statements contained in Oxford's June 30, 1997 Form 10-Q.    
+
+  H. On October 27, 1997, Oxford filed with the Commission a Form 8-K that contained information concerning Oxford's results of operations.  Oxford stated that its revenues were expected to be $111 million lower than previous estimates due to adjustments to membership resulting from delayed premium bills.  Oxford also announced a charge to net earnings of between $47 million and $53 million for additions to reserves for medical claims.  According to Oxford, these two elements would result in an expected loss of between $.83 and $.88 per share for the third quarter of 1997 (at a time when consensus analysts' estimates had predicted a profit of about $.48 per share).  Oxford's Form 8-K did not specifically disclose that $81 million of the announced $111 million revenue shortfall from previous revenue estimates was attributable to revenues that Oxford had erroneously recorded.    
+
+  I. On November 13, 1997, Oxford filed with the Commission on Form 10-Q Oxford's unaudited financial statements for the period ended September 30, 1997 (the third quarter). Oxford reported a net loss of $78 million or $.99 per share for the quarter, and described various charges reported in the financial statements.
+
+  J. The $81 million of revenue erroneously recorded on Oxford's internal books and records included $25 million attributable to the second quarter of 1997.  As a result, Oxford's net income as reported in the June 30, 1997 Form 10-Q was overstated by 26%.  Based on an analysis conducted in late October 1997, after the error was discovered, Oxford erroneously concluded that net income was overstated by 12.9%.  Oxford's analysis aggregated or "netted" certain favorable revenue and unfavorable expense events not previously reported in the second quarter financial statements against the overstated revenues, which events minimized the impact of the revenue overstatement on net income.  The principal event used in the analysis was a gain contingency related to the outcome of a lawsuit concerning a refund Oxford believed it was due for amounts paid into an allegedly overfunded malpractice insurance pool.  The inclusion of this event in the second quarter was inconsistent with Generally Accepted Accounting Principles ("GAAP"), and therefore any amount related to this gain contingency should not have been considered in the restatement analysis.
+
+
+
+  K. Oxford considered whether it should restate its second quarter financial statements and concluded that no restatement was required because the overstatement of net income (which Oxford calculated as 12.9%) was not material under the circumstances.  In fact, the overstatement was 26% of net income, which was material. Even if Oxford's computation of a 12.9% overstatement had been correct, that amount would also have been material.  
+
+  L. Because Oxford reported a material overstatement of net income for the second quarter of 1997, Oxford should have restated its financial statements, including net income, for that quarter. Oxford, however, failed to restate its financial statements for the second quarter of 1997.  
+
+     Cassidy and Shanahan's Involvement With Oxford's Erroneous Recording of Revenue and Oxford's Failure to Restate 
+
+  M. Cassidy, Oxford's CFO, shared responsibility for devising and implementing adequate internal controls, and he indirectly supervised the department that employed the people who erroneously recorded the $81 million in revenue on Oxford's books and records.  Cassidy failed to take sufficient steps reasonably designed to prevent this error. 
+
+  N. Cassidy signed the Form 8-K that contained the October 27th announcement and the third quarter 1997 Form 10-Q.  Cassidy did not prepare or participate in the preparation of the analysis described in paragraph J above, which formed the basis for Oxford's erroneous decision not to restate.  That analysis and all other underlying facts were, however, available to him.
+
+  O. Shanahan, Oxford's controller, had some responsibility for devising and implementing adequate internal accounting controls, and he supervised the department that employed the people who were directly responsible for erroneously recording the $81 million in revenue.  Shanahan failed to take sufficient steps reasonably designed to prevent this error. 
+
+  P. Shanahan contributed to Oxford's incorrect determination not to restate its financial statements for the second quarter of 1997.  Before Oxford filed the September 30, 1997 Form 10-Q, Shanahan conducted the analysis described in paragraph J above, which formed the basis for Oxford's erroneous decision not to restate.  Shanahan told Oxford's management that he believed that restatement would not be necessary because the overstatement of net income was not material under the circumstances, when in fact the overstatement was material.  Shanahan consulted with Oxford's outside auditor in forming his opinion that no restatement was required, and he reported to Cassidy concerning that consultation.
+
+     The Commission's Investigation 
+
+  Q. During the Commission's investigation of the matters discussed in this Order, Oxford produced documents and made witnesses available for testimony in response to Commission subpoenas, as is required by law.  Oxford's cooperation did not extend beyond its legal obligations.  3     LEGAL FINDINGS 
+
+     Oxford Violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 Thereunder 
+
+  R.   Section 13(a) of the Exchange Act and Rules 13a-11 and 13a-13 thereunder require issuers to file certain reports, including quarterly reports, with the Commission.  The requirement that an issuer file reports under these provisions embodies the requirement that such reports be true and correct.  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975);  SEC v. IMC International, Inc. , 384 F. Supp. 899, 893 (N.D. Texas),  aff'd,  505 F.2d 733 (5th Cir. 1974).  Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that the statements made in them are not materially misleading.  Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.
+
+  S. The filing of financial statements not prepared in conformity with GAAP violates Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder because Regulation S-X specifically provides that financial statements not prepared in conformity with GAAP are presumed to be misleading or inaccurate. 
+
+   17 C.F.R. 210.4-01(a)(1).   Similarly, the recording of revenues in violation of GAAP violates Section 13(b)(2)(A) of the Exchange Act.  Oxford's reported and recorded second quarter 1997 financial statements violated GAAP because those statements erroneously included revenues that were not earned.   See  Statement of Financial Concepts No. 5, par. 83 (revenues are not to be recognized until earned).  
+
+  T.  Because Oxford erroneously recorded $25 million of unearned revenues during the second quarter of 1997, Oxford's reported second-quarter revenues were overstated by that amount, and its reported net income was thereby overstated by 26%.  Quantitatively, that amount was material.   See  SAB 99, 64 Fed. Reg. 45150 (1999) (use of a percentage as a numerical threshold as an initial step in assessing materiality is permissible).  Even if the overstatement had been only 12.9%, as Oxford erroneously concluded at the time, that amount was also quantitatively material.   See   id .  Furthermore, a declining earnings trend that had been developing since the second quarter of 1997 was not reflected in Oxford's public disclosures because of the erroneously recorded revenues.   See   Ganino v. Citizens Utilities Co. , 228 F.3d 154, 163 (2d Cir. 2000) (important qualitative factor to consider in determining whether a numerical misstatement is material is "`whether the misstatement masks a change in earnings or other trends'") (quoting SAB 99, 64 Fed. Reg. at 45152);  In re Burlington Coat Factory Sec. Litig. , 114 F.3d 1410, 1421 n.9 (3d Cir. 1997) (information about current and past earnings is highly likely to be material because it is often used to predict what future earnings might be);  In re Kidder Peabody Sec. Litig. , 10 F. Supp. 2d 398, 410 (S.D.N.Y. 1998) (same).  Because the amount of overstated net income was material, Oxford was obligated to restate publicly its financial statements for the second quarter of 1997.  
+
+  U. Oxford's third quarter 1997 financial statements, as reported in its Form 10-Q for this period, violated GAAP by failing to include a restatement of the second quarter and by failing to disclose specifically the existence and cause of the erroneously recorded revenues in the note discussing the third quarter 1997 charges.  APB Opinion 20, paragraph 37 ("The nature of an error in previously issued financial statements and the effect of its correction on income before extraordinary items, net income, and the related per share amounts should be disclosed in the period in which the error was discovered and corrected.").
+
+  V. As a result, Oxford's financial statements for the second and third quarters of 1997 were inaccurate, in violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  W. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are booked accurately, in accordance with management directives, and in a manner designed to permit the preparation of financial statements in conformity with GAAP. 
+
+  X. Oxford's system of internal accounting controls was inadequate for the purposes of Section 13(b)(2)(B) of the Exchange Act from January through September 1997, as demonstrated by Oxford's erroneous recording on its internal books and records during that period of $81 million of revenue and its resulting material overstatement of reported net income for the second quarter.  As a result, Oxford violated Section 13(b)(2)(B) of the Exchange Act.  
+
+     Cassidy and Shanahan Were Both Causes of Oxford's Violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 Thereunder 
+
+  Y. Cassidy contributed to Oxford's violations by failing to ensure that Oxford had internal controls that were sufficient to prevent the erroneous recording of revenue and by signing Oxford's October 27, 1997 Form 8-K and third quarter 1997 Form 10-Q.  By reason of the conduct and events set forth above, Cassidy was a cause of Oxford's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  Z. Shanahan's failure to ensure that Oxford had internal controls that were sufficient to prevent the erroneous recording of revenue and his statement to Oxford's management that the second quarter 1997 overstatement of net income did not compel restatement contributed to Oxford's violations.  By reason of the conduct and events set forth above, Shanahan was a cause of Oxford's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+   IV. 
+
+   CEASE-AND-DESIST ORDER 
+
+  Accordingly,  IT IS HEREBY ORDERED  that:
+
+  A. Oxford shall cease and desist from committing or causing any violation, or committing or causing any future violation, of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  B. Cassidy and Shanahan shall cease and desist from causing any violation or any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  By the Commission.
+
+                 Jonathan G. Katz
+             Secretary    
+ ___________________________
+      1      Deferred revenue represents premium billings made in advance of the coverage month.  Unearned revenue, which is a liability account, represents premium billings made and paid in advance of the coverage month.  Because these "future" revenues were billed and in some cases paid prior to the relevant coverage period, Oxford properly recorded them as liabilities.  When the coverage was provided, the income was then considered to be earned, at which point Oxford properly moved the deferred and unearned revenue into the current revenue account.
+
+      2      This $53 million amount was not reported in any Commission filing.
+
+      3      The Commission is today also filing a complaint in U.S. District Court for the Southern District of New York against Oxford to obtain civil money penalties of $250,000 from Oxford based upon Oxford's conduct as described in this Order.  Cassidy and Shanahan are not named in this complaint.    
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diff --git a/raw/aaer/2002/AAER-1601.txt b/raw/aaer/2002/AAER-1601.txt
new file mode 100644
index 0000000000000000000000000000000000000000..643fd9f36c1f9815d373b10344d4f2bffe42f016
--- /dev/null
+++ b/raw/aaer/2002/AAER-1601.txt
@@ -0,0 +1,1568 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Oxford Health Plans, Inc., Andrew B. Cassidy, and Brendan R. Shanahan 
+     
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Oxford Health Plans, Inc., Andrew B. Cassidy, and Brendan R. Shanahan
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+        Oxford Health Plans, Inc., Andrew B. Cassidy, and Brendan R. Shanahan
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+ Securities Exchange Act of 1934
+ Release No.  46254 / July 25, 2002
+  Accounting and Auditing Enforcement
+ Release No.   1600 / July 25, 2002
+  Administrative Proceeding 
+ File No. 3-10845 
+
+         In the Matter of       
+   Oxford Health Plans, Inc.,       
+   Andrew B. Cassidy,      
+   and Brendan R. Shanahan,     
+       Respondents.        
+     
+    : : : : : : : :   
+      ORDER INSTITUTING PUBLIC
+   PROCEEDINGS PURSUANT TO
+         SECTION 21C OF THE 
+    SECURITIES EXCHANGE ACT 
+    OF 1934 AND IMPOSING A 
+    CEASE-AND-DESIST ORDER      I. 
+
+
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Oxford Health Plans, Inc. ("Oxford"), Andrew B. Cassidy ("Cassidy"), and Brendan R. Shanahan ("Shanahan") (collectively, the "Respondents"), pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+      II. 
+
+    In anticipation of the institution of these administrative proceedings, the Respondents have submitted Offers of Settlement (the "Offers"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's finding of jurisdiction over the Respondents and the subject matter of this proceeding, which the Respondents admit, the Respondents consent to the issuance of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Imposing a Cease-And-Desist Order ("Order") and to the entry of the findings and imposition of relief set forth below.
+
+     III. 
+
+     FINDINGS 
+
+    On the basis of this Order and the Offers submitted by the Respondents, the Commission finds that:
+
+   FACTUAL FINDINGS 
+
+     Respondents  
+
+  A. Oxford is a Delaware corporation with principal offices located in Trumbull, Connecticut. Oxford is a provider of health benefit plans, including point-of-service plans, health maintenance organizations, and Medicare programs.  Oxford's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act.  Oxford's stock, which traded on the NASDAQ during the relevant period, is listed on the New York Stock Exchange.  Oxford is an "issuer" for purposes of the Exchange Act.
+
+  B. Cassidy at all relevant times was the Chief Financial Officer ("CFO") of Oxford. 
+
+  C. Shanahan at all relevant times was the controller and vice president of finance of Oxford.  Shanahan is a CPA licensed in the State of New York.
+
+      Oxford Erroneously Recorded $81 Million of Revenue On Its Books and Records Because Its System of Internal Accounting Controls Failed To Prevent the Error 
+
+   D. For the months of January 1997 through September 1997, Oxford erroneously recorded on its internal books and records an aggregate of $81 million of revenue that it should not have recorded.  This occurred because Oxford incorrectly recorded into the current revenue account certain items from the deferred and unearned revenue accounts.  Oxford recorded revenue based on revenue reports that incorrectly included unearned revenue in the report's computation of deferred revenue.  1    As a result, Oxford failed to perform appropriate reversing entries when reclassifying the deferred and unearned revenues into current revenue.  Therefore, for the months January through September 1997, Oxford erroneously counted the prior month's unearned revenue as current revenue twice, when such unearned revenue should have been counted once.  On a quarterly basis, this error caused Oxford's revenues to be overstated on its internal books and records as follows:
+  
+        Period  
+ 
+   Overstatement Amount  
+     First Quarter 1997 
+ 
+   $3 million
+     Second Quarter 1997 
+ 
+ $25 million
+     Third Quarter 1997 (through September 97) 
+ 
+ $53 million  2       Total 
+ 
+ $81 million
+    
+
+ E. Oxford discovered the erroneously recorded revenues during the preparation of its third quarter 1997 financial reports.  Oxford's system of internal accounting controls did not detect or prevent the company from erroneously recording the $81 million of revenues on its internal books and records.  As a result, for the months of January through September 1997, Oxford's system of internal accounting controls failed reasonably to ensure that revenues were booked correctly. 
+
+   Oxford Failed to Restate Net Income That It Had Materially 
+  Overstated In Its Form 10-Q for the Period Ended June 30, 1997, 
+  and Oxford Did Not Specifically Disclose That It Had Erroneously 
+  Recorded $81 Million of Revenues On Its Books and Records 
+
+  F.  On August 5, 1997, Oxford filed with the Commission on Form 10-Q Oxford's unaudited financial statements for the period ended June 30, 1997 (the second quarter).  Oxford reported that its net income for that quarter was $37 million.  
+
+  G. Oxford planned to file with the Commission in early November 1997 a Form    10-Q reporting its unaudited financial statements for the period ended September 30, 1997.  Shortly before October 27, 1997, Oxford determined that certain problems had materially affected and would affect Oxford's financial condition.  These problems included that Oxford erroneously had recorded on its internal books and records $81 million in revenue for the months of January through September 1997, including revenue reported in the second quarter financial statements contained in Oxford's June 30, 1997 Form 10-Q.    
+
+  H. On October 27, 1997, Oxford filed with the Commission a Form 8-K that contained information concerning Oxford's results of operations.  Oxford stated that its revenues were expected to be $111 million lower than previous estimates due to adjustments to membership resulting from delayed premium bills.  Oxford also announced a charge to net earnings of between $47 million and $53 million for additions to reserves for medical claims.  According to Oxford, these two elements would result in an expected loss of between $.83 and $.88 per share for the third quarter of 1997 (at a time when consensus analysts' estimates had predicted a profit of about $.48 per share).  Oxford's Form 8-K did not specifically disclose that $81 million of the announced $111 million revenue shortfall from previous revenue estimates was attributable to revenues that Oxford had erroneously recorded.    
+
+  I. On November 13, 1997, Oxford filed with the Commission on Form 10-Q Oxford's unaudited financial statements for the period ended September 30, 1997 (the third quarter). Oxford reported a net loss of $78 million or $.99 per share for the quarter, and described various charges reported in the financial statements.
+
+  J. The $81 million of revenue erroneously recorded on Oxford's internal books and records included $25 million attributable to the second quarter of 1997.  As a result, Oxford's net income as reported in the June 30, 1997 Form 10-Q was overstated by 26%.  Based on an analysis conducted in late October 1997, after the error was discovered, Oxford erroneously concluded that net income was overstated by 12.9%.  Oxford's analysis aggregated or "netted" certain favorable revenue and unfavorable expense events not previously reported in the second quarter financial statements against the overstated revenues, which events minimized the impact of the revenue overstatement on net income.  The principal event used in the analysis was a gain contingency related to the outcome of a lawsuit concerning a refund Oxford believed it was due for amounts paid into an allegedly overfunded malpractice insurance pool.  The inclusion of this event in the second quarter was inconsistent with Generally Accepted Accounting Principles ("GAAP"), and therefore any amount related to this gain contingency should not have been considered in the restatement analysis.
+
+
+
+  K. Oxford considered whether it should restate its second quarter financial statements and concluded that no restatement was required because the overstatement of net income (which Oxford calculated as 12.9%) was not material under the circumstances.  In fact, the overstatement was 26% of net income, which was material. Even if Oxford's computation of a 12.9% overstatement had been correct, that amount would also have been material.  
+
+  L. Because Oxford reported a material overstatement of net income for the second quarter of 1997, Oxford should have restated its financial statements, including net income, for that quarter. Oxford, however, failed to restate its financial statements for the second quarter of 1997.  
+
+     Cassidy and Shanahan's Involvement With Oxford's Erroneous Recording of Revenue and Oxford's Failure to Restate 
+
+  M. Cassidy, Oxford's CFO, shared responsibility for devising and implementing adequate internal controls, and he indirectly supervised the department that employed the people who erroneously recorded the $81 million in revenue on Oxford's books and records.  Cassidy failed to take sufficient steps reasonably designed to prevent this error. 
+
+  N. Cassidy signed the Form 8-K that contained the October 27th announcement and the third quarter 1997 Form 10-Q.  Cassidy did not prepare or participate in the preparation of the analysis described in paragraph J above, which formed the basis for Oxford's erroneous decision not to restate.  That analysis and all other underlying facts were, however, available to him.
+
+  O. Shanahan, Oxford's controller, had some responsibility for devising and implementing adequate internal accounting controls, and he supervised the department that employed the people who were directly responsible for erroneously recording the $81 million in revenue.  Shanahan failed to take sufficient steps reasonably designed to prevent this error. 
+
+  P. Shanahan contributed to Oxford's incorrect determination not to restate its financial statements for the second quarter of 1997.  Before Oxford filed the September 30, 1997 Form 10-Q, Shanahan conducted the analysis described in paragraph J above, which formed the basis for Oxford's erroneous decision not to restate.  Shanahan told Oxford's management that he believed that restatement would not be necessary because the overstatement of net income was not material under the circumstances, when in fact the overstatement was material.  Shanahan consulted with Oxford's outside auditor in forming his opinion that no restatement was required, and he reported to Cassidy concerning that consultation.
+
+     The Commission's Investigation 
+
+  Q. During the Commission's investigation of the matters discussed in this Order, Oxford produced documents and made witnesses available for testimony in response to Commission subpoenas, as is required by law.  Oxford's cooperation did not extend beyond its legal obligations.  3     LEGAL FINDINGS 
+
+     Oxford Violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 Thereunder 
+
+  R.   Section 13(a) of the Exchange Act and Rules 13a-11 and 13a-13 thereunder require issuers to file certain reports, including quarterly reports, with the Commission.  The requirement that an issuer file reports under these provisions embodies the requirement that such reports be true and correct.  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975);  SEC v. IMC International, Inc. , 384 F. Supp. 899, 893 (N.D. Texas),  aff'd,  505 F.2d 733 (5th Cir. 1974).  Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that the statements made in them are not materially misleading.  Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.
+
+  S. The filing of financial statements not prepared in conformity with GAAP violates Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder because Regulation S-X specifically provides that financial statements not prepared in conformity with GAAP are presumed to be misleading or inaccurate. 
+
+   17 C.F.R. 210.4-01(a)(1).   Similarly, the recording of revenues in violation of GAAP violates Section 13(b)(2)(A) of the Exchange Act.  Oxford's reported and recorded second quarter 1997 financial statements violated GAAP because those statements erroneously included revenues that were not earned.   See  Statement of Financial Concepts No. 5, par. 83 (revenues are not to be recognized until earned).  
+
+  T.  Because Oxford erroneously recorded $25 million of unearned revenues during the second quarter of 1997, Oxford's reported second-quarter revenues were overstated by that amount, and its reported net income was thereby overstated by 26%.  Quantitatively, that amount was material.   See  SAB 99, 64 Fed. Reg. 45150 (1999) (use of a percentage as a numerical threshold as an initial step in assessing materiality is permissible).  Even if the overstatement had been only 12.9%, as Oxford erroneously concluded at the time, that amount was also quantitatively material.   See   id .  Furthermore, a declining earnings trend that had been developing since the second quarter of 1997 was not reflected in Oxford's public disclosures because of the erroneously recorded revenues.   See   Ganino v. Citizens Utilities Co. , 228 F.3d 154, 163 (2d Cir. 2000) (important qualitative factor to consider in determining whether a numerical misstatement is material is "`whether the misstatement masks a change in earnings or other trends'") (quoting SAB 99, 64 Fed. Reg. at 45152);  In re Burlington Coat Factory Sec. Litig. , 114 F.3d 1410, 1421 n.9 (3d Cir. 1997) (information about current and past earnings is highly likely to be material because it is often used to predict what future earnings might be);  In re Kidder Peabody Sec. Litig. , 10 F. Supp. 2d 398, 410 (S.D.N.Y. 1998) (same).  Because the amount of overstated net income was material, Oxford was obligated to restate publicly its financial statements for the second quarter of 1997.  
+
+  U. Oxford's third quarter 1997 financial statements, as reported in its Form 10-Q for this period, violated GAAP by failing to include a restatement of the second quarter and by failing to disclose specifically the existence and cause of the erroneously recorded revenues in the note discussing the third quarter 1997 charges.  APB Opinion 20, paragraph 37 ("The nature of an error in previously issued financial statements and the effect of its correction on income before extraordinary items, net income, and the related per share amounts should be disclosed in the period in which the error was discovered and corrected.").
+
+  V. As a result, Oxford's financial statements for the second and third quarters of 1997 were inaccurate, in violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  W. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are booked accurately, in accordance with management directives, and in a manner designed to permit the preparation of financial statements in conformity with GAAP. 
+
+  X. Oxford's system of internal accounting controls was inadequate for the purposes of Section 13(b)(2)(B) of the Exchange Act from January through September 1997, as demonstrated by Oxford's erroneous recording on its internal books and records during that period of $81 million of revenue and its resulting material overstatement of reported net income for the second quarter.  As a result, Oxford violated Section 13(b)(2)(B) of the Exchange Act.  
+
+     Cassidy and Shanahan Were Both Causes of Oxford's Violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 Thereunder 
+
+  Y. Cassidy contributed to Oxford's violations by failing to ensure that Oxford had internal controls that were sufficient to prevent the erroneous recording of revenue and by signing Oxford's October 27, 1997 Form 8-K and third quarter 1997 Form 10-Q.  By reason of the conduct and events set forth above, Cassidy was a cause of Oxford's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  Z. Shanahan's failure to ensure that Oxford had internal controls that were sufficient to prevent the erroneous recording of revenue and his statement to Oxford's management that the second quarter 1997 overstatement of net income did not compel restatement contributed to Oxford's violations.  By reason of the conduct and events set forth above, Shanahan was a cause of Oxford's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+   IV. 
+
+   CEASE-AND-DESIST ORDER 
+
+  Accordingly,  IT IS HEREBY ORDERED  that:
+
+  A. Oxford shall cease and desist from committing or causing any violation, or committing or causing any future violation, of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  B. Cassidy and Shanahan shall cease and desist from causing any violation or any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder.
+
+  By the Commission.
+
+                 Jonathan G. Katz
+             Secretary    
+ ___________________________
+      1      Deferred revenue represents premium billings made in advance of the coverage month.  Unearned revenue, which is a liability account, represents premium billings made and paid in advance of the coverage month.  Because these "future" revenues were billed and in some cases paid prior to the relevant coverage period, Oxford properly recorded them as liabilities.  When the coverage was provided, the income was then considered to be earned, at which point Oxford properly moved the deferred and unearned revenue into the current revenue account.
+
+      2      This $53 million amount was not reported in any Commission filing.
+
+      3      The Commission is today also filing a complaint in U.S. District Court for the Southern District of New York against Oxford to obtain civil money penalties of $250,000 from Oxford based upon Oxford's conduct as described in this Order.  Cassidy and Shanahan are not named in this complaint.    
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diff --git a/raw/aaer/2002/AAER-1602.txt b/raw/aaer/2002/AAER-1602.txt
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+
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+              Eric C. Brown
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+Securities Exchange Act of 1934 
+Release No.  46273 / July 29, 2002 
+ 
+Accounting and Auditing Enforcement  
+Release No.  1602 / July 29, 2002 
+ 
+Administrative Proceeding 
+File No.  3-10847 
+
+      In the Matter of 
+Eric C. Brown, 
+Respondent 
+     
+    : : : : : : :   
+   ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A REMEDIAL SANCTION PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE        I.  
+ 
+The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that administrative proceedings be, and hereby are, instituted pursuant to Rule 102(e) of the Commission's Rules of Practice against Respondent, Eric C. Brown ("Brown"). 
+
+  II.  
+ 
+ In anticipation of the institution of these administrative proceedings, Brown has submitted an Offer of Settlement, which the Commission has determined to accept.  Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings set forth below, except that Brown admits the Commission's finding that a Partial Judgment of Permanent Injunction and Other Equitable Relief has been entered against him as set forth in paragraph III.C. below and admits the Commission's jurisdiction over him and over the subject matter of these proceedings, Brown consents to the entry of this Order Instituting Administrative Proceedings, Making Findings, and Imposing A Remedial Sanction Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").    1   
+
+  III. 
+FINDINGS  
+ 
+On the basis of this Order and Brown's Offer of Settlement, the Commission makes the following findings: 
+  Brown, age 36, was at all relevant times the comptroller of Scorpion Technologies, Inc. ("Scorpion").  Brown previously was employed as an accountant at Arthur Andersen & Co.   
+
+ Scorpion was incorporated in Colorado on July 2, 1986 and maintained its offices in Los Gatos, California.  At all relevant times, Scorpion's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and was traded in the over-the-counter market and quoted on the National Association of Securities Dealers Automated Quotation System.  Scorpion purported to be engaged primarily in the development and sale of image processing technology and in the integration and marketing of workstations and personal computers.   
+
+ On April 15, 2002 , the United States District Court for the Southern District of New York, in an action captioned  SEC v. Scorpion Technologies, Inc., et al. , 96 Civ. 1005 (BSJ), permanently enjoined Brown from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Rule 13b2-1 promulgated under Section 13(b) of the Exchange Act.  The Court's order also prohibits Brown from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.  The Court entered the order pursuant to Brown's offer of settlement to the Commission in which Brown neither admitted nor denied the allegations in the Commission's Amended Complaint, dated May 9, 1996 ("Amended Complaint").   
+
+ The Amended Complaint alleges, among other things, that beginning in the first quarter of 1991 and continuing through 1993, Brown and others engaged in a scheme to inflate the revenues, assets, and earnings reported in Scorpion's public filings on Forms 8-K, 10-Q, and 10-K.  The scheme involved, among other things, the use of phony invoices and other documentation purporting to show that Scorpion had sold millions of dollars of software and computer products to foreign and domestic entities.  The Amended Complaint alleges that Brown knew or recklessly disregarded that Scorpion's public filings that Brown drafted and/or reviewed were materially false and misleading.  These public filings included a Form 10-Q for the quarter ended March 31, 1991 filed on May 15, 1991, a Form 8-K filed on April 19, 1991, a Form 8-K filed on September 30, 1991, a Form 10-Q for the quarter ended June 30, 1991 filed on April 12, 1991, a Form 10-Q for the quarter ended September 30, 1991 filed on November 14, 1991, a Form 10-K for the year ended December 31, 1991 filed on April 9, 1992, a Form 10-Q for the quarter ended March 31, 1992 filed on May 20, 1992, a Form 10-Q for the quarter ended June 30, 1992 filed on August 19, 1992, a Form 10-Q for the quarter ended September 30, 1992 filed on December 18, 1992, and a Form 10-K for the year ended December 31, 1992 filed on August 13, 1993.  The Amended Complaint alleges that, among other things, between 1991 and 1993, Brown falsified Scorpion's books and records, prepared or directed the preparation of fictitious purchase orders, invoices, payment documentation, confirmations, and product return documentation, and provided false and misleading information and documents to Scorpion's independent auditors. 
+   IV.  
+
+ 
+Based upon the foregoing, the Commission deems it appropriate and in the public interest to accept Brown's Offer of Settlement and accordingly, 
+ 
+IT IS HEREBY ORDERED, effective immediately, that Brown is suspended from appearing or practicing before the Commission as an accountant. 
+ 
+ 
+By the Commission.
+ 
+ 
+Jonathan G. Katz 
+Secretary 
+ 
+ 
+ 
+ 
+       1   
+ Paragraph (3)(i)(A) of Rule 102(e) of the Commission's Rules of Practice provides, in relevant part, that the Commission may suspend from appearing or practicing before it any accountant who has been by name "permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder . . . ."  [17 C.F.R. § 201.102(e)(3)(i)(A)]      
+ 
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diff --git a/raw/aaer/2002/AAER-1603.txt b/raw/aaer/2002/AAER-1603.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3d3475a4b303d9c55d8d9a13b32b8be108001c32
--- /dev/null
+++ b/raw/aaer/2002/AAER-1603.txt
@@ -0,0 +1,1731 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | David Friend, CPA 
+     
+     
+     
+     
+     
+     
+     
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46290 / August 1, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1603 / August 1, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10856
+
+         In the Matter of  
+   David Friend, CPA  
+     Respondent.  
+     
+    : : : : : :   
+   ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 21C OF THE
+ SECURITIES EXCHANGE ACT OF 1934  AND RULE 102(e) OF THE COMMISSION'S 
+ RULES OF PRACTICE, MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS
+ AND A CEASE-AND-DESIST ORDER      I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate to institute public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)  1   of the Commission's Rules of Practice against David Friend, CPA ("Friend" or Respondent").
+
+   II. 
+
+  In anticipation of the institution of these administrative proceedings, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings herein, except that the Respondent admits the Commission's jurisdiction over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order").
+
+  Accordingly, IT IS ORDERED that proceedings pursuant to Section 21C of the Exchange Act and Rule 102(e) of the Commission's Rules of Practice be, and hereby are, instituted.
+
+   III. 
+
+   FINDINGS 
+
+  On the basis of this Order and Respondent's Offer, the Commission finds  2   that: 
+
+   A. Settling Respondent 
+
+  1. David Friend, age 36, is a certified public accountant licensed to practice in Florida.  Friend was the controller for Paragon Construction International, Inc. ("Paragon"), a wholly owned subsidiary of Golden Bear Golf, Inc. ("Golden Bear"), from the date of Golden Bear's August 1, 1996 initial public offering of stock until he left Paragon on March 27, 1998.  During that time he was responsible for the maintenance of Paragon's general ledger and preparation of Paragon's financial statements in conformity with generally accepted accounting principles ("GAAP").  Paragon's financial statements were a material component of Golden Bear's consolidated financial statements.
+
+   B. Summary 
+
+  2. From at least the second quarter of 1997 through the first quarter of 1998, Paragon engaged in a scheme to artificially inflate and accelerate its revenue and gross margin recognition by misrepresenting the true status of its construction contracts.  3    Paragon overstated contract profitability or ignored expected losses by (i) accelerating revenue and income recognition by overstating the progress it made on its construction projects, (ii) understating estimated construction costs, (iii) overstating estimated construction revenues and (iv) recording revenue and gross margin in connection with non-existent project agreements.
+
+  3. Paragon continued these practices until April 1998 when Golden Bear dismissed Paragon management.  On May 5, 1998, Golden Bear announced an internal review of Paragon's operations and said it might need to record losses in connection with some Paragon construction projects.  On July 28, 1998, Golden Bear announced that it would restate its results for the periods ended December 31, 1997 and March 31, 1998.
+
+  4. On October 19, 1998, Golden Bear restated its financial statements for the year-ended December 31, 1997 and quarter-ended March 31, 1998 (the "Restatements").  Relevant financial statement captions from the original financial statements and the Restatements are set out below (all amounts in $000): 
+  
+     
+ 
+ Year Ended 12/31/97
+ 
+  
+ 
+ 3-mo. ended 3/31/98
+     
+ 
+  Original 
+ 
+  
+ 
+  Restated 
+ 
+  
+ 
+  Changes 
+ 
+  
+ 
+  Original 
+ 
+  
+ 
+  Restated 
+ 
+  
+ 
+  Changes 
+    Construction revenues
+ 
+ 39,755
+ 
+  
+ 
+ 21,894
+ 
+  
+ 
+ (17,861)
+ 
+  
+ 
+ 16,016
+ 
+  
+ 
+ 8,345
+ 
+  
+ 
+ (7,671)
+    Construction costs
+ 
+ 32,107
+ 
+  
+ 
+ 34,266
+ 
+  
+ 
+ 2,159
+ 
+  
+ 
+ 13,626
+ 
+  
+ 
+ 12,074
+ 
+  
+ 
+ (1,552)
+    Net operating profit/(loss)
+ 
+ (3,198)
+ 
+  
+ 
+ (15,500)
+ 
+  
+ 
+ (12,302)
+ 
+  
+ 
+ (547)
+ 
+  
+ 
+ (5,244)
+ 
+  
+ 
+ (4,697)
+    Income tax benefit/(provision)
+ 
+ 1,372
+ 
+  
+ 
+ (288)
+ 
+  
+ 
+ (1,660)
+ 
+  
+ 
+ 308
+ 
+  
+ 
+ (49)
+ 
+  
+ 
+ (357)
+    Gain/(loss) from discontinued ops.  4   
+ 0
+ 
+  
+ 
+ (8,429)
+ 
+  
+ 
+ (8,429)
+ 
+  
+ 
+ 0
+ 
+  
+ 
+ (1,649)
+ 
+  
+ 
+ (1,649)
+    Net profit/(loss)
+ 
+ (2,931)
+ 
+  
+ 
+ (24,699)
+ 
+  
+ 
+ (21,768)
+ 
+  
+ 
+ (778)
+ 
+  
+ 
+ (7,259)
+ 
+  
+ 
+ (6,481)
+    5. As a result of Paragon's improper financial accounting and reporting practices, Golden Bear's financial statements for the periods ended June 30, 1997, September 30, 1997, December 31, 1997, and March 31, 1998 were not stated in conformity with GAAP or the requirements of federal securities laws and regulations and materially misrepresented the financial condition and results of operations of Golden Bear. 
+
+   C. Facts 
+
+  6. Paragon senior management, aided by Friend, started in 1997 to implement a scheme to inflate and accelerate revenue and gross margin by reporting Paragon's construction contracts as more profitable than they were and by reporting Paragon as having more work than it did.  Paragon's scheme included (i) accelerating revenue and gross margin recognition by overstating progress on construction contracts, (ii) understating estimated construction costs, (iii) overstating estimated construction revenues, and (iv) recording revenue and gross margin in connection with non-existent contracts.  Paragon then sought to conceal the scheme by recording fictitious estimates and otherwise misrepresenting the status of its contracts.
+
+     Accelerating Revenue and Income Recognition by Overstating Progress on Construction Projects 
+
+  7. Paragon recognized revenue and profit on its contracts pursuant to the percentage-of-completion method of contract accounting, under which GAAP permits the proportionate recognition of total revenue, cost and gross margin based on the percentage of work estimated complete under a contract.  Through the first quarter of 1997, Paragon estimated the progress towards completion on its construction projects' for financial statement purposes under the "cost method".  Under the cost method, Paragon determined percentage-of-completion estimates solely with reference to cost incurred to date as a percentage of the project's estimated total cost.  5    In connection with the second quarter of 1997, Paragon changed the method it used to determine percentage of completion estimates from the cost method to what Paragon called the "earned value method." 
+
+  8. Under the earned value method, Paragon still recognized proportionate amounts of total revenue, cost and gross margin based on the percentage of work estimated complete under a contract, but changed its method of determining the percentage-of-completion of contracts by solely referring to Paragon's physical progress in building a project, as subjectively estimated by Paragon.  6    Under the earned value method, Paragon relied not on objective criteria to estimate its progress on contracts, like costs incurred, but instead relied on management's subjective estimates.   
+
+  9. Starting in the second quarter of 1997, Paragon artificially inflated its revenue and gross margin by overstating the progress it made on numerous construction projects.  Friend knew that Paragon overstated its percentage of completion estimates and that it had a material effect on Golden Bear's financial statements. 
+
+  10. When Paragon made the change, its auditor told the Company that it did not expect a material difference in Paragon's results under the two methods, and, that if Paragon's results under the earned value method were materially higher than under the cost method for the same period, the auditor would require an adjustment so that Paragon's recognized revenues and gross margin would be in-line with its results under the cost method.
+
+  11. Paragon senior management and Friend knew when Paragon proposed the change, however, that Paragon's implementation of the earned value method would have the effect of accelerating and overstating Paragon's reported revenue and gross margin when compared to the cost method; Friend referred to the increase in its reported results under the earned value method as Paragon's "revenue pick-up."  
+
+  12. In order to evaluate the effect of the change, Golden Bear's auditor required that Paragon provide detailed, project-by-project schedules showing Paragon's calculated gross margins under both methods for each reporting period from the second quarter of 1997 through the first quarter of 1998.  These schedules demonstrated that for each period after Paragon made the change, it recorded materially higher revenue and gross margin under the earned value method than it would have reported under the cost method for the same period, precisely the outcome the Company's auditor cautioned against.  
+
+  13. The auditor told Golden Bear in the third quarter of 1997 that it expected the difference between the two methods to close to an immaterial amount by year-end.  It did not; at year-end Paragon's gross margin under the earned value method remained materially higher than under the cost method.  To conceal the gap, Paragon recorded approximately $4 million in fictitious project cost accruals, i.e., Paragon booked costs that it had not incurred.  These fictitious accruals narrowed the difference in Paragon's results under the two methods.  Friend knew or was reckless in not knowing that these year-end accruals were fictitious and that they were recorded to conceal the difference between Paragon's year-end results under the earned value method as compared to what its results would have been under the cost method.
+
+     Understating Estimated Construction Costs and Failing to Record Project Losses 
+
+  14. At year-end 1997, Paragon intentionally understated the costs it expected to incur in connection with numerous of its construction contracts.  GAAP requires that losses be recognized in full for the period in which they become reasonably estimable but in numerous instances Paragon ignored its own cost estimates and failed to record losses and reduced estimated gross margins.  Paragon management failed to recognize and disclose $12 million in estimated losses at year-end 1997.  Friend knew that Paragon understated its costs and that it had a material effect on Golden Bear's financial statements.
+
+  15. Paragon also failed to recognize for the third quarter of 1997 $350,000 in known losses in connection with four Paragon projects that were substantially completed.  7    Paragon did not, in the third quarter of 1997, have a reasonable expectation of payment in connection with these amounts, but deferred recognizing them as losses until year-end 1997.  Friend knew that Paragon had no reasonable expectation of payment in connection with the amounts and that GAAP required that the losses be recorded in the third quarter of 1997.  
+
+     Overstating Estimated Construction Revenues 
+
+  16. At year-end 1997 Paragon also improperly overstated the amount of revenue it expected to realize from some construction contracts.  This artificially inflated Paragon's revenue, gross margin and construction backlog.  Friend knew at year-end that Paragon overstated its revenue and income in this manner and that it had a material effect on Golden Bear's financial statements.
+
+     Recording Revenue And Profits In Connection With Non-Existent Project Agreements 
+
+  17. Paragon also started a scheme in 1997 to record revenue and gross margin in connection with non-existent project agreements.  In some cases Paragon recognized revenue in connection with potential projects that Paragon had identified while looking for new work, even though Paragon had no agreements in connection with these projects.  8    In other cases, Paragon recognized revenue in connection with projects where the project's owners were either entertaining bids from Paragon and other contractors or were negotiating with Paragon regarding a project yet to be awarded.  Paragon recorded material amounts of revenue and gross margin in connection with non-existent project agreements.  Friend knew that Paragon improperly recorded revenue in connection with certain projects for which Paragon had no agreements and that it had a material effect on Golden Bear's financial statements.
+
+   D. Violations 
+
+  18. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit a person, in connection with the purchase or sale of a security, from making an untrue statement of a material fact or from omitting to state a material fact necessary to make statements made, in light of the circumstances under which they were made, not misleading.  To violate Section 10(b) or Rule 10b-5, a defendant must act with scienter,  Aaron v. SEC , 446 U.S. 680, 695, 701-02 (1980), which the Supreme Court has defined as "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).  As a result of actions taken by Friend, described above, from the second quarter of 1997 though year-end 1997, Paragon violated the antifraud provisions by causing the filing with the Commission of quarterly and annual reports that were materially misstated and that misrepresented Golden Bear's financial condition and results of operations.  9    19. Although Friend was aware that certain Paragon financial accounting and reporting practices were improper, he nevertheless helped in carrying out those practices.  By his conduct described above, Friend willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
+
+  20. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file quarterly and annual reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.  See ,  e . g .,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979) 
+
+  21. As discussed above, from the second quarter of 1997 through the first quarter of 1998 Paragon caused Golden Bear to file false and misleading quarterly and annual reports with the Commission that misrepresented the financial results of Golden Bear, overstating operating income and earnings.  By his conduct described above, Friend caused, and willfully aided and abetted, Golden Bear's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.
+
+  22. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets.  Section 13(b)(5) of the Exchange Act provides that no person shall knowingly falsify any such book, record, or account or circumvent internal controls.  Rule 13b2-1 also prohibits the falsification of any book, record, or account subject to Section 13(b)(2)(A).  
+
+  23. As a result of the actions taken by Friend as described above, from the second quarter of 1997 through year-end 1997, Golden Bear's books and records reflecting the transactions and dispositions of its assets were not merely inaccurate, they were intentionally falsified.  Based on the conduct described above, Friend willfully violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and caused, and willfully aided and abetted, Golden Bear's violations of Section 13(b)(2)(A) of the Exchange Act. 
+
+   E. Findings 
+
+  24. Based on the foregoing, the Commission finds that Friend (a) willfully violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder; and (b) caused, and willfully aided and abetted, Golden Bear's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 13a-1 and 13a-13 promulgated thereunder. 
+
+   IV. 
+
+  In view of the foregoing, the Commission deems it appropriate to accept Friend's Offer and to impose the sanctions agreed to therein.  
+
+  Accordingly, IT IS HEREBY ORDERED that
+
+  A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from violating, and from causing future violations of, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-1, and 13a-13 promulgated there under.
+
+  B. Respondent is suspended from appearing or practicing before the Commission as an accountant.
+
+  C. After two years from the date of this order, Respondent may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+
+    1. a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
+
+  2. an independent accountant. Such an application must satisfy the Commission that: 
+
+  (a) Respondent, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");
+
+  (b) Respondent, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and
+
+  (c) As long as Respondent appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+  D. The Commission will consider an application by Respondent to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy.  However, if state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits.  The Commission's review of an application by Respondent to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+  By the Commission.
+
+     Jonathan G. Katz 
+               Secretary    
+ ____________________________
+      1      Rule 102(e)(1) provides, in relevant part, that: 
+
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter: . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations there under.
+ 
+      2      The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+
+      3     Golden Bear's fiscal year ended on December 31.
+
+      4      The Golf Centers division was treated as a discontinued operation on Golden Bear's restated financial statements.
+
+      5      For example, $500,000 in costs-to-date on a project with $1,000,000 in estimated total costs at the completion of the contract indicated that the work under the contract was 50% complete.  Under the cost method Paragon would recognize 50% of the project's estimated total revenue, cost and gross margin.
+
+      6      For example, in connection with an earned value method percentage of completion estimate of 50%, as estimated by Paragon management on a project with $1,000,000 estimated total costs at the completion of the contract, Paragon would recognize for financial statement purposes 50% of the project's estimated total revenue, cost and gross margin, even if the actual costs incurred were substantially lower than $500,000. 
+
+      7      GAAP requires recognizing estimated losses in full in the period in which they become reasonably estimable.
+
+      8      Paragon allocated costs incidental to pursing these business development leads to project file numbers assigned to each lead.  Beginning in the third quarter of 1997, Paragon management directed Friend to report these leads as awarded projects and to record revenue in connection with them.
+
+      9      A fact is material if there is a substantial likelihood that a reasonable investor would consider the information to be important.  Basic Inc. v. Levinson , 485 U.S. 224, 231-32 (1988). Information regarding a Golden Bear's income is among the most important information for making an investment decision.    
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diff --git a/raw/aaer/2002/AAER-1604.txt b/raw/aaer/2002/AAER-1604.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d41cd10af2865bd94da57fc0b8a37b8e587d00db
--- /dev/null
+++ b/raw/aaer/2002/AAER-1604.txt
@@ -0,0 +1,1548 @@
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+              Richard P. Bellinger, Jack P. Bates, and Stephen S. Winslett
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+        Richard P. Bellinger, Jack P. Bates, and Stephen S. Winslett
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   46291 / August 1, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1604 / August 1, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10857
+
+           In the Matter of  
+   Richard P. Bellinger, Jack P. Bates,  
+   and Stephen S. Winslett  
+           Respondents.  
+     
+    : : : : : :   
+   ORDER INSTITUTING PUBLIC
+ ADMINISTRATIVE PROCEEDINGS
+ PURSUANT TO SECTION 21C OF THE
+ SECURITIES EXCHANGE ACT OF
+ 1934, MAKING FINDINGS, AND
+ IMPOSING A CEASE-AND-DESIST
+ ORDER      I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate to institute public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Richard P. Bellinger, Jack P. Bates and Stephen S. Winslett ("Respondents").
+
+   II. 
+
+  In anticipation of the institution of these administrative proceedings, Respondents have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings herein, except that the Respondents admit the Commission's jurisdiction over them and the subject matter of the proceedings, Respondents consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order"). 
+
+  Accordingly, IT IS ORDERED that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted.
+
+   III. 
+
+   FINDINGS 
+
+  On the basis of this Order and Respondents' Offers, the Commission finds  1   that: 
+
+   A. Settling Respondents 
+
+  1. Richard P. Bellinger, age 50, joined Golden Bear International, Inc. ("GBI"), a private company owned by the professional golfer Jack Nicklaus ("Nicklaus"), in 1979.  Bellinger served as GBI's president from 1989 until he left GBI in January 1998.  Bellinger became president and chief executive officer of Golden Bear Golf, Inc. ("Golden Bear" or "the Company") at the time of Golden Bear's initial public offering in August 1996 and served in those roles until he left Golden Bear in August 1998.
+
+  2. Jack P. Bates, age 42, joined GBI in 1984 and has served as GBI's Chief Financial Officer since before Golden Bear's August 1996 initial public offering.  Bates was the chief financial officer of Golden Bear from August 1996 until he left Golden Bear on October 22, 1997.  Bates was certified as a public accountant licensed to practice in Florida until he chose to move to inactive status in December 1996.
+
+  3. Stephen S. Winslett, age 50, joined Golden Bear as chief financial officer on October 22, 1997 and served in that role until he left Golden Bear in August 2000.  Winslett is certified as a public accountant and is licensed to practice in Texas.
+
+   B. Facts 
+
+  4. This action arises out of violations of the reporting provisions of Section 13 of the Exchange Act and rules thereunder, caused by Bellinger, Bates and Winslett, all in their capacity as officers of Golden Bear Golf, Inc.
+
+  5. Golden Bear is an international golf services company.  Its common stock was, until the Company completed a going private transaction on June 20, 2000, registered with the Commission pursuant to Section 12(g) of the Exchange Act.  Golden Bear's common stock traded in the National Market System of the Nasdaq Stock Market, Inc. 
+
+  6. In 1996 GBI spun off several divisions into Golden Bear and on August 1, 1996, Golden Bear conducted an initial public offering of stock.  After the initial public offering, Golden Bear's businesses included Golden Bear Golf Centers, Inc. ("Golf Centers"), which owned and operated golf practice facilities and Paragon Golf Construction, Inc.  2   ("Paragon"), which provided golf course construction services.  GBI continued other activities, including golf course design.
+
+  7. After the initial public offering, Golden Bear named GBI's management team to run the Company.  Golden Bear's management team also continued to run GBI.  On October 22, 1997, Winslett replaced Bates as Golden Bear's CFO.  During their respective terms as officers of Golden Bear in 1996, 1997 and 1998, Bellinger, Bates and Winslett caused Golden Bear's omission of material information necessary to make the Company's required financial statements not misleading.  More specifically, Bellinger and Bates caused the Company's failure to disclose that a change in the Company's revenue recognition method resulted in a material increase to the Company's reported revenue and gross margin, and all Respondents caused the Company's failure to disclose certain material terms of related-party transactions.
+
+  8. As a result Golden Bear's quarterly and annual reports for the periods ended September 30, 1996 through June 30, 1998 were not in conformity with Generally Accepted Accounting Principles ("GAAP") or the requirements of the federal securities laws and regulations.  3     Accounting Change Results in Material Increase to Golden Bear's Results in 1997 and 1998 and is Not Disclosed 
+
+  9. In the second quarter of 1997 Golden Bear changed the way it recognized revenue on construction contracts.  As a result of the change, the Company experienced a material gain in revenue and gross margin.  Golden Bear then failed to disclose the change and the effects of the change on reported earnings as required by GAAP.
+
+  10. Paragon measured its income earned on its golf course construction contracts pursuant to the percentage-of-completion method of contract accounting, which permits the proportionate recognition of total revenue, cost and gross margin based on the percentage of work estimated complete under a contract.  Through the first quarter of 1997, Paragon developed its percentage-of-completion estimates under the "cost method", determining them solely with reference to costs incurred-to-date as a percentage of the project's estimated total costs.  4    11. In the second quarter of 1997, Bates and Bellinger approved a change in the way Golden Bear estimated the percentage-of-completion of Paragon's construction jobs from the cost method to, what the Company called, the "earned value method."  Under the earned value method, Golden Bear continued to recognize proportionate amounts of total revenue, cost and gross margin based on the percentage of work estimated complete under a contract.    But in developing its percentage-of-completion estimates under the earned value method, Paragon relied not on objective criteria, such as costs incurred, but instead relied on management's subjective estimates as to its progress.  5     12. Bates and Bellinger knew when they approved the change that the Company would record higher revenue and gross margin in connection with Paragon's contracts under the earned value method than it would have recorded under the cost method for the same period.
+
+  13. For each period following Golden Bear's adoption of the earned value method, it reported higher revenue and gross margin in connection with Paragon's contracts than it would have recorded under the cost method.  GAAP required disclosure of the nature and effect of this accounting change in the financial statements because regardless of whether the adoption of the earned value method was considered a change in accounting principle or a change in accounting estimate, it was a change that had a material effect on the financial statements.
+
+  14. For example, in reporting its second quarter of 1997 results, Golden Bear failed to disclose that the change from the cost method to the earned value method resulted in an $800,000 increase in its reported gross margin for the period.  6    This difference was material to Golden Bear's reported financial results for the quarter.  But for the accounting change, instead of Golden Bear reporting net income of approximately $3,000, it would have reported a net loss.  
+
+  15. In addition, in its Management's Discussion and Analysis Golden Bear favorably compared its second quarter of 1997 results to its results for the comparable period of the prior year but failed to disclose that those results were not comparable since it measured Paragon's second quarter of 1996 income under the cost method and it measured its second quarter of 1997 income under the earned value method.  
+
+  16. Thus, in reporting its improved results for the second quarter of 1997 and subsequent periods, Golden Bear failed to disclose that the Company's accounting change from the cost method to the earned value method was a material element of those improved results, even though GAAP required such a disclosure.
+
+     Golden Bear Improperly Failed to Disclose Certain Terms of Related Party Transactions  
+
+  17. Golden Bear also failed to disclose certain material terms of related party transactions it had with GBI and with Nicklaus personally.  These were (a) an October 1996 GBI guarantee of an amount owed to Paragon by the owner of a specific golf course construction project ("Project A"), (b) Golden Bear's July 1998 forgiveness of GBI's $500,000 Project A guarantee in connection with the Company's July 1998 settlement of claims relating to a separate project ("Project B") in which Nicklaus loaned Paragon $2.4 million it used in the settlement and provided his personal design services through GBI to upgrade the course and (c) Project B's owners providing Nicklaus, in consideration of his payment of $100,000 in connection with the Project B settlement, a contingent right to recover up to $2.5 million from possible future Project B real estate profits in connection with which Nicklaus and Golden Bear agreed that any recovery under this profit participation agreement would be credited against Paragon's $2.4 million note payable to Nicklaus.  GAAP requires disclosure of such material terms of related party transactions because they are necessary for a full understanding of the related party transactions. 
+
+       i. Project A GBI Guarantee 
+
+  18. A division of GBI had designed the Project A golf course pursuant to an agreement with the owner.  This agreement called for GBI to receive cash compensation and a contingent fee based on a percentage of the proceeds of sales of future golf course memberships.  Paragon had built the course under a separate agreement with the project's owner.  In the fourth quarter of 1996, Paragon and the owner agreed to a change order to the original construction agreement that increased the cost of the project by $750,000.  Under the terms of Project A's change order with Paragon, the owner was obligated to pay Paragon for the full amount of the $750,000 change order on or before December 31, 1997.  
+
+
+  19. To induce the owner to agree to hire Paragon to do the additional work, GBI in a separate, but related, agreement between GBI and the owner guaranteed the owner's $750,000 payment to Paragon.  Under this agreement, GBI permitted the owner to pay Paragon for the change order with membership sales compensation payable to GBI under the design agreement.  GBI also agreed that if Project A's owner used membership sales compensation due GBI to pay Paragon under the change order, GBI would credit these payments against membership sales proceeds otherwise due GBI.
+
+  20. GBI and Project A's owners further agreed that if the project's membership sales did not generate sufficient compensation by December 31, 1997 to cover the entire $750,000 payable due Paragon, GBI would reimburse the owner for the balance due under the change order.  In effect, GBI guaranteed the owner's obligation to Paragon and any outstanding balance due under the change order that was unpaid as of December 31, 1997. 
+
+  21. At December 31, 1997 Project A owed Paragon a balance of $500,000 under the terms of the change order.  Neither the project's owners nor GBI paid the balance at year-end 1997 when it became due and this balance remained outstanding until it was forgiven by Golden Bear, as discussed below.  Both Bellinger and Winslett were aware of this. 
+
+     ii. Project B Settlement and Forgiveness of GBI Guarantee 
+
+  22. In July 1998 Nicklaus personally loaned Golden Bear $2.4 million in connection with the settlement of Project B's claims against Golden Bear, GBI and Nicklaus resulting from Paragon's failure to complete the project under the terms of its construction agreement with the owners.  GBI had designed the Project B golf course pursuant to an agreement with the project's owners and Paragon had built the course under a separate agreement.  Nicklaus also agreed in connection with the Project B settlement to provide his personal design services through GBI to upgrade the course.
+
+  23. In connection with Nicklaus' participation in the Project B settlement, Golden Bear forgave GBI's Project A guarantee of the unpaid $500,000 balance owed to the Company by the owner's of Project A.  
+
+  24. Also, in connection with the Project B settlement, Nicklaus paid $100,000 to Project B's owners in exchange for Project B's owners providing Nicklaus a contingent right to participate in future real estate profits from Project B up to $2.5 million.  This, in effect, gave Nicklaus the contingent right to recover the $2.4 million he loaned Paragon and the $100,000 he paid Project B's owners in consideration of the contingent right to participate in future real estate profits.  Nicklaus and Golden Bear agreed that any recovery under this profit participation agreement would be credited against Paragon's $2.4 million note payable to Nicklaus.
+
+       iii. Project A GBI Guarantee, Golden Bear's Forgiveness of GBI Guarantee and Profit Participation Fee Not Disclosed 
+
+  25. Golden Bear failed to properly disclose in its financial statements for the third quarter of 1996 and at year-end 1996 the existence of the GBI guarantee in connection with Project A.  The Company did disclose the Project A change order, its amount and GBI's agreement to grant Project A's owner a credit of up to $750,000 for membership sales proceeds that the owner used to pay the Paragon change order but it failed to disclose the GBI guarantee. At year-end 1997, after Project A had defaulted on its obligation to pay the balance due pursuant to the change order, then $500,000, Golden Bear failed to disclose the default, and the fact that GBI had become the obligor due to its guarantee.
+
+  26. In addition, the Company disclosed the Project B settlement in its financial statements for the third quarter of 1998, but it failed to disclose Golden Bear's forgiveness of the GBI guarantee that was a material part of that transaction and which represented a $500,000 write-off of receivables due Golden Bear, or the upgrade of the Project B course.
+
+  27. The Company also failed to disclose Nicklaus' $100,000 payment to Project B's owners securing his contingent right to participate in possible future real estate profits up to $2.5 million and the right of Golden Bear to offset such participation payments, if any, against its obligation to repay the Nicklaus loan.
+
+    C.  Violations 
+
+  28. Section 13(a) of the Exchange Act requires issuers to file such annual and quarterly reports as the Commission may prescribe and in conformity with such rules as the Commission may promulgate. Rules 13a-1 and 13a-13 require the filing of annual and quarterly reports that comply with the Commission's Regulation S-X, which requires that financial statements be presented in conformity with GAAP. 
+
+  29. As described above, the periodic reports filed by Golden Bear for the periods ended September 30, 1996 through December 31, 1998 were not in conformity with GAAP or the requirements of federal securities laws and regulations.  Consequently, Golden Bear violated Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.  Respondents had important roles in the company's financial reporting process.  Bellinger and Bates knew or should have known that the Company's Form 10Q for the period ended September 30, 1996 and Form 10K for the period ended December 31, 1996 failed to disclose the GBI guarantee and that its Form 10Q for the period ended June 30, 1997, failed to disclose the accounting change and the effect of the change to the earned value method.  Bellinger and Winslett knew or should have known the Company's Form 10K for the period ended December 31, 1997 failed to disclose Project A's default under its Paragon change order and that GBI had become the obligor due to its guarantee.  And Winslett knew or should have known that the Company's Form 10Q for the period ended June 30, 1998 and the Form 10K for the period ended December 31, 1998 failed to disclose Golden Bear's forgiveness of the GBI guarantee in connection with the Project B settlement and failed to disclose the real estate profit participation agreement Nicklaus secured from Project B's owners.  Thus, Respondents were a cause of Golden Bear's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. 
+
+   IV. 
+
+    In view of the foregoing, it is appropriate to impose the sanctions agreed to in the Offers submitted by Respondents.  Accordingly,
+
+  IT IS ORDERED, pursuant to Section 21C of the Exchange Act, that Respondents cease and desist from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.
+
+  By the Commission.
+
+     Jonathan G. Katz 
+         Secretary    
+ _______________________________
+      1      The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity in this or any other proceeding
+
+      2      Paragon Golf Construction changed its name in 1997 to Paragon Construction International.
+
+      3     Golden Bear's fiscal year-end was December 31.
+
+      4      For example, $500,000 in costs-to-date on a project with $1,000,000 in estimated total costs at the completion of the contract indicated that the work under the contract was 50% complete.  Under the cost method Paragon would recognize 50% of the project's estimated total revenue, cost and gross margin.
+
+      5     For example, in a case where Paragon management's earned value percentage of completion estimate was 50% complete, Paragon would recognize for financial statement purposes 50% of the project's estimated total revenue, cost and gross margin, even if the project had incurred substantially lower than 50% of the project's estimated total costs.  
+
+      6     Golden Bear's change in the way it measured Paragon's revenue and gross margin from the cost method to the earned value method had a material effect in each period from the third quarter of 1997 through the first quarter of 1998.    
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diff --git a/raw/aaer/2002/AAER-1605.txt b/raw/aaer/2002/AAER-1605.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f7dd46de25a4442c3e3c341256f251e9fc72f0d8
--- /dev/null
+++ b/raw/aaer/2002/AAER-1605.txt
@@ -0,0 +1,1369 @@
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+             
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+ LITIGATION RELEASE NO.  17648 / August 1, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE. 1605 / August 1, 2002
+
+   Securities and Exchange Commission v. John R. Boyd, and Christopher Curbello  ,  Case No. 02-80726-CIV-Judge Hurley (S.D.Fla.).  (filed August 1, 2002)
+
+   PARAGON CONSTRUCTION INTERNATIONAL, INC. FORMER SENIOR MANAGEMENT TEAM SUED FOR FRAUD 
+
+  The Commission announced today that it filed a complaint in the United States District Court for the Southern District of Florida against John R. Boyd (Boyd), the former president of Paragon Construction International, Inc. (Paragon), formerly a wholly owned subsidiary of Golden Bear Golf, Inc. (Golden Bear or the Company), and Christopher Curbello (Curbello), Paragon's former vice president for operations.
+
+  The complaint alleges that Boyd and Curbello were responsible for a scheme at Paragon whereby from at least the second quarter of 1997 through the first quarter of 1998, Paragon artificially inflated and accelerated its revenue and gross margin recognition by misrepresenting the true status of its construction contracts, causing Golden Bear to file false and misleading financial statements for its 1997 fiscal year and for the first quarter of 1998.  Under the scheme directed by Boyd and Curbello, Paragon overstated contract profitability or ignored expected losses by (i) understating estimated construction costs, (ii) accelerating revenue and income recognition by overstating progress on construction projects, (iii) overstating estimated construction revenues and (iv) recording revenue and gross margin in connection with non-existent project agreements.  As a result of the defendant's conduct, the Commission alleges that Boyd and Curbello violated, or aided and abetted violations of, Sections 10(b), 13(a), 13(b)(2)(A) and (B) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 13a-1, and 13a-13.  As relief, the Commission seeks final judgments permanently enjoining defendants from further violations of these provisions and imposing civil money penalties.
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diff --git a/raw/aaer/2002/AAER-1606.txt b/raw/aaer/2002/AAER-1606.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0d97eab2a145b40fb7988fc917ac22820eb24c12
--- /dev/null
+++ b/raw/aaer/2002/AAER-1606.txt
@@ -0,0 +1,1375 @@
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+        Roys Poyiadjis and Lycourgos Kyprianou and AremisSoft Corp. et al.
+       
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+
+ Litigation Release No.  17641 / July 31, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+ Release No. 1606 / July 31, 2002 
+
+  SECURITIES AND EXCHANGE COMMISSION V. ROYS POYIADJIS, LYCOURGOS KYPRIANOU AND AREMISSOFT CORP., et al, CIVIL ACTION NO. 01-CV-8903 (CSH) (S.D.N.Y.)
+  SEC SETTLES FINANCIAL FRAUD CLAIMS AGAINST AREMISSOFT CORPORATION 
+
+
+
+ On July 22, 2002, the Hon. Charles L. Brieant of the United States District Court for the Southern District of New York signed a Final Judgment of Permanent Injunction and Other Relief as to Defendant AremisSoft Corporation, which was a software company with offices in New Jersey, London, Cyprus, and India.  The judgment, to which AremisSoft consented without admitting or denying the allegations in the Commission's complaint, prohibits AremisSoft and its successor entity, Softbrands, Inc., from violating the antifraud and reporting provisions of the federal securities laws [Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder].
+  The Commission's complaint alleged, among other things, that AremisSoft and two of its former officers, Roys Poyiadjis and Lycourgos Kyprianou, overstated the Company's revenues in its annual report for 2000 and inflated the value of acquisitions made in 1999 and 2000 and that the two former officers engaged in massive insider trading during the period of the reporting fraud.  AremisSoft previously consented to a preliminary injunction that was entered by the Hon. Charles S. Haight, Jr., U.S. District Judge, on October 19, 2001.
+  AremisSoft filed a petition for relief under Chapter 11 of the Bankruptcy Code on March 15, 2002.  On July 15, 2002, the Hon. Joel A. Pisano, U.S. District Judge, entered an order confirming AremisSoft's Chapter 11 Plan and authorizing AremisSoft to enter into the settlement with the Commission.
+  In connection with the resolution of the Commission's civil injunctive action, AremisSoft also consented to the issuance of a Commission Order, pursuant to Section 12(j) of the Exchange Act, revoking the registration of AremisSoft's common stock, without admitting or denying the findings in the Commission's Order.  For further information on this proceeding,  see  Exchange Act Release No. 34-46285.
+  The SEC's civil enforcement action remains pending against Poyiadjis, Kyprianou and two relief defendants, Olympus Capital Investment, Inc. and Oracle Capital, Inc.  On October 19, 2001 Judge Haight entered a preliminary injunction as to Poyiadjis, Kyprianou and the relief defendants that, among other things, froze the 
+proceeds of the former officers' fraudulent AremisSoft stock sales and directed all defendants to repatriate such assets to the United States and make an accounting.  Poyiadjis, Kyprianou and the relief defendants have not answered the Commission's complaint, nor have they complied with the court's order.  
+  On December 19, 2001 a federal grand jury sitting in the Southern District of New York returned an indictment of Poyiadjis for securities fraud.  On March 22, 2002, the U.S. Attorney initiated a civil  in rem  forfeiture action in the U.S. District Court for the Southern District of New York, seeking forfeiture of funds held in four bank accounts in the Isle of Man.  These funds had previously been frozen by the High Court of the Isle of Man on application of the Isle of Man Attorney General at the request of the U.S. Attorney General, based on information provided by the Commission.  On June 3, 2002 the U.S. District Court entered a default judgment in the civil forfeiture action.  Thereafter, the Isle of Man Attorney General at the request of the U.S. Attorney General applied to the High Court for registration of the civil forfeiture judgment as an external confiscation order, a required step under Isle of Man law preliminary to obtaining a High Court order repatriating the funds to the United States.  On June 24, 2002 a federal grand jury sitting in the Southern District of New York returned a superseding indictment against Poyiadjis, Kyprianou and another former AremisSoft officer, M.C. Mathews, on counts of conspiracy to commit securities fraud, mail fraud, wire fraud, and money laundering, and substantive counts of securities fraud and money laundering.  
+  The Commission would like to acknowledge the Office of the U.S. Attorney for the Southern District of New York and the Federal Bureau of Investigation for the assistance they have provided in this matter.
+   See also  Litigation Release No.  17172  (October 4, 2001). 
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diff --git a/raw/aaer/2002/AAER-1607.txt b/raw/aaer/2002/AAER-1607.txt
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@@ -0,0 +1,1373 @@
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+              Douglas A. Murphy, David G. Kay and Lawrence H. Theriot
+           
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+        Douglas A. Murphy, David G. Kay and Lawrence H. Theriot
+       
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+ Litigation Release No.  17651 / August 1, 2002
+  Accounting and Auditing Enforcement
+ Release No. 1607 / August 1, 2002 
+
+
+   Securities and Exchange Commission v. Douglas A. Murphy, David G. Kay and Lawrence H. Theriot , Civil Action No. H-02-2908 (S.D. Texas)
+
+  SEC SUES FORMER OFFICERS OF AMERICAN RICE, INC. FOR AUTHORIZING FOREIGN BRIBES
+
+  On July 30, 2002, the Securities and Exchange Commission filed a civil injunctive action against two former officers of American Rice, Inc., Douglas A. Murphy and David G. Kay, alleging that they authorized over $500,000 in bribery payments to Haitian customs officials during 1998 and 1999, in violation of the Foreign Corrupt Practices Act.  American Rice is a Houston, Texas based rice company.  The complaint, filed in the United States District Court for the Southern District of Texas, alleges that Kay, with Murphy's knowledge, authorized the bribes to illegally reduce American Rice's import taxes by approximately $1.5 million.  
+
+  According to the complaint, in advance of certain rice shipments to Haiti between January 1998 and October 1999, Kay directed an American Rice employee to prepare false shipping records that underreported the tonnage of rice on the relevant vessels.  Haitian customs officials used the false records to clear the American Rice vessels through customs.  After the vessels cleared customs, Kay allegedly directed American Rice employees in Haiti pay cash bribes to certain customs officials.  To hide the payments, Kay then directed American Rice's controller in Haiti to improperly record the bribery payments as routine business expenditures.  American Rice employees made at least 12 bribery payments totaling approximately $500,000.  In exchange, American Rice illegally avoided approximately $1.5 million in Haitian import taxes.  The complaint further alleges that Murphy was aware of the bribery scheme, but took no action to stop the payments.  A third individual, Lawrence H. Theriot, a former American Rice consultant, allegedly assisted  Kay and Murphy by monitoring the bribery scheme and exploring alternative arrangements.
+
+  The complaint alleges that Kay violated Sections 30A and 13(b)(5) of the Securities Exchange Act  of 1934 and Exchange Act Rule 13b2-1, and aided and abetted American Rice's violations of Sections 13(b)(2)(A) and (B) of the Exchange Act, that Murphy violated Section 30A of the Exchange Act and is liable, as a controlling person, for Kay's violations of Sections 30A and 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, and that Theriot aided and abetted Kay and Murphy's violations of Section 30A of the Exchange Act.
+
+  In parallel criminal proceedings, the Department of Justice previously obtained indictments against Murphy and Kay.  On April 16, 2002, the United States District Court for the Southern District of Texas dismissed the indictments on the grounds that the payments at issue were not made to obtain or retain business in Haiti, as required by the Foreign Corrupt Practices Act.  A notice of appeal has been filed by the Department of Justice.  The Commission wishes to thank the United States Department of Justice for its assistance in this matter.
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diff --git a/raw/aaer/2002/AAER-1608.txt b/raw/aaer/2002/AAER-1608.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d0ee0f541cab19f703fbd587c210ee636c14dbe8
--- /dev/null
+++ b/raw/aaer/2002/AAER-1608.txt
@@ -0,0 +1,1438 @@
+
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+     SEC.gov | Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA 
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+              Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA
+           
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+        Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA
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+ Securities Act of 1933 Release No.  8118 / August 2, 2002 
+
+ Securities Exchange Act of 1934 Release No.  46302 / August 2, 2002 
+
+ Accounting and Auditing Enforcement Release No.  1608 / August 2, 2002 
+
+ Administrative Proceeding  File No. 3-10858 
+
+
+ IN THE MATTER OF GAS AND OIL TECHNOLOGIES, INC., INGRID ALIET-GASS AND GLEN MORINAKA, CPA
+  The Commission instituted cease-and-desist proceedings against Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA and proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice, against Morinaka.  The Division of Enforcement has alleged that Gas & Oil and Gass violated, and Morinaka willfully violated, Section 17(a) of the Securities Act of 1933.  
+  The order instituting proceedings alleges that in October 2001, Gas & Oil filed a registration statement on Form S-1 with the Commission in which contained financial statements in which the company improperly recorded, as both an asset and income, $21.75 million from the acquisition of certain Russian patents.  It further alleges that the $21.75 million represented 100% of Gas & Oil's income and nearly all of its assets.  The Order also alleges that the failure of Gas & Oil, Gass and Morinaka to properly record the patent acquisition caused the company's financial statements to materially misrepresent its financial condition and results of operations.  The Order also alleges Gas & Oil's registration statement made material misrepresentations and omitted to state material facts concerning the company's business operations and assets.
+  It is alleged that Gass and Morinaka were personally involved in preparing the misleading disclosure made in the registration statement.  It is further alleged that Morinaka, a certified public accountant, prepared the financial statements included in the registration statement.  
+  A public hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Gas & Oil, Gass, and Morinaka an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate.
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diff --git a/raw/aaer/2002/AAER-1610.txt b/raw/aaer/2002/AAER-1610.txt
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index 0000000000000000000000000000000000000000..b22f86e73c684265f0e7133982a29a498e0eebc3
--- /dev/null
+++ b/raw/aaer/2002/AAER-1610.txt
@@ -0,0 +1,1367 @@
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+              Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson
+           
+     
+ 
+
+   
+
+     
+
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+      
+             
+        Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson
+       
+
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+   
+
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+ Litigation Release No.  17656  / August 5, 2002 
+  Accounting and Auditing Enforcement Release No.  1610
+   U.S. Securities and Exchange Commission v. Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson , U.S. District Court for the Southern District of Indiana, Cause No. IP 02-1118 C H/S (S.D. Indiana 2002).
+  The U.S. Securities and Exchange Commission ("Commission") announced that on July 31, 2002, the Honorable Judge David F. Hamilton of the United States District Court for the Southern District of Indiana entered a Final Judgment and Order of Permanent Injunction and Other Equitable Relief against Church Extension of the Church of God, Inc. ("Church Extension") and United Management Services, Inc. ("United Management"), a Church Extension affiliate.  Church Extension and United Management consented to the entry of the Order without admitting or denying the allegations of the Complaint.  The Order was based on the Commission's Complaint, filed on July 22, 2002, which alleged that Church Extension, United Management, James Perry Grubbs ("Grubbs"), the former president of Church Extension, and Shearon Louis Jackson ("Jackson"), the former president of United Management, fraudulently raised approximately $85 million from the sale of investment notes to thousands of investors nationwide.  The litigation is currently pending against Defendants Grubbs and Jackson in federal district court in Indianapolis, where they will have an opportunity to respond to the charges filed.
+  Specifically, the Order permanently enjoins Church Extension and United Management from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Order also requires Church Extension and United Management to pay disgorgement of approximately $81 million to investors.
+  In addition, Judge Hamilton appointed Jeff J.  Marwil, a partner at the law firm of Jenner & Block in Chicago, Illinois, as an independent Conservator in this matter.  The Conservator's mandate is to protect the interests of the investors who invested or reinvested in Church Extension's investment note program.
+   Church Extension and United Management have established a Joint Oversight Committee ("Joint Committee") for the purpose of drafting a joint corporate restructuring plan ("Restructuring Plan").  The Restructuring Plan will address, among other things, a manner in which to meet Church Extension and United Management's $81 million disgorgement obligations.  During the time period when the Joint Committee is drafting the Restructuring Plan, the Commission and the Conservator will aggressively monitor the activities of Church Extension and United Management.  Within 60 days of the Order, the Joint Committee will submit the Restructuring Plan to the Court, the Commission and the Conservator.  After a limited period of review, the Restructuring Plan will be presented to the Court for its ultimate determination, including its approval, modification or rejection of the plan.  At all times, the Commission and the Conservator will reserve the right to petition the Court for immediate relief, including, the appointment of a federal receiver, if either deems any activity, transaction or expenditure contemplated by Church Extension and United Management is not in the best interests of investors.    
+
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diff --git a/raw/aaer/2002/AAER-1613.txt b/raw/aaer/2002/AAER-1613.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b685453a41ab9d6bed05f16e9ebb8918e39e2780
--- /dev/null
+++ b/raw/aaer/2002/AAER-1613.txt
@@ -0,0 +1,1380 @@
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+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+             
+
+ LITIGATION RELEASE NO.  17667 / August 8, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1613 / August 8, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION V. RICHARD F. RUBIN, ET AL ., Civil Action No. 99-239 (D.D.C.)
+
+
+
+   FORMER CFO AND CONTROLLER OF  
+  DONNKENNY SETTLE SEC FRAUD CHARGES 
+
+    On July 31, 2002, the Commission obtained final judgments against two defendants in its pending financial fraud case against former executives of Donnkenny, Inc., a women's apparel manufacturer headquartered in New York City.  The United States District Court for the District of Columbia entered the final judgments against Edward T. Creevy, Donnkenny's former chief financial officer, and Ronald H. Hollandsworth, Donnkenny's former controller.  The judgments permanently bar both Creevy and Hollandsworth from serving as officers or directors of any public company, and permanently enjoin them from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5; falsifying corporate books and records or circumventing internal accounting controls in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; misleading accountants in violation of Exchange Act Rule 13b2-2; and aiding and abetting violations of the books-and-records, internal controls, and periodic reporting provisions of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13.  Creevy and Hollandsworth consented to entry of the final judgments without admitting or denying the Commission's allegations against them.  
+
+  Creevy and Hollandsworth previously pled guilty to criminal charges of conspiring to commit securities fraud, and each was sentenced, among other things, to serve five years probation and to pay $250,000 in restitution.   U.S. v. Edward T. Creevy , No. CR 99-13 (E.D.N.Y.) and  U.S. v. Ronald Hollandsworth , No. CR 98-1055 (E.D.N.Y.).  Based on the restitution orders, the final judgments in the Commission's case do not order Creevy or Hollandsworth to pay disgorgement of their illicit gains.  Moreover, based on the criminal sanctions imposed against Creevy, including a $250,000 fine, and on Hollandsworth's sworn statement of financial disclosure, the final judgments in the Commission's case do not impose civil penalties against Creevy or Hollandsworth.  
+
+    The Commission's complaint in the case, which was filed in February 1999 and amended in September 2001, charged Creevy, Hollandsworth, and two other former Donnkenny executives with engaging in a wide-ranging financial fraud from at least early 1994 through August 1996, and with illegally selling Donnkenny stock before the fraud was disclosed to the public.  The complaint alleges that these individuals caused Donnkenny to improperly recognize revenue by:  holding open quarters to book out-of-period shipments; recording revenue on orders without shipping the goods to customers; recording fictitious sales from non-existent contract work and through false journal entries; and hiding inventory purportedly sold in fictitious sales from the detection of the auditors during the company's annual physical inventory count.   See  Litigation Release No. 16051 (Feb. 2, 1999).   
+
+  One of the defendants, former Donnkenny assistant controller Kymberlee W. Kulis, settled with the Commission upon filing of the complaint.  The case against the remaining defendant, former Donnkenny chief executive officer Richard F. Rubin, and against several relief defendants, is still pending.  Like Creevy and Hollandsworth, defendant Rubin has already pled guilty to criminal charges of conspiring to commit securities fraud.   U.S. v. Richard Rubin , No. CR 99-84 (E.D.N.Y.).  Among other things, he was sentenced to imprisonment of a year and a day and ordered to pay $49.5 million in restitution.    
+
+  In a related proceeding, the Commission today issued an administrative order pursuant to Rule 102(e) of its Rules of Practice that denies Creevy, who was an unlicensed certified public accountant during the relevant period, the privilege of appearing or practicing before the Commission as an accountant.  Creevy consented to the order without admitting or denying the Commission's findings.   See In the Matter of Edward T. Creevy , Admin. Proc. 3-10859 (August 8, 2002.)
+  
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diff --git a/raw/aaer/2002/AAER-1614.txt b/raw/aaer/2002/AAER-1614.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d6a32763697ce3e3bf653e4361595db316e8d048
--- /dev/null
+++ b/raw/aaer/2002/AAER-1614.txt
@@ -0,0 +1,1376 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | David G. Sherman, John L. Clark, and Sarah E. Hume 
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+              David G. Sherman, John L. Clark, and Sarah E. Hume
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+        David G. Sherman, John L. Clark, and Sarah E. Hume
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+ Litigation Release No.  17671  /  August 9, 2002
+   Accounting and Auditing Enforcement Release No.  1614 
+
+
+   SEC v. Vari-L Company, Inc., David G. Sherman, Jon L. Clark, and Sarah E. Hume , Civ. Action No. 01-MK-1903 (District of Colorado)
+
+    The Commission announced today that on August 7, 2002, the Honorable Marcia S. Krieger, United States District Judge,  entered a final judgment of permanent injunction  against Sarah E. Hume of Aurora, Colorado.
+
+    The final judgment enjoins Hume from engaging in transactions, acts, practices and courses of business which constitute or would constitute violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 , and from aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act  and Rules 12b-20, 13a-1, and 13a-13. The proposed final judgment provides that the Court is not imposing a civil penalty or requiring payment of disgorgement and pre-judgment interest thereon based on defendant's sworn representations in her statement of financial condition. Hume consented to entry of the permanent injunction. Hume has also agreed to be prohibited from acting as an officer or director of a public company.           
+
+    The Commission's complaint, filed in the U.S. District Court for the District of Colorado on September 27, 2001, alleged that  Vari-L Company, Inc and three of its former officers engaged in a massive financial reporting fraud designed to show consistently increasing revenue and earnings, instead of losses, from 1996 through the quarter ended March 31, 2000 by recognizing false revenue, improperly capitalizing and depreciating costs, overstating inventory, and improperly deferring period costs.
+
+    The Commission's action against David G. Sherman is continuing.
+
+    For more information, see  Litigation Release No. 17155   (September 27, 2001).
+  
+
+ 
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+       SEC Complaint  in this matter.  
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diff --git a/raw/aaer/2002/AAER-1615.txt b/raw/aaer/2002/AAER-1615.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9da3a37d31c40a032bca3b7da48c10c8f6ff66ad
--- /dev/null
+++ b/raw/aaer/2002/AAER-1615.txt
@@ -0,0 +1,1493 @@
+
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+     SEC.gov | Kurt D. Saliger, CPA 
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+        Kurt D. Saliger, CPA
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+ SECURITIES ACT OF 1933
+ Release No.  8122 / August 16, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1615 / August 16, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10867
+
+        In the Matter of      
+  KURT D. SALIGER, CPA,    
+                  Respondent.  
+      
+  : : : : :   
+ ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS AND IMPOSING CEASE-AND-DESIST ORDER, AND
+ IMPOSING SANCTIONS PURSUANT   TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE    I.
+
+  The Securities and Exchange Commission (the "Commission") deems it appropriate that cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Rule 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice against Kurt D. Saliger ("Saliger") be instituted.  1    II.
+
+      In anticipation of these proceedings, Saliger submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Saliger consents to the entry of this Order Instituting Proceedings, Making Findings and Imposing Cease-and-Desist Order, and Imposing Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") without admitting or denying the findings set forth in this Order, except that Saliger admits the jurisdiction of the Commission over him and over the subject matter of these proceedings and the matters described in paragraph III.A. of this Order. 
+
+      The Commission has determined that it is appropriate to accept Saliger's Offer and accordingly is issuing this Order.
+
+  III.
+
+      On the basis of this Order and the Offer, the Commission finds  2   the following:
+
+      A. Kurt D. Saliger, age 45, is a resident of Las Vegas, Nevada.  Saliger became licensed as a CPA in Texas in 1982, and is currently licensed to practice as a CPA in Nevada.  
+
+  B. Gas and Oil Technologies, Inc. ("Gas & Oil") is a Delaware corporation headquartered in Woodland Hills, California.  It has no public market for its securities but has applied to have its common stock quoted on NASDAQ under the symbol "GAOL."   On October 15, 2001, Gas & Oil filed a registration statement on Form S-1, seeking to raise up to $60 million from the sale of its common stock in an initial public offering. 
+
+  C. From July of 2001 through late 2001, Gas & Oil engaged Saliger as its independent auditor.  Saliger audited and issued reports on the financial statements of Gas & Oil for its year ended December 31, 2000 and for its period ended June 30, 2001 and performed a review for its period ended September 30, 2001.  Saliger was the only person who worked on these engagements.
+
+  D. With respect to the audit reports referenced in paragraph C. above, Saliger issued false reports which claimed that Gas & Oil's financial statements presented fairly, in all material respects, the financial position of the company in conformity with generally accepted accounting principles ("GAAP"), when, in fact, those financial statements were materially false.  Saliger also represented in those reports that his examinations of Gas & Oil's financial statements were conducted in accordance with generally accepted auditing standards ("GAAS"), when they were not.
+
+  E. In the course of those engagements, Saliger failed to comply with GAAS, as follows:
+
+     Saliger failed to obtain written representation letters from management of Gas & Oil;
+
+        Saliger failed to prepare audit programs, to obtain an understanding of internal controls and to conduct audit risk assessments, sufficient to determine the nature, timing and extent of substantive tests needed for the audits;
+
+        Saliger failed to obtain sufficient competent evidential matter upon which to base an opinion, specifically as it related to the valuation and recording of patents on the financial statements; and
+
+        Saliger issued unqualified audit reports certifying that Gas & Oil's financial statements fairly presented its financial condition in conformity with GAAP, when in fact they did not.
+   F. GAAP requires that patents be recorded consistent with Accounting Principles Board Opinion No. 17, which states that intangibles should be recorded at cost at date of acquisition.  If these costs are not determinable, GAAP requires that the patents be recorded at their fair value.  Nevertheless, in its financial statements for the period ended June 30, 2001, Gas & Oil recorded both an asset and income from the purchase of patents in the amount of $21.75 million which represented 100% of both its assets and income, without receiving any persuasive evidence of either the fair value of the patents or their cost at date of acquisition. 
+
+  G. Because of the method utilized by Gas & Oil for the recording of the acquisition of patents, the financial statements included in the Form S-1 were not prepared in accordance with GAAP.   Saliger knew or was reckless in not knowing that these financial statements did not comply with GAAP.
+
+  H. Based on the conduct set forth above, the Commission finds that Respondent Saliger has willfully violated Section 17(a) of the Securities Act.
+
+      I. Saliger recklessly engaged in improper professional conduct and willfully violated, or willfully aided and abetted the violation of, provisions of the Federal securities laws and rules, for purposes of Rule 102(e)(1)(ii) and (iii) respectively, of the Commission's Rules of Practice.
+
+  IV.
+
+      In view of the foregoing, it is appropriate to impose the sanction agreed to in the Offer.
+
+      Accordingly, it is hereby ordered that:   
+
+      Saliger be ordered to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act; 
+
+     IT IS FURTHER ORDERED that Saliger shall, within 45 days of the entry of this Order, disgorge the fees he received for the attest services provided to Gas & Oil along with prejudgment interest thereon in the total amount of $6,072.28 to the United States Treasury.  Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under cover letter that identifies Kurt D. Saliger as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Kenneth D. Israel, District Administrator, Salt Lake District Office, Securities and Exchange Commission, 50 South Main Street, Suite 500, Salt Lake City, Utah 84144; and 
+
+     That, effective immediately, Saliger be denied the privilege of appearing or practicing before the Commission as an accountant.
+   By the Commission.
+
+      Jonathan G. Katz
+                   Secretary   
+  
+
+ _________________________
+      1      Paragraph 1 of Rule 102(e) provides, in relevant part, that:  The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter:  . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder.
+
+      2       The findings herein are made pursuant to the Offer of Settlement of Saliger and are not binding on any other person or entity in this or any other proceeding.    
+
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diff --git a/raw/aaer/2002/AAER-1616.txt b/raw/aaer/2002/AAER-1616.txt
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@@ -0,0 +1,1364 @@
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+ Litigation Release No.  17686  / August 16, 2002 
+ Accounting and Auditing Enforcement 
+Release No. 1616 / August 16, 2002 
+ SEC Files Action Against Kevin J.  Morrison, Former Executive of an HPSC, Inc. Subsidiary, and Mildred K. Miller in $5 Million Dollar Financial Fraud 
+  Securities and Exchange Commission v. Kevin J.  Morrison, et al. (United States District Court for the District of Massachusetts C.A. No. 02-11647-MLW)  
+ The Securities and Exchange Commission ("Commission") announced today that it filed a civil fraud action against Kevin J. Morrison of West Hartford, Connecticut, the former executive vice president of American Commercial Financial Corporation ("ACFC"), a wholly-owned subsidiary of Boston-based HPSC, Inc.   The Complaint alleges that Morrison caused HPSC to materially overstate the results of its operations when he improperly diverted more than $4.7 million of corporate assets to Mildred K. Miller, a purported ACFC factoring customer.  The Complaint alleges that beginning in 1997 and continuing until May 22, 2002, Morrison concealed the diversion of funds to Miller by regularly providing fictitious financial reports regarding ACFC to ACFC's president, HPSC senior management, and HPSC's outside auditors.  Miller, who is named as a relief defendant in the Complaint, is last known to have resided in Hartford, Connecticut. 
+  According to the Commission's Complaint, Morrison took advantage of his complete control over ACFC's factoring business to divert more than $4.7 million from ACFC to Miller during a five-year period.  The Complaint alleges that through purported factoring transactions directed by Morrison, ACFC received the right to collect accounts receivables owed to Miller.  In exchange, Morrison authorized payments to Miller.  The Complaint alleges, however, that invoices substantiating the accounts receivables sold by Miller to ACFC were either uncollectible, fictitious, or non-existent.  The Complaint also alleges that Morrison was able to cover up the fraud because he was in charge of ACFC's accounting department, had responsibility for ACFC's books and records, and had authority to disperse funds from ACFC's accounts.  Further, the Complaint alleges that fraudulent financial information provided by Morrison to HPSC was incorporated in the parent company's Forms 10-K and Forms 10-Q filed with the Commission for the periods ended December 31, 1997 through March 31, 2002 and, as a result, HPSC materially overstated its net income and earnings per share by between 4% and 112% during the affected filing periods. 
+  The Commission's Complaint alleges that Morrison violated the antifraud, internal controls, and record-keeping provisions of the federal securities laws, including Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder.  The Commission's Complaint seeks a permanent injunction against Morrison preventing future violations of the federal securities laws, disgorgement of any ill-gotten gains plus pre-judgment interest, civil penalties and an officer and director bar.  In addition, the Complaint alleges that relief defendant Miller was unjustly enriched by more than $4.7 million and, as a result, the Commission seeks an order compelling Miller to relinquish any ill-gotten gains plus prejudgmentinterest.
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diff --git a/raw/aaer/2002/AAER-1617.txt b/raw/aaer/2002/AAER-1617.txt
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+++ b/raw/aaer/2002/AAER-1617.txt
@@ -0,0 +1,1380 @@
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+ Litigation Release No. 17692  / August 21, 2002
+  Accounting and Auditing Release No. 1617
+  Securities and Exchange Commission v. Michael J. Kopper, Civil Action No. H-02-3127 (SDTX) (August 21, 2002)
+
+   SEC CHARGES A FORMER HIGH-RANKING ENRON OFFICIAL 
+  WITH FRAUD 
+   Defendant Permanently Barred From Serving As Officer Or Director Of  
+  Public Company; To Disgorge and Forfeit Approximately $12 Million  
+
+    The Securities and Exchange Commission today charged Michael J. Kopper, a former high-ranking Enron official, with violating the antifraud provisions of the federal securities laws.  Without admitting or denying the allegations of the Complaint, Kopper has agreed to be enjoined permanently from violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5, and to be barred permanently from acting as an officer or director of a public company.  As part of the settlement agreement, which is subject to the approval of the U.S. District Court, Kopper will disgorge and forfeit a total of approximately $12 million.  The Commission brought this action in coordination with the Justice Department's Enron Task Force, which filed related criminal charges against Kopper.  Kopper agreed to enter a guilty plea in connection with those charges and to cooperate with the government's continuing investigation.
+
+    As alleged in the Complaint, starting in at least early 1997, Kopper and others used complex structures, straw men, hidden payments, and secret loans to create the appearance that certain entities that Kopper and others at Enron funded and controlled were independent of Enron.  This allowed Enron to move its interests in these entities off its balance sheet when, in fact, those interests should have been consolidated into Enron's financial statements.  As a result, Enron's financial statements did not properly reflect Enron's interest in these entities, thereby enabling Enron to engage in various transactions with these entities that were designed to improve its apparent financial results.  In addition, Kopper and others exploited the fiction that these entities were independent of Enron to misappropriate millions of dollars representing undisclosed fees and other illegal profits.  
+
+  Specifically, the Commission's Complaint further alleges as follows:
+
+        RADR  :  In early 1997, Enron needed to divest itself of certain electricity-generating windmill farms.  Rather than seek independent third party investors, Kopper and others at Enron used entities (collectively referred to as "RADR") that they secretly funded and controlled to enable Enron to retain control over the windmill farms.  Specifically, Enron's CFO made a personal loan to Kopper, who in turn made loans to certain individuals acting as nominee investors in the entities that purchased the windmills.  Between August 1997 and July 2000, these entities generated approximately $2.7 million in distributions to Kopper and others.  In July 2000, Enron repurchased the facilities from the entities, generating an additional gain of approximately of $1.8 million for Kopper and the others involved.  Among those who received money were Enron's CFO, Kopper, several of their family members, and various Enron employees and their family members.
+
+         Chewco :   In 1993, Enron and the California Public Employees' Retirement System (CalPERS) entered into a joint venture investment partnership called Joint Energy Development Limited Partnership (JEDI).  In November 1997, Kopper and others at Enron formed an entity called Chewco to buy out CalPERS' JEDI interest in order to maintain JEDI's off-balance-sheet status.  However, Chewco failed to meet deconsolidation requirements because it did not have the third-party equity at risk required by the applicable accounting rules.  From December 1997 through December 2000, Kopper received a total of approximately $1.5 million in "management fees," which he shared with Enron's CFO.  In December 1998, Enron paid a $400,000 "nuisance fee," of which Kopper transferred approximately $67,224 to Enron's CFO.  In March 2001, Enron bought Chewco's limited partnership interest in JEDI for $35 million, of which Kopper and his domestic partner received approximately $3 million.  In September 2001, Enron paid $2.6 million "tax indemnity" to Chewco, which Kopper transferred into an account under his control.
+
+         Southampton :   Another entity formed by Enron was a partnership called LJM Cayman, L.P.  LJM Cayman had two limited partners, Credit Suisse First Boston and National Westminster Bank (NatWest).  In approximately February 2000, Kopper, three NatWest bankers, and others caused Enron to buy the NatWest's interest in the partnership assets for $20 million while paying NatWest only $1 million of that sum and siphoning the rest.  As a result of this conduct, the three NatWest bankers who participated in the scheme received approximately $7.3 million.  The balance of the funds went to Kopper ($4.5 million), a purported charitable foundation in the name of the CFO's   family ($4.5 million), and five other individuals -- four of whom were Enron employees (amounts ranging from approximately $400,000 to $1 million).
+
+   The Commission's investigation is continuing.
+     
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+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2002/AAER-1619.txt b/raw/aaer/2002/AAER-1619.txt
new file mode 100644
index 0000000000000000000000000000000000000000..302dbf9c36e62b2045304dce32eb4e6151f841c3
--- /dev/null
+++ b/raw/aaer/2002/AAER-1619.txt
@@ -0,0 +1,1396 @@
+
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+              William H. Rinehart, Jonathan A. Beck, and Kevin P. Clark
+           
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+        William H. Rinehart, Jonathan A. Beck, and Kevin P. Clark
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+ Litigation Release No.  17701 /August 27, 2002
+   Accounting and Auditing Enforcement Release No. 1619 /August 27, 2002
+
+   Securities and Exchange Commission v. William H. Rinehart, Jonathan A. Beck, and Kevin P. Clark , Civil Action No. C-02-4105 (BZ) (N.D. Cal.) (August 27, 2002)
+
+   SEC CHARGES THREE MORE FORMER CRITICAL PATH EXECUTIVES WITH PARTICIPATING IN FINANCIAL FRAUD 
+
+   Two of the Executives Are Also Charged with Insider Trading in Company Stock During the Fraud 
+
+  The Securities and Exchange Commission today announced new developments in its investigation of the financial fraud at Critical Path, Inc., a California company that provides e-mail services.  In a civil action filed today in the United States District Court for the Northern District of California, the Commission charged three additional former Critical Path executives with fraudulently participating in the scheme to inflate the company's revenues and earnings for fiscal 2000.  Named in the new complaint are William H. Rinehart, 38, the former head of Critical Path's North and Latin America sales forces; Jonathan A. Beck, 33, a former vice president of sales at Critical Path; and Kevin P. Clark, 37, a former regional vice president of sales at the company.   The complaint also charges Beck and Clark with insider trading in Critical Path stock during the financial fraud.  Rinehart and Clark have reached settlements with the Commission.    
+
+    Also today, the United States Attorney's Office for the Northern District of California announced criminal charges against Beck and Clark.
+
+    In April 2001, Critical Path restated its financial results for the third quarter 2000 and revised previously-announced results for the fourth quarter and full year 2000.   Earlier this year the Commission instituted and settled cease-and-desist proceedings against Critical Path (Exchange Act Release No. 34-45393) and filed a settled civil injunctive action against Critical Path's former president David A. Thatcher and a former vice president of sales, Timothy J. Ganley (Litigation Release No. 17353).  The Commission also suspended Thatcher from appearing or practicing before the Commission as an accountant (Exchange Act Release No. 45683).  
+
+    The complaint filed today alleges that during 2000 and early 2001 William Rinehart directed his sales force to arrange certain transactions for which Critical Path improperly recorded revenue of approximately $6.3 million for the fourth quarter of fiscal 2000.  Two of these transactions were fictitious.  Rinehart issued side letters that allowed a third customer, in its sole discretion, to terminate a transaction with Critical Path.    In early 2001, Rinehart signed a letter to Critical Path's auditors that stated falsely that all of the company's sales were bona fide.  Jonathan Beck participated in one of the fraudulent transactions, for which Critical Path improperly recorded revenue of approximately $2.125 million.  Kevin Clark also participated in certain of the fraudulent transactions, for which the company improperly recorded revenue totaling approximately $2.15 million.  
+
+
+
+    The Commission's complaint further alleges that Beck illegally sold 27,348 shares of Critical Path stock and Clark illegally sold 16,325 shares based on non-public information they possessed about the fraud and the company's true financial condition.  By selling shares while the fraud was underway, Beck avoided losses of $586,368 and Clark avoided losses of $343,140.  
+
+    Simultaneously with the filing of the Commission's complaint, and without admitting or denying the Commission's allegations, Rinehart and Clark consented to the entry of final judgments imposing the relief detailed below.
+
+    Rinehart consented to:
+
+      A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act;
+
+       Payment of a $110,000 civil penalty for his participation in the financial fraud; and 
+
+       A five-year bar from acting as an officer or director of a public company.
+   Clark consented to:
+      A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act;
+
+       Payment of $378,912 ($343,140 in disgorgement plus $35,772 prejudgment interest).
+   The Commission thanks the U.S. Attorney's Office for the Northern District of California and the Federal Bureau of Investigation for their cooperation in this matter.
+
+    The Commission's investigation in this matter is continuing.
+     
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diff --git a/raw/aaer/2002/AAER-1620.txt b/raw/aaer/2002/AAER-1620.txt
new file mode 100644
index 0000000000000000000000000000000000000000..82ec879a24dbebf63cefff5ea2795c3ee0bfc4ae
--- /dev/null
+++ b/raw/aaer/2002/AAER-1620.txt
@@ -0,0 +1,1464 @@
+
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+              James Murphy, C.P.A.
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+        James Murphy, C.P.A.
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46442 / August 30, 2002 
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1620 / August 30, 2002      
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10878
+
+        In the Matter of   
+  JAMES MURPHY, C.P.A.  
+           Respondent  
+     
+  : : : :   
+   ORDER OF SUSPENSION PURSUANT
+ TO RULE 102(e)(2) OF THE 
+ COMMISSION'S RULES OF PRACTICE      I. 
+
+    The Securities and Exchange Commission deems it appropriate to issue an order of forthwith suspension of James Murphy pursuant to Rule 102(e)(2) of the Commission's Rules of Practice [17 C.F.R. § 200.102(e)(2)]. 1 
+
+   II. 
+
+    The Commission finds that: 
+
+    1. Murphy is a certified public accountant.
+
+    2. On June 1, 2000, a judgment of conviction was entered against Murphy in  United States v. Pinez, et al , No. 97-10064-JLT, in the United States District Court for the District of Massachusetts, finding him guilty of one count of conspiracy to commit securities fraud and eight counts of securities fraud.
+
+    3. As a result of this conviction, Murphy was sentenced to 15 months imprisonment in a halfway house followed by supervised release for a period of three years and ordered to pay restitution in the amount of $149,650,000.
+
+    4.          On April 29, 2002, judgment was entered in  SEC v. Murphy, et al. , No. 00-11981-PBS, in the United States District Court for the District of Massachusetts, against Murphy (i) enjoining him from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a) and 13(b) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; (ii) prohibiting him from acting as an officer or director of a public company for 10 years; and (iii) ordering him to pay a civil penalty of $150,000 for his violations.
+
+  III.
+
+    In view of the foregoing, the Commission finds that Murphy has been convicted of a felony within the meaning of Rule 102(e)(2) of the Commission's Rules of Practice.
+
+    Accordingly, IT IS ORDERED, that James Murphy is forthwith suspended from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice.
+
+    By the Commission.
+
+     Jonathan G. Katz
+             Secretary
+    
+ ______________________________
+      1     Rule 102(e)(2) provides in pertinent part:  "Any ... person who has been convicted of a felony or a misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the Commission."    
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diff --git a/raw/aaer/2002/AAER-1621.txt b/raw/aaer/2002/AAER-1621.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9015c99cdeea41593dae7f2d918e70c3925bfead
--- /dev/null
+++ b/raw/aaer/2002/AAER-1621.txt
@@ -0,0 +1,1375 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | James Murphy, C.P.A. 
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              James Murphy, C.P.A.
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+ Litigation Release No. 17705 / August 30, 2002
+  Accounting and Auditing Enforcement Rel. 1621 / August 30, 2002
+  SEC v. James Murphy, Robert Lockwood and Gilboa Peretz, Civ. Action No. 00cv11981-PBS (D. Mass., Summary Judgment Granted on April 29, 2002); In the Matter of James Murphy, CPA, File No. 3-10878  (Order Issued on August 30, 2002)
+
+   SEC BARS JAMES MURPHY, FORMER CFO OF CENTENNIAL TECHNOLOGIES, FROM APPEARING OR PRACTICING BEFORE THE AGENCY 
+
+   IN A SEPARATE PROCEEDING, SEC OBTAINS INJUNCTION, CIVIL PENALTY OF $150,000, AND OFFICER AND DIRECTOR BAR AGAINST MURPHY 
+
+  The Securities and Exchange Commission announced today that it suspended James Murphy, pursuant to Rule 102(e)(2) of its Rules of Practice, forthwith from appearing or practicing before the agency based on his criminal conviction for securities fraud.  Murphy is the former chief financial officer of Centennial Technologies, Inc. and was criminally convicted on June 1, 2000, in the United States District Court for the District of Massachusetts of multiple felonies involving a financial fraud at the company.  Murphy's conviction resulted from his participation in a fraudulent scheme at Centennial to overstate the company's revenue, income, inventory, and fixed assets from the time of its initial public offering in April 1994 through the quarter ended December 31, 1996.
+
+  The Commission also announced today that on April 29, 2002, the Honorable Patti B. Saris of the United States District Court for the District of Massachusetts entered a summary judgment in its civil action against Murphy and enjoined him from violating and from aiding and abetting violations of the antifraud, reporting, books and records, and internal control provisions of the federal securities laws.  Judge Saris also prohibited Murphy from acting as an officer or director of a public company for ten years and ordered him to pay a civil penalty of $150,000 for his violations. 
+
+  The complaint alleged that between April 1994 and December 31, 1996, Murphy and Emanuel Pinez, Centennial's former chief executive officer, with the assistance of others, orchestrated a massive fraud which made Centennial appear significantly more successful than it was.  Among other things, they caused Centennial to recognize revenue from invalid or nonexistent sales, to include fake items in inventory, and to make false additions to fixed assets.  As a result of these improper activities, Centennial overstated its earnings for this period by approximately $40 million.  Based upon the false statements about the company's profitability, the stock price increased significantly.  It rose 451% in 1996 alone, to $55.50 a share at the end of December, making it the best-performing issue on the NYSE for year.  On February 11, 1997, upon discovery of the financial irregularities at Centennial, the company announced that Pinez had been fired and Murphy relieved of his duties. Trading was halted in the company's stock; when it resumed on February 18, 1997, the price of Centennial stock had plunged to slightly over $3 a share.  The complaint charged Murphy with violations of § 17(a) of the Securities Act, §§ 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aidingand abetting Centennial's violations of §§ 13(a), 13 (b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+  For further information, please  see  Litigation Release Nos.  16725 ,  16170 ,  15818 ,  15605 ,  15548 ,  15405 ,  15399 ,  15295 , and  15258 .
+
+     
+
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+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1622.txt b/raw/aaer/2002/AAER-1622.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1377defa8775787374203d84763a13c6d923aa5f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1622.txt
@@ -0,0 +1,1615 @@
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 46445 / August 30, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+ Release No.  1622 / August 30, 2002
+  ADMINISTRATIVE PROCEEDING 
+ File No. 3-10879
+
+            In the Matter of   
+        SCB Computer Technology, Inc., 
+        Respondent.   
+     
+  : : : : :   
+ ORDER INSTITUTING PUBLIC
+         ADMINISTRATIVE PROCEEDINGS
+ PURSUANT TO SECTION 21C
+        OF THE SECURITIES EXCHANGE
+ ACT OF 1934, MAKING FINDINGS
+         AND IMPOSING A CEASE-AND-DESIST ORDER      I.
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against SCB Computer Technology, Inc. ("SCB") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+
+
+  II.
+
+    In anticipation of the institution of these administrative proceedings, SCB has submitted an Offer of Settlement that the Commission has determined to accept.  Solely for purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing and without admitting or denying the findings set forth herein, except as to jurisdiction over it, and over the subject matter of these proceedings, which it admits, SCB consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").  The Commission has determined that it is appropriate to accept the Offer of Settlement from SCB, and accordingly is issuing this Order.
+
+  III.
+
+  Based on the respondent's offer and this order, the Commission finds the following:  1     A. RESPONDENT AND OTHER RELEVANT ENTITY 
+
+       SCB Computer Technology, Inc.  is a Tennessee corporation with principal offices in Memphis, Tennessee.  SCB provides information technology related consulting, outsourcing and staffing services, and has averaged approximately $135 million in revenue over fiscal years 1998, 1999 and 2000.  2   SCB's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and was quoted on the NASDAQ National Market System until it failed to meet certain NASDAQ listing requirements.  SCB's common stock is now quoted on the Over the Counter Bulletin Board.
+
+   The Partners Group  was an Arizona partnership acquired in 1997 by SCB.  Prior to being acquired by SCB, The Partners Group provided mainframe data processing and support services and leased and remarketed computer equipment to other companies.  After the acquisition, The Partners Group grew to provide other computer related services, including enterprise resource planning and information technology consulting. 
+
+  After the acquisition, The Partners Group operated as a stand-alone division within SCB ("SCB/Partners").  SCB hired a co-founder of The Partners Group as SCB/Partners' Chief Operating Officer and President ("SCB/Partners COO").  SCB/Partners COO was responsible for the day-to-day operations of SCB/Partners, including overseeing the accounting and finance functions of SCB/Partners.  SCB contracted with the former Senior Vice President of Finance and Administration of The Partners Group, a CPA, to provide accounting and finance services to SCB/Partners via his outsourcing accounting firm ("SCB/Partners Accountant").  SCB/Partners Accountant was responsible for daily accounting and finance functions of SCB/Partners.  
+
+   B. SUMMARY 
+
+  SCB was formed in 1976 to provide information technology services, including consulting, outsourcing and staffing.  In 1996, the company became a publicly traded company and expanded its lines of businesses when it acquired The Partners Group.  The acquisition of The Partners Group required SCB to implement an accounting system that would ensure that SCB/Partners' books and records were accurate, and that SCB/Partners' financial results, as included in the reported performance of SCB, were in conformity with GAAP.  As described in this Order, SCB failed to adopt such a system and instead allowed its own reported financial results to be rendered inaccurate through the improper accounting of SCB/Partners. 
+
+  SCB/Partners' accounting and finance functions were separate from SCB's.  At period end, SCB/Partners COO and SCB/Partners Accountant provided monthly financial statements to SCB that ostensibly reflected the financial performance of SCB/Partners.  SCB, through its CFO, uncritically accepted the contribution that SCB/Partners made to SCB's bottom-line.  SCB's CFO simply incorporated SCB/Partners' results into the reported results of SCB without taking adequate steps to ensure the validity of the financial information being supplied by SCB/Partners to SCB.  In recording the transactions of SCB/Partners, SCB/Partners COO and SCB/Partners Accountant repeatedly disregarded basic principles of GAAP in the areas of revenue recognition, lease accounting, and expense accruals.  In addition, there were inadequate controls at SCB to prevent or detect the GAAP violations perpetrated by SCB/Partners.  As a result, the books and records of SCB did not accurately reflect the results of SCB's operations.
+
+  SCB's periodic reports for fiscal years 1998, 1999, and the 1 st  quarter of fiscal year 2000, contained financial statements that overstated SCB's pre-tax net income by 10% to 53%.  As such, SCB violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+   1   IMPROPER REVENUE RECOGNITION 
+
+     1. Improper Recognition of Excess Capacity Revenue 
+
+  In 1995, The Partners Group entered into an outsourcing contract whereby The Partners Group agreed to provide another company with, among other services, information technology consulting and computer mainframe capacity.  The agreement stipulated the company would compensate The Partners Group for any use of the mainframe above and beyond a predetermined level.  By April 1998, the company had incurred $1,257,466 in excess capacity charges that remained unpaid to SCB/Partners.  
+
+  In April 1998, SCB/Partners and the company amended their existing agreement.  The amended agreement, among other things, relieved the company's obligation to pay the $1,257,466 in excess capacity charges.  Nonetheless, in the 4 th  quarter of fiscal year 1998, SCB recorded $1,257,466 in revenue related to the excess capacity charges.  As a result, SCB overstated its pre-tax income by 10% for fiscal year 1998.
+
+     2. Improper Recognition of Revenue from Backdated Contracts 
+
+  In two instances in fiscal year 1999, SCB recognized revenue on transactions for which no signed contract existed prior to the close of the quarter.  During the 3rd quarter of fiscal year 1999, SCB/Partners and a company formed by a co-founder of The Partners Group, began negotiating SCB/Partners' sale of certain schedules relating to computer hardware leases.  The contracts relating to the above mentioned proposed transactions were not created or signed by both parties until the 1 st  quarter of fiscal year 2000.  Nevertheless, SCB recognized gains on these sales of approximately $1,550,000 and $1,000,000 in SCB's 3 rd  and 4 th  quarters of fiscal year 1999, respectively.   
+
+  As part of their year-end audit, SCB's independent auditor ("the Auditor") requested that SCB provide it with signed copies of the contracts.  Subsequently, SCB/Partners COO created and executed backdated contracts as of the 3 rd  and 4 th  quarters of fiscal year 1999 -- the quarters for which SCB/Partners Accountant recorded the revenue.  SCB provided the backdated contracts to the Auditor.  As a result, SCB overstated its pre-tax income by 43% and 34% for its 3 rd  quarter 1999 and its fiscal year 1999, respectively. 
+
+     3. Improper Recognition of Revenue Associated with a Contract Termination Clause 
+
+  SCB improperly recorded $300,000 in revenue associated with the early termination of an outsourcing contract with an SCB/Partners' client during the 4 th  quarter of fiscal year 1999.  A termination clause in the contract stipulated that if the client terminated the contract, SCB/Partners would nonetheless be paid any outstanding fees.  GAAP permits a company to recognize revenue pursuant to an early termination provision provided a company is not obligated to and does not perform any services related to the remaining fee revenue.  Sometime after the end of fiscal year 1999, and as part of the year-end audit for fiscal year 1999, SCB represented to the Auditor that the contract had been terminated.  To the contrary, SCB/Partners continued to provide services and receive payments from the client under the contract through at least the 1st quarter of fiscal year 2000.  The parties did not reach a termination agreement until the 2nd quarter of fiscal year 2000.  As a result, SCB overstated its pre-tax income by an additional 4% for fiscal year 1999.
+
+     4. Improper Recognition of Revenue from the Sale of Residual Lease Interest  
+
+  SCB/Partners owned a 100% interest in a lease of computer hardware.  In the 4 th  quarter of fiscal year 1999, SCB sold for $100,000 a 15% interest in the future residual value of the computer equipment covered by the lease.  At the time of the sale, SCB/Partners' interest in the residual value of the lease was approximately $587,512.  
+
+  GAAP permits a company to record a gain equal to the difference between the purchase price and proportional amount of the lease sold.  Based on the sale of a 15% interest, the gain SCB should have recorded was approximately $12,000.  However, SCB/Partners Accountant and SCB's CFO recorded a gain based on the sale of a 100% interest -- approximately $208,000.  The Auditor objected to SCB's accounting treatment during their 1999 audit and posted a related $180,000 adjustment to its statement of audit differences.  Despite the Auditor's objection, SCB did not record this adjustment in its financial statements for fiscal year 1999 on grounds of immateriality.  As a result, SCB overstated its pre-tax income by an additional 2% for fiscal year 1999.
+
+    5.  Improper Recognition of Revenue from Correction of an Accounting Error 
+
+  During the 1 st  quarter of fiscal year 2000, SCB/Partners mistakenly double-booked $637,691 in revenue related to a consulting contract with one of its clients.  GAAP requires that correction of accounting errors be recorded as prior period adjustments.  SCB/Partners discovered the mistake during the 2 nd  quarter, after the issuance of its 1 st  quarter Form 10-Q.  SCB/Partners Accountant did not make a retroactive adjustment as required by GAAP, but rather improperly recorded offsetting expenses in the 2 nd  and 3 rd  quarters sufficient to offset the amount of the error.  As a result, SCB overstated its pre-tax income by 10% for 1 st  quarter of 2000.  
+
+   D. IMPROPER LEASE ACCOUNTING 
+
+     1. Improper Lease Write-Off 
+
+  SCB/Partners owned a 100% interest in a lease of computer hardware.  SCB/Partners Accountant improperly recorded $217,143 in revenue in the 3 rd  quarter of fiscal year 1998 by writing-off the lease from SCB's books and recording as revenue the remaining lease payments.  The result was to accelerate the recognition of revenue on the lease.  GAAP prohibited SCB from writing-off the lease from the books, as no changes to the lease had occurred to justify this accounting change.  SCB/Partners Accountant knew that this accounting treatment was not recorded in compliance with GAAP.  As a result, SCB overstated its pre-tax income by 7% for 3 rd  quarter 1998.
+
+     2. Improper Lease Accounting Treatment of Unearned Income and Improper Increase in the Lease's Residual Value 
+
+  SCB/Partners owned a 100% interest in a lease of computer hardware.  In fiscal year 1999, SCB/Partners amended the lease of computer equipment and in two separate instances, improperly recorded revenue associated with the amendment.  First, in the 1 st  quarter, SCB/Partners Accountant improperly recognized $709,354 in revenue representing the balance of unearned income that was reflected in SCB/Partners' books before the lease was amended.  Under GAAP, when the lease was amended, the remaining unearned income should have been combined with the new lease as unearned income and not immediately recorded as revenue.  At the time, SCB/Partners Accountant knew that this accounting treatment was not recorded in compliance with GAAP.  
+
+  During the 2 nd  quarter of fiscal year 1999, SCB recognized $200,000 in revenue associated with the lease by increasing the residual value on the amended lease.  GAAP prohibits a company from increasing the residual value of leased assets.  At the time, SCB/Partners Accountant knew that he was improperly recording the $200,000.  
+
+  As a result, SCB overstated its pre-tax income by 32% and 8% for its 1 st  quarter of fiscal year 1999 and its fiscal year 1999, respectively. 
+
+   E. IMPROPER ACCOUNTING TREATMENT OF ACCRUED BONUSES 
+
+  At the end of SCB's 1999 fiscal year, SCB owed certain employee bonuses totaling $380,000.  SCB paid the bonuses in the 1 st  quarter of fiscal year 2000.  Consistent with GAAP, SCB should have expensed the bonuses in the period in which they were earned, which was fiscal year 1999.  Instead, SCB improperly capitalized these bonuses as prepaid commissions associated with a 44-month contract awarded to SCB/Partners in the first quarter of fiscal year 2000.
+
+  SCB's CFO and SCB/Partners Accountant did not properly record these bonuses as expenses in 1999 in order to avoid the negative impact the employee bonuses had on SCB's earnings for the fiscal year 1999.  By amortizing the bonuses over the term of this 44-month contract, SCB improperly spread out the earnings impact of the bonus payment over future periods.  As a result, SCB overstated its pre-tax income by an additional 5% for fiscal year 1999.  
+
+   F. SCB'S RESTATEMENT 
+
+  On April 14, 2000, SCB announced the formation of a special committee to investigate potential financial irregularities, and the resignation of its independent auditor.  On July 3, 2000, SCB announced that it would be restating its consolidated financial statements for the fiscal years 1998 and 1999 and the first three quarters of fiscal year 2000.  SCB's proposed restatement included corrections for the accounting irregularities described above, as well as other accounting corrections and adjustments for these periods.  3    As a result of its improper accounting, SCB filed materially false and misleading financial statements and disclosures for fiscal years 1998 and 1999 and the 1 st  quarter of fiscal year 2000.  For fiscal year 1998, SCB overstated its pre-tax income by 11%.  For fiscal year 1999, SCB overstated its pre-tax income by 53%.  In addition, for the 1 st  quarter of fiscal year 2000, SCB overstated its pre-tax income by 10%.  
+
+
+
+   G. LEGAL DISCUSSION 
+
+     1. SCB Violated the Periodic Reporting Provisions of the Exchange Act 
+
+  Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers to file annual and quarterly reports with the Commission containing current financial information and disclosure.  Forms 10-K and 10-Q require that financial statements included in the periodic reports be prepared consistent with Regulation S-X, which requires that the financial statements be presented in accordance with GAAP.  No showing of scienter is necessary to establish a violation of Section 13(a).   SEC v. Savoy Indus., Inc.  ,  587 F.2d 1149, 1167 (D.C. Cir. 1978),    cert.     denied    440 U.S. 913 (1979).  Rule 12b-20 of the Exchange Act requires that all reports filed pursuant to Section 13 contain all information necessary to ensure that the statements made are not materially misleading.
+
+    SCB reported materially inaccurate financial statements in periodic reports filed with the Commission for the fiscal periods from 1998 through the 1 st  quarter of 2000.  SCB overstated pre-tax income by 11% for its fiscal year 1998 and by 53% for its fiscal year 1999.  SCB overstated pre-tax income by 10% for its 1 st  quarter of fiscal year 2000.  These overstatements were due to improper accounting for the transactions discussed above and were material to the financial statements in which they were reported.  Accordingly, SCB violated Sections 13(a) and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+     2. SCB Violated the Record-Keeping and Internal Control Provisions of the Exchange Act 
+
+  Section 13(b)(2)(A) of the Exchange Act requires reporting companies to make and keep books, records and accounts which accurately and fairly reflect their transactions and dispositions of assets.  Section 13(b)(2)(B) requires reporting companies to devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP.  
+
+  SCB failed to maintain adequate internal accounting controls and accurate books and records.  SCB failed to maintain adequate internal accounting controls to ensure the validity of financial information supplied by SCB/Partners.  SCB/Partners COO and SCB/Partners Accountant caused SCB/Partners to record improper accounting entries as discussed above.  All of these errors were incorporated in the books and records and into the consolidated financial statements of SCB and caused them to be materially inaccurate.  Accordingly, SCB violated Sections 13(b)(2)(A) & 13(b)(2)(B) of the Exchange Act.
+
+   IV. 
+
+  In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff. 
+
+   V. 
+
+    The Commission finds that SCB Computer Technology, Inc. violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+   VI. 
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that SCB Computer Technology, Inc.:
+
+  Cease-and-desist from committing or causing any violation of, and committing or causing any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+
+   By the Commission.
+
+     Jonathan G. Katz            Secretary
+
+    
+
+ ____________________________
+      1       The findings herein are made pursuant to SCB's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding by the Commission.
+
+      2       SCB's fiscal year ends on April 30 th  each calendar year.
+
+      3       The effect of SCB's entire restatement on its pre-tax income is summarized in this chart:
+ 
+     Period    
+  Pre-Tax Income/(Loss) 
+  As Reported  
+  Pre-Tax Income Overstatement/ (Understatement)  
+  Percentage Overstatement/ (Understatement)      Quarter Ended: 
+ 
+  
+ 
+  
+ 
+  
+    January 31, 2000
+ 
+ ($6,536,104)
+ 
+ ($687,697)
+ 
+ (11%)
+    October 31, 1999
+ 
+ 2,323,663
+ 
+ (144,047)
+ 
+ (6%)
+    July 31, 1999
+ 
+ 3,670,570
+ 
+ (310,918)
+ 
+ (8%)
+     Fiscal Year Ended: 
+ 
+  
+ 
+  
+ 
+  
+    April 30, 1999
+ 
+ 7,552,246
+ 
+ 5,610,018
+ 
+ 74%
+    April 30, 1998
+ 
+ 12,500,626
+ 
+ 2,511,098
+ 
+ 20%
+       
+
+ 
+  
+      
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diff --git a/raw/aaer/2002/AAER-1623.txt b/raw/aaer/2002/AAER-1623.txt
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+     SEC.gov | Albert Dunlap et al. 
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+  Securities and Exchange Commission v. Albert Dunlap et al. , Civil Action No. 01-8437-CIV (Middlebrooks)(S.D. Fla.) 
+ 
+The former Chairman and CEO of Sunbeam Corporation, Albert Dunlap, and Sunbeam's former Chief Financial Officer, Russell Kersh, have consented to the entry of final judgments against them in litigation brought by the Securities and Exchange Commission in U.S. District Court for the Southern District of Florida.  Without admitting or denying the allegations in the Commission's complaint, Dunlap and Kersh agreed to the entry of judgments: (1) permanently enjoining each of them from violating the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws; (2) permanently barring each of them from serving as officers or directors of any public company, and (3) requiring Dunlap to pay a civil penalty of $500,000 and Kersh to pay a civil penalty of $200,000.  The Honorable Judge Donald Middlebrooks signed the  final judgments today. 
+ 
+According to the Commission's Complaint, Dunlap and Kersh, together with others, employed improper accounting techniques and undisclosed non-recurring transactions to misrepresent Sunbeam's results of operations.  As a result, Sunbeam's financial statements and press releases reporting 1996 year-end results, quarterly and year-end 1997 results, and first-quarter 1998 results were materially false and mis-leading.  More specifically, the Commission alleged:  
+   The illegal conduct began at year-end 1996 with the creation by Kersh and others of inappropriate accounting reserves, which increased Sun-beam's reported loss for 1996.  These  "cookie-jar" reserves were then used to inflate income in 1997, thus contributing to the false picture of a rapid turnaround in Sunbeam's financial performance.  In addition, to further boost income in 1997, Dunlap, Kersh and others caused the Company to recognize revenue for sales, including "bill and hold sales," that did not meet applicable accounting rules.  As a result, for fiscal 1997, at least $60 million of Sunbeam's reported $189 million in earnings from continuing operations before income taxes came from accounting fraud.   
+ Also in 1997, Dunlap, Kersh and others failed to disclose that Sunbeam's 1997 rev-enue growth was, in part, achieved at the expense of future results.  The Com-pany had offered discounts and other inducements to customers to sell merchan-dise immediately that otherwise would have been sold in later periods, a practice known as "channel stuffing."    
+ Sunbeam's improper accounting and chan-nel stuffing in 1997 created the prospect of diminished results in 1998.  In early 1998, Dunlap, Kersh and others took increasingly desperate measures to conceal the Company's mounting financial problems.  They again caused Sunbeam to recognize revenue for sales that did not meet the applicable accounting rules and to engage in accel-eration of sales revenue from later periods, and, further, misrepresented or caused the Company to misrepresent its per-formance and future prospects in its filing on Form 10-Q for the first quarter of 1998, its offering materials in connection with a bond offering, its press releases, and in communications with analysts. 
+  
+The consent judgments permanently bar Dunlap and Kersh from serving as an officer or director of a public company, require them to pay civil monetary penalties of $500,000 and $200,000, respectively, and enjoin Dunlap and Kersh from violating or aiding and abetting violations of the anti-fraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder), the reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder), and the books and records and internal controls provisions (Sections 13(b)(2)(A), 13(b)(2)(B) and (with respect to Kersh) 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder). 
+ 
+Dunlap paid $15,000,000 and Kersh $250,000 out of their own funds to settle a related class action.  Neither Dunlap nor Kersh sold Sunbeam stock or received performance-based bonuses during the relevant period. 
+ 
+The Commission's action against three other former officers of Sunbeam, Robert J. Gluck, Donald R. Uzzi and Lee B. Griffith, and against Phillip Harlow, the audit partner on the Arthur Andersen engage-ments to audit Sunbeam's 1996, 1997 and 1998 year-end financial statements, remains pending.  Trial is scheduled for January 2003. 
+ 
+ See also   Lit. Release No. 17001  (May 15, 2001). 
+ 
+     SEC Complaint in this matter  
+-->
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+ LITIGATION RELEASE No. 17708 / September 4, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT REL. NO. 1624
+  ALL DEFENDANTS' MOTIONS TO DISMISS DENIED IN DISTRICT COURT ACTION AGAINST CPA'S
+   SEC v. Buettner, et al. , Civil Action No. 01-CV-3898 (E.D. Pa.)  
+
+  The Securities and Exchange Commission ("Commission") announced today that on August 30, 2002, the United States District Court for the Eastern District of Pennsylvania denied the motions to dismiss of defendants William F. Buettner, Mark D. Kirstein and Amy S. Frazier in this litigation.
+  The Commission filed the complaint at issue in August 2001, charging the three senior Coopers & Lybrand, LLP (now PricewaterhouseCoopers, LLP) certified public accountants with securities fraud in connection with their audit of the consolidated financial statements of Allegheny Health, Education and Research Foundation ("AHERF") for the year ending June 30, 1997.  
+  In October 2001, each defendant filed a motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b), claiming that the Commission failed to adequately plead fraud against the defendants under either the Private Securities Litigation Reform Act ("PSLRA") or Fed. R. Civ. P. 9(b).  Frazier and Kirstein further sought to dismiss on the grounds that the Commission's alternative allegations that Frazier and Kirstein aided and abetted Buettner in the fraud were insufficient as a matter of law.  
+  In a two-page order, Senior Judge Norma L. Shapiro denied the defendants' motions to dismiss, finding that:
+      The heightened pleading requirements of the PSLRA do not apply to actions brought by the SEC;
+     The Commission's 112-paragraph Complaint satisfies the relevant requirements of Fed. R. Civ. P. 9(b) to plead fraud with particularity with respect to defendants Buettner, Kirstein, and Frazier; and
+     The Commission adequately pled scienter against each defendant.
+   Senior Judge Shapiro deferred ruling on certain issues concerning the allegations against Kirstein and Frazier for aiding and abetting liability, stating: "[a]djudication of this question will benefit from development of the record through discovery."  
+
+  The Commission's complaint alleges that defendants Buettner, Kirstein and  Frazier, respectively the engagement partner, senior manager, and manager on the 1997 audit, actively participated in a fraudulent scheme by AHERF, at its height the largest nonprofit healthcare organization in Pennsylvania, to mask its deteriorating financial condition. In so doing, the defendants participated in the creation and issuance of, and failed to correct, unqualified audit opinions on AHERF's 1997 consolidated financial statements and AHERF's 1997 supplementary consolidating and combining financial information. For its fiscal year 1997, AHERF reported net income when, in reality, it was operating with a substantial net loss.  The complaint charges defendant Buettner  with violating, and defendants  Kirstein and Frazier  with violating or aiding and abetting Buettner's  violations of, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctive relief and an order requiring the defendants to pay civil penalties.
+      See   SEC v. William F. Buettner, Mark D. Kirstein and Amy S. Frazier , Litigation Rel. No. 17083; Accounting and Auditing Enforcement Release No. 1431 (Aug. 1, 2001);  In the Matter of Charles P. Morrison, CPA , SEC Litigation Rel. No. 16885, Accounting and Auditing Enforcement Rel. No. 1365 (Jan. 1, 2001);  In the Matter of Allegheny Health, Education and Research Foundation , Exchange Act Rel. No.42992 (June 30, 2000);  SECv. David W. McConnell and Charles P. Morrison , SEC Litigation Rel. No. 16534, Accounting and Auditing Enforcement Rel No. 1254 (May 2, 2000);  In the Matter of Albert Adamczak, CPA , Exchange Act Rel. No. 42743 (May 2, 2000);  In the Matter of Stephen H. Spargo, CPA , Exchange Act Rel. No. 42742 (May 2, 2000).
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diff --git a/raw/aaer/2002/AAER-1625.txt b/raw/aaer/2002/AAER-1625.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7faecae503fce5ca95e3628a41320c690df28f39
--- /dev/null
+++ b/raw/aaer/2002/AAER-1625.txt
@@ -0,0 +1,1370 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
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+     SEC.gov | Shoreline Development Company, Todd J. Taylor, Derek K. Gradwell, Paul A. Barrios III, Dennis P. O'Connell, Jr., Epic Consulting Services, Inc., Coastal Resources, Inc., Northstar Acquisitions and Holdings, Inc., Shoreline Holdings and Acquisitions, Inc. and Spartan Consulting, Inc. 
+     
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+              Shoreline Development Company, Todd J. Taylor, Derek K. Gradwell, Paul A. Barrios III, Dennis P. O'Connell, Jr., Epic Consulting Services, Inc., Coastal Resources, Inc., Northstar Acquisitions and Holdings, Inc., Shoreline Holdings and Acquisitions, Inc. and Spartan Consulting, Inc.
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Shoreline Development Company, Todd J. Taylor, Derek K. Gradwell, Paul A. Barrios III, Dennis P. O'Connell, Jr., Epic Consulting Services, Inc., Coastal Resources, Inc., Northstar Acquisitions and Holdings, Inc., Shoreline Holdings and Acquisitions, Inc. and Spartan Consulting, Inc.
+       
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+
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+    
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+
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+             
+                        
+             
+ 
+On September 6, 2002, the Securities and Exchange Commission obtained a preliminary injunction in a $3.8 million securities fraud scheme run by Shoreline Development Company and four individuals. 
+ 
+The Commission's complaint alleges that since 2000, the defendants fraudulently misused over $3.8 million from investors, purportedly for investments in oil and gas wells.  The defendants include: Shoreline Development Co., a Delaware company, headquartered in Costa Mesa, California; Todd J. Taylor, 36; Derek K. Gradwell, 29; Paul A. Barrios III, 40; and Dennis P. O'Connell, 47, all of Orange County, California.  Taylor and Barrios are repeat securities law violators.  In 1999, in a prior case brought by the Commission, Taylor was ordered by a federal district court not to sell securities without registering with the Commission as a broker-dealer.  In 2000, Barrios was the subject of a cease-and-desist order issued by the Commission suspending him for twelve months from association with any broker or dealer.  
+ 
+In its complaint, the Commission alleges that during the offering, Shoreline, Taylor and Gradwell made misrepresentations about the performance of Shoreline's wells, a purported business relationship with El Paso Field Services, and their use of investor funds.  These defendants concealed their misappropriation from investors of more than $1.2 million to pay for lavish vacations, a wedding and honeymoon, a vacation home, gambling debts, customized motorcycles and other luxury items. 
+ 
+The United States District Court for the Central District of California (1) granted the Commission's application for a preliminary injunction and appointment of a permanent receiver over Shoreline; (2) continued an asset freeze against the defendants; (3) prohibited the destruction of documents; and (4) ordered accountings.   
+ 
+The Commission obtained an order preliminarily enjoining Shoreline, Taylor and Gradwell from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Court's order also preliminarily enjoins Shoreline, Taylor, Gradwell, Barrios and O'Connell from violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act.  The Court's order also preliminarily enjoins O'Connell and Barrios from committing violations of the broker-dealer registration provisions of Section 15(a) of the Exchange Act.  
+ 
+Furthermore, the Commission also obtained an order preliminarily freezing the assets of relief defendants Epic Consulting Services; Coastal Resources, Inc.; Northstar Acquisitions and Holdings, Inc.; Shoreline Holdings and Acquisitions, Inc.; and Spartan Consulting, Inc., who together received more than $1.3 million in cash from Shoreline during the scheme.  The Commission seeks a final judgment against these relief defendants, ordering them to return all related earnings. The Commission does not allege that these relief defendants violated the securities laws, but rather that they received proceeds from the fraud. 
+ 
+In addition to the preliminary relief granted on September 6, 2002, the Commission seeks a final judgment against all the defendants permanently enjoining them from future violations of the securities and broker-dealer registration provisions, as well as the antifraud provisions, ordering the defendants to disgorge all ill-gotten gains, and assessing civil penalties against them. 
+ 
+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1626.txt b/raw/aaer/2002/AAER-1626.txt
new file mode 100644
index 0000000000000000000000000000000000000000..84a615c16c7e44e2d96cfd153ce22c4a11d955a9
--- /dev/null
+++ b/raw/aaer/2002/AAER-1626.txt
@@ -0,0 +1,1393 @@
+
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+              Donne Corporation, Sherman S. Smith, Shawn Smith, and Bruce Anderson
+           
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+        Donne Corporation, Sherman S. Smith, Shawn Smith, and Bruce Anderson
+       
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+
+ Litigation Release No. 17719 / September 11, 2002 
+
+ Accounting and Auditing Enforcement Release No. 1626 / September 11, 2002 
+
+ Securities and Exchange Commission v. Donne Corporation, Sherman S. Smith, Shawn Smith, and Bruce Anderson (Case No. C 02-04238 SC) (N.D. Cal.) 
+
+ SEC Charges Church Consulting Company and Its Chairman, CEO and CFO with Affinity Fraud Ponzi Scheme 
+
+ Criminal Authorities Also Indict Chairman for Mail, Wire and Securities Fraud and Money Laundering 
+
+ The Securities and Exchange Commission today filed civil charges against Donne Corporation and its founder and officers for perpetrating an affinity fraud in a Ponzi-like investment scheme.  Affinity fraud refers to investment scams that prey on members of identifiable groups such as religious, ethnic and racial groups.  The promoters of these scams are group members or claim to be group members.  The  Commission's complaint  alleges that, from January 1998 through January 2001, the defendants targeted religious individuals and raised approximately $4 million through the unregistered and fraudulent sale of Donne stock.   
+
+ The defendants are: 
+
+  Donne Corporation, a suspended California-based corporation with offices in Napa, California and Brandon, Florida, which was a consulting business for churches to raise money for building improvements and expansions.   
+
+ Sherman S. Smith, 56, of Napa, California, Donne's founder and chairman.  Sherman Smith was registered with the State of California as an investment adviser.  In addition, he is a Baptist minister and has lectured throughout the country on church and personal finances.   
+
+ Shawn Smith, 30, of Napa, California, Donne's former chief financial officer.  Shawn Smith, who is Sherman Smith's son, maintained Donne's bank accounts and business records.   
+
+ Bruce Anderson, 46, of Tampa, Florida, Donne's former president and chief executive officer.  Anderson oversaw Donne's business activities.  Anderson consented, without admitting or denying the allegations in the complaint, to the entry of a permanent injunction and payment of $15,000 in civil penalties and disgorgement.   Also today, the United States Attorney's Office for the Northern District of California announced that Sherman Smith was indicted by a federal grand jury on mail, wire and securities fraud and money laundering charges.  The indictment also seeks the forfeiture of Smith's money laundering proceeds, including his house located in Lexington, Kentucky.  The criminal indictment is based on the same conduct alleged in the Commission's complaint. 
+
+ According to the Commission's complaint, filed in federal court in San Francisco, the defendants operated a Ponzi-like investment scheme through Donne.  Sherman Smith solicited religious individuals, whom he had met through his work as a pastor and investment adviser, by making false and misleading statements about Donne's financial status, projected earnings and investment returns, and use of investor funds.  The complaint further alleges that Anderson and Shawn Smith prepared false and misleading information about Donne's business and financial condition that was distributed to investors.  The complaint also alleges that some Donne investors were promised and paid a guaranteed return of 12% per year on their investment.  However, the defendants, without investors' knowledge, used the proceeds from Donne's sales of stock to new investors to pay investment returns to existing investors. 
+
+ The Commission's complaint alleges that the defendants misrepresented that:  
+
+  Donne was a profitable business and a safe investment, when in fact Donne consistently operated at a loss and did not have enough assets to cover its expenses and liabilities;   
+
+ Donne stock was increasing in value and would be "revalued" from $10 to $30 per share by the end of 2000, when in fact there was never any reasonable basis for the stock's valuation; and   
+
+ Donne would use investor funds for its operational expenses, when in fact about $1.8 million of investor funds was used for undisclosed purposes unrelated to Donne's business, including building Smith's home in Kentucky, producing a movie, and paying Smith's personal and unrelated business debts.   The Commission charged Donne, Sherman Smith, Shawn Smith and Anderson with violating the registration and antifraud provisions of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and the antifraud provisions of Section 10(b) and Rule 10b-5 thereunder of the Securities Exchange Act of 1934.  Sherman Smith is also being charged with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. 
+
+ The complaint seeks permanent injunctions against Donne, Sherman Smith, Shawn Smith and Anderson.  It also seeks civil penalties and disgorgement from Sherman Smith, Shawn Smith and Anderson, and an order barring Sherman Smith from serving as an officer or director of a public company.  Simultaneous with the filing of the complaint, Anderson settled with the Commission.  He consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining him from future violations of the registration and antifraud provisions of the federal securities laws and ordering him to pay a total of $15,000 in civil penalties and disgorgement. 
+
+ The Commission acknowledges the assistance and cooperation of the Federal Bureau of Investigation and the United States Attorney's Office for the Northern District of California in connection with this matter. 
+
+     SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2002/AAER-1627.txt b/raw/aaer/2002/AAER-1627.txt
new file mode 100644
index 0000000000000000000000000000000000000000..208a9d5d41c40d9bc5ab308965461c539e466e5a
--- /dev/null
+++ b/raw/aaer/2002/AAER-1627.txt
@@ -0,0 +1,1407 @@
+
+
+ 
+ 
+   
+     
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+ 
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+     SEC.gov | L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick 
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+           
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+             
+        L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick
+       
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+
+ Litigation Release No. 17722 / September 12, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No. 1627 / September 12, 2002 
+
+ TYCO Former Executives L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick Sued for Fraud 
+
+ All Three Charged with Failure to Disclose Millions of Dollars of Low Interest and Interest-Free Loans They Received from the Company During Their Employment at Tyco  
+
+ Kozlowski and Swartz Alleged to Have Forgiven Without Proper Authorization, Tens of Millions of Dollars of Their Own Loans and Entered Into Other Secret Transactions with the Company 
+
+  Securities and Exchange Commission v. L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick , Civil Action No. 02 CV 7312 
+
+ The Securities and Exchange Commission today filed a civil enforcement action against three former top executives of Tyco International Ltd. charging that they violated the federal securities laws by failing to disclose to shareholders the multi-million dollar low interest and interest-free loans they took from the company.  L. Dennis Kozlowski, the former chief executive officer and chairman of Tyco's board of directors, and Mark H. Swartz, the former chief financial officer and a director, granted themselves hundreds of millions of dollars in secret low interest and interest-free loans from the company that they used for personal expenses.  They then covertly caused the company to forgive tens of millions of dollars of those outstanding loans, again without disclosure to investors as required by the federal securities laws.  In addition, they engaged in other undisclosed related party transactions that cost shareholders hundreds of thousands, if not millions of dollars.  Mark A. Belnick, the former chief legal officer, failed to disclose the receipt of more than $14 million of interest-free loans from the company to acquire two residences, an apartment in New York City and a $10 million home in Park City, Utah, where he already owned another home.  Kozlowski, Swartz and Belnick also sold their shares of Tyco stock valued at millions of dollars while their self-dealing remained undisclosed.   
+
+ The Commission seeks a final judgment ordering the defendants to disgorge all ill-gotten gains, imposing civil money penalties, and enjoining the defendants from future violations of the federal securities laws.  In the cases of Kozlowski and Swartz, this includes (i) disgorgement of all compensation they received subsequent to their fraudulent acts and omissions, including salary, bonuses, stock options and grants and any advances that have not been repaid; (ii) all loans not properly repaid by them to Tyco; (iii) interest imputed at market rates on all low interest or interest-free loans that they should have disclosed to investors; (iv) all losses avoided from their sales of Tyco securities subsequent to their fraudulent acts and omissions; (v) prejudgment interest on the amounts disgorged; (vi) civil money penalties; (vii) orders barring them from ever again serving as officers or directors of a publicly-held company; and (viii) an order enjoining them from violating the antifraud, proxy, reporting, books and records and lying to auditor provisions of the federal securities laws.  
+
+ In the case of Belnick, the Commission seeks (i) disgorgement of all loans not properly repaid by him to Tyco; (ii) interest imputed on all low interest or interest-free loans that he should have disclosed to investors; (iii) all losses avoided from his sales of Tyco securities subsequent to his fraudulent acts and omissions at market rates; (iv) all rent payments that he received from Tyco for the home office he maintained in the Utah residence; (v) prejudgment interest on the amounts disgorged; (vi) civil money penalties; (vii) an order barring him from ever again serving as an officer or director of a publicly-held company; and (viii) an order enjoining him from violating the antifraud, proxy and reporting provisions of the federal securities laws. 
+
+ Specifically, the Commission's Complaint alleges, among other things: 
+
+ The secret loans: 
+
+  From 1997 to 2002, Kozlowski took an aggregate of approximately $270 million dollars from Tyco's Key Employee Corporate Loan Program (the "KELP"), a program established to encourage employees to own Tyco shares.  KELP loans were intended to be used to pay taxes due as a result of the vesting of ownership of shares granted under Tyco's restricted share ownership plan.  Kozlowski disregarded the purpose of the program by borrowing at least $270 million but using only about $29 million to cover taxes due as a result of the vesting of his restricted shares of the company.  He used the remaining $242 million of supposed KELP loans for personal expenses, including yachts, fine art, estate jewelry, luxury apartments and vacation estates, personal business ventures and investments, all unrelated to Tyco.  These loans were not disclosed to shareholders, contrary to the requirements of the federal securities laws.   
+
+ During the same period, Swartz took an aggregate of approximately $85 million of KELP loans but used only $13 million for taxes and spent the remaining $72 million for personal investments, business ventures, real estate holdings and trusts.  These loans were not disclosed to shareholders, contrary to the requirements of the federal securities laws.   
+
+ From 1996 to 2002, Kozlowski took more than $46 million in interest-free relocation loans intended to assist Tyco employees who were required to relocate from New Hampshire to New York, when Tyco moved its corporate offices from New Hampshire to New York City, and, subsequently, to assist Tyco employees who were required to relocate to Boca Raton, Florida when Tyco moved its U.S. operations there.  Kozlowski used at least $28 million of those relocation loans to purchase, among other things, luxury properties in New Hampshire, Nantucket and Connecticut as well as a $7 million Park Avenue apartment for his then (now former) wife.  These loans were not disclosed to shareholders, contrary to the requirements of the federal securities laws.   
+
+ Swartz took more than $32 million of interest-free relocation loans.  Swartz used almost $9 million of relocation loans for unauthorized purposes, including purchasing a yacht and investing in real estate. These loans were not disclosed to shareholders, contrary to the requirements of the federal securities laws.   
+
+ Belnick took an aggregate of approximately $14 million in undisclosed, interest-free relocation loans.  In 1998, when Belnick joined Tyco, he took a $4 million relocation loan to purchase an apartment in New York City on Central Park West even though he had never worked at Tyco headquarters in New Hampshire, a requirement of the program, and already owned a house in Westchester County, a suburb just outside of New York City.  In September of 2001, he took a $10 million relocation loan to purchase a house in the Park City, Utah ski resort, even though Tyco did not have a corporate presence in Utah and despite the fact that Belnick already owned a $2 million dollar home in Park City.   The undisclosed compensation: 
+
+  In August of 1999, Kozlowski authorized, and Swartz caused to be recorded in Tyco's books and records, a $25,000,000 loan forgiveness against Kozlowski's outstanding KELP balance and a $12,500,000 credit against Swartz's outstanding KELP balance.  This executive compensation was never disclosed, contrary to the requirements of the federal securities laws.   
+
+ In September of 2000, Kozlowski engineered the covert forgiveness of more than $33 million of his relocation loans and more than $16 million of Swartz's relocation loans.  To keep these payments secret, each promised not to disclose this compensation "to anyone other than [his] financial, tax or legal advisors."  In addition, Kozlowski, together with Swartz, directed others to falsify Tyco's books and records to bury this secret compensation by offsetting the cost of the relocation loan forgiveness against the gain from an unrelated initial public offering of a Tyco subsidiary.   
+
+ In November of 2000, Kozlowski and Swartz engineered another program for their benefit (and for the benefit of other favored employees) in the form of a cash bonus, Tyco stock, and forgiveness of relocation loans.  Kozlowski and Swartz covered up these transactions In addition, Kozlowski and Swartz directed others to falsify Tyco's books and records to bury this secret compensation by offsetting the costs against an unrelated gain realized on the disposal of a Tyco subsidiary. This executive compensation was never disclosed, contrary to the requirements of the federal securities laws.   
+
+ In June of 2001, Kozlowski and Swartz directed the acceleration of the vesting of Tyco stock for the benefit of themselves and certain other favored employees.  As a result, Kozlowski and Swartz realized profits of approximately $8,000,000 and $4,000,000, respectively.  Kozlowski and Swartz once again directed others to falsify Tyco's books and records to bury this secret compensation by offsetting the cost against an unrelated gain on the sale of common stock of a Tyco subsidiary.  This executive compensation was never disclosed as part of Kozlowski's and Swartz's executive compensation, contrary to the requirements of the federal securities laws.   
+
+ Kozlowski and Swartz enjoyed numerous and extensive undisclosed perquisites that they bestowed upon themselves, all at the expense of Tyco shareholders.  For example, Kozlowski lived rent-free in a $31 million Fifth Avenue apartment that Tyco purchased in his name while Swartz lived rent-free in a multi-million dollar apartment Tyco purchased in his name on New York City's Upper East Side.  Both used Tyco corporate jets for personal use at little or no cost.  Moreover, Kozlowski directed millions of dollars of charitable contributions in his own name using Tyco funds.  This executive compensation was not disclosed to shareholders, contrary to the requirements of the federal securities laws   Undisclosed related-party transactions 
+
+  Kozlowski and Swartz also engaged in undisclosed real estate transactions with Tyco and its subsidiaries.  These include Kozlowski's purchase from Tyco (with funds borrowed under the KELP) of the $7 million Park Avenue apartment for his wife and a subsidiary of Tyco's purchase of Swartz's New Hampshire property for far more than its fair market value.  These transactions were not disclosed to shareholders, contrary to the requirements of the federal securities laws.   Fraudulent stock trading 
+
+  Kozlowski and Swartz, while preventing disclosure to shareholders and potential investors of the material facts concerning their self-dealing and fraudulent loans as set forth above, sold millions of dollars of Tyco stock back to Tyco itself through Tyco subsidiaries located in offshore bank-secrecy jurisdictions.  Swartz also sold stock on the open market through family partnerships.   
+
+ Belnick, while preventing disclosure of  material information to shareholders and potential investors concerning loans he took from the company as set forth above, sold millions of dollars of Tyco stock on the open market.   The Commission's Complaint alleges that defendants violated or aided and abetted violations of the anti-fraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Exchange Act Rule 10b-5, the periodic reporting provisions (Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-1), the proxy provisions (Section 14(a) of the Exchange Act and Exchange Act Rule 14a-9) and (with respect to Kozlowski and Swartz only) the books and records, internal controls, and lying to auditors provisions (Sections 13(b)(2)(A) and 13(b)(5) of the Exchange Act and Exchange Act Rules 13b2-1 and 13b2-2). 
+
+ The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation of the Manhattan District Attorney and the New York City Police Department. 
+
+   SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2002/AAER-1628.txt b/raw/aaer/2002/AAER-1628.txt
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+              Stephen L. Holden, Scott Skooglund, Kuldershan S. Padda, and Stephan C. Beal
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+        Stephen L. Holden, Scott Skooglund, Kuldershan S. Padda, and Stephan C. Beal
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+ Litigation Release No.  17734 / September 18, 2002
+  Accounting and Auditing Enforcement Release No. 1628 / September 18, 2002
+   S.E.C. v. Stephen L. Holden, Scott Skooglund, Kuldershan S. Padda, and Stephan C. Beal  (U.S.D.C. N.D. Illinois, Civil Action No. 01-C-7463)
+  The United States Securities and Exchange Commission ("Commission") today announced that it had reached a settlement with Stephen L. Holden in connection with his role in a multi-million dollar accounting fraud involving Sabratek Corp, a now-bankrupt Skokie, Illinois manufacturer that developed and sold remote healthcare equipment, including infusion pumps and flush syringes and related equipment and software used in both hospital and home healthcare situations.  Holden had served as the company's Chief Financial Officer, Controller and Treasurer from August 1996 to July 1998 and its President and Treasurer from July 1998 to January 2000.  The Commission's lawsuit charged Holden and three other executives with fraudulently inflating the company's earnings during 1998 and 1999 in order to meet their previously announced quarterly projections.  In the second half of 1999, when news of Sabratek's inflated operating results began to emerge, its market capitalization declined by approximately 98%. 
+ 
+  Holden, a former resident of Deerfield, Illinois who now resides in Ohio, agreed to pay a civil penalty of $90,000.00 and also to pay disgorgement plus interest totaling $68,376, which reflect bonuses that he received during the period in which the Commission claims that Sabratek was cooking its books.  Holden also agreed to the entry of a permanent injunction barring him from future violations of anti-fraud, record-keeping, and reporting provisions of the federal securities laws, contained in from violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b-2-2 thereunder.  The court order reflecting this settlement was entered on September 13, 2002.  
+  Two of the other defendants previously settled the Commission's claims against them.  Kulderhsan S. Padda, the founder and former CEO of Sabratek, agreed to pay $125,000 in civil penalties and Stephan C. Beal, the company's Vice President of Sales, agreed to disgorge bonuses and commissions totaling $29,237 (plus prejudgment interest of $6,193) that he received during the 1998-1998 period, and to pay a civil penalty of $60,000.  Beal and Padda also agreed to the entry of the same permanent injunctions as were entered against Holden.  The only remaining defendant is Scott Skooglund, the company's former Chief Accounting Officer. 
+  In the lawsuit, the Commission alleged that the defendants engaged in a scheme to overstate Sabratek's sales and results of operation in its Form 10-K for the year 1998 and Forms 10-Q for the first three quarters of 1998 and the first quarter of 1999.  During those years, Padda was Sabratek's chief executive officer and chairman of the board; Holden was at first Sabratek's chief financial officer, controller, and treasurer and then later its president and treasurer; Beal was Sabratek's vice president of sales; and Skooglund was Sabratek's vice president of finance and chief accounting officer.
+  According to the Commission's complaint, Sabratek's pump and flush syringe businesses were the company's two primary sources of sales.  Prior to 1998, Sabratek capitalized on strong demand for pumps from large institutional customers to increase its sales.  In 1998, however, Sabratek faced first slowing demand for its pumps and later an FDA demand that the company stop selling its flush syringes.  The Commission alleged that despite these adverse developments, Padda and Holden told analysts that Sabratek's sales would continue to grow in 1988.  Based on Padda and Holden's representations, analysts projected that Sabratek's net sales would grow by as much as $23 million in 1998.
+  The Commission charged that to meet these forecasts, from the first quarter of 1998 through the first quarter of 1999 the defendants recognized numerous large, end-of-the-quarter transactions that did not qualify as sales under Generally Accepted Accounting Principles ("GAAP").  In some instances, the defendants allegedly created fictitious sales of pumps that had not been ordered by customers, but instead were parked at third-party warehouses.  In other instances, they allegedly entered into sales agreements containing consignment or right-of-return provisions.  In still other instances, they allegedly agreed to significant seller's obligations, including promises that Sabratek's sales force would assist Sabratek's customers in the resale of these pumps to end-users.
+  The Commission also alleged that throughout 1998 and the first quarter of 1999, the defendants inflated Sabratek's sales by billing another company a total of $4.5 million for "consulting services" that Sabratek executives in fact largely never provided.  
+  The Commission alleged that over the five quarters from the first quarter of 1998 through the first quarter of 1999, Sabratek, through the defendants' actions, overstated net sales by $30.7 million, or more than 60%.  The Commission also alleges that through the defendants' actions, Sabratek reported total operating income of $10.3 million, when in fact had experienced an operating loss of $8 million over the five quarters in question.
+  The Commission's complaint also charged that in press releases and the MD&A sections of Sabratek's periodic reports filed during 1998 and early 1999, Padda and Holden touted the company's sales growth without disclosing that the sales growth had been achieved through the fraudulent "consulting services" billings and through special inducements and concessions, including extended payment terms, consignment arrangements, rights of return, and other significant seller's obligations.
+  According to the complaint, in the second half of 1999, when news of Sabratek's inflated operating results began to emerge, the company's market capitalization declined by $202.5 million, or 98%.  On December 17, 1999, Sabratek filed a petition to reorganize under Chapter 11 of the Bankruptcy Code.
+  In related proceedings, the Commission issued an administrative order against Paul Jurewicz, who had replaced Holden as Chief Financial Officer of Sabratek in 1998 after Holden was promoted to President.  That order directs Jurewicz to cease and desist from committing or causing any violation or any future violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder, and to pay disgorgement of $14,838 and prejudgment interest thereon of $2,718.  For more information regarding the administrative proceeding against Jurewicz, see Admin. Rel. No. 3-10591.
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diff --git a/raw/aaer/2002/AAER-1629.txt b/raw/aaer/2002/AAER-1629.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4bc5b33351b31d149931e30af3d8f4e03d053539
--- /dev/null
+++ b/raw/aaer/2002/AAER-1629.txt
@@ -0,0 +1,1384 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Motorcar Parts and Accessories, Inc. and Peter Bromberg 
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Motorcar Parts and Accessories, Inc. and Peter Bromberg
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+        Motorcar Parts and Accessories, Inc. and Peter Bromberg
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+ Litigation Release No.  17736  / September 19, 2002
+  Accounting and Auditing Release No. 1629 / September 19, 2002
+   SEC v. MOTORCAR PARTS & ACCESSORIES, INC. AND PETER BROMBERG  (U.S. District Court for the Central District of California, Civil Action No. CV02-7269 DT (SHx))
+   COMMISSION FILES FINANCIAL FRAUD CASE AGAINST SOUTHERN CALIFORNIA MANUFACTURER AND ITS FORMER CFO; FORMER CFO ALSO AGREES TO PLEAD GUILTY IN ACTION BROUGHT BY UNITED STATES ATTORNEY'S OFFICE 
+  The Securities and Exchange Commission and the United States Attorney's Office for the Central District of California announced today the filing of civil and criminal charges in Los Angeles against Peter Bromberg, the former CFO of Motorcar Parts and Accessories, Inc., and civil charges against Motorcar, alleging financial fraud.  Motorcar settled the Commission's action without admitting or denying the complaint's allegations.
+  The Commission's complaint and the Justice Department's criminal charges allege that Bromberg engaged in fraudulent accounting practices and falsified Motorcar's books and records, thereby causing Motorcar to issue false and misleading financial information to the investing public.  The Commission's complaint alleges that Motorcar and Bromberg overstated the company's pre-tax earnings for fiscal year 1997 by $3,391,000 (59.8%) and for fiscal year 1998 by $3,576,000 (49.6%), that the overstated earnings figures were reported to the public in Motorcar's annual reports on Form 10-K filed with the Commission for the fiscal years ended March 31, 1997 and 1998, and that Motorcar included its false 1997 financial statements in a registration statement filed with the Commission in October 1997, for an offering that raised $19.8 million.  
+  In a criminal information filed today against Bromberg, the United States Attorney's Office alleges that Bromberg knowingly made false and misleading statements about Motorcar's financial condition and performance in its 1997 and 1998 Forms 10-K.  Bromberg has agreed to plead guilty to these charges, which are based on fraudulent conduct similar to that described in the SEC's civil complaint.  
+  The two defendants are:
+       Motorcar Parts and Accessories, Inc. , a public company based in Torrance, California, which remanufactures automotive alternators and starters.  During 1997 and 1998, Motorcar stock was traded on Nasdaq.  Motorcar's stock was delisted by Nasdaq in 1999 and now trades on the over-the-counter market (symbol: MPAA).
+      Peter Bromberg , 38, a resident of Wellington, Florida.  Bromberg was Motorcar's CFO from 1994 until he resigned in May 1999.  He is a Certified Public Accountant, licensed in New York.
+   The criminal and civil charges against Motorcar and Bromberg focus on how Motorcar accounted for and credited customers for returned parts.  Motorcar's remanufacturing business starts when customers return used alternators and starters, called "cores."  Motorcar gives its customers credit for the returned cores, but does not issue these credits to the customers until after Motorcar checks the cores in to its inventory.  Because there was a delay in checking returned product in to inventory and processing the related credits, Motorcar's policy was to establish reserves for credits due to its customers.  The effect of this reserve on Motorcar's financial statements was to reduce its earnings.  The Commission alleges that Motorcar and Bromberg committed financial fraud through two schemes relating to returned cores and customer credits: 
+
+   
+      Motorcar delayed processing of product returns by not checking them in to inventory.  Motorcar had a significant number of product returns from its customers, and it should have either checked them in to inventory or set up a reserve for them.  Instead, Motorcar and Bromberg hid these returns from Motorcar's independent auditors by shipping them in trailers to offsite storage.  After the audit, Motorcar and Bromberg allowed the returns to be checked in to inventory.
+     Motorcar and Bromberg understated the reserve for returns and delayed issuing credits to its customers.  Motorcar and Bromberg prepared false schedules for Motorcar's independent auditors by deleting returns from these schedules, which were used to support the reserve that was established for unprocessed credits.  Motorcar and Bromberg delayed processing customer credits until after the audit.  As a result, Motorcar and Bromberg concealed the true amount of the reserve from Motorcar's auditors.
+   Finally, the Commission's complaint alleges that in April 1999, Bromberg improperly reversed $544,000 of accounts payable that Motorcar had properly recorded in the fourth quarter of fiscal 1999.  Bromberg allegedly reversed the accounts payable to enhance the company's earnings.  Motorcar did not issue any financial statements that included these improperly reversed amounts.  In 1999, Motorcar notified the Commission of a report from its independent auditors indicating that an illegal act had or may have occurred.    
+  The Commission charged Motorcar and Bromberg with violating or aiding and abetting violations of numerous provisions of the federal securities laws, including the antifraud provisions (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder), reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder), record-keeping provisions (Section 13(b)(2)(A) of the Exchange Act, and additionally as to Bromberg, Rule 13b2-1 thereunder), internal controls provisions (Section 13(b)(2)(B) of the Exchange Act, and additionally as to Bromberg, Section 13(b)(5) of the Exchange Act), and that Bromberg also violated the lying-to- the-auditors provisions (Rule 13b2-2 under the Exchange Act).
+  Simultaneously with the filing of the complaint in the United States District Court for the Central District of California, Motorcar settled the Commission's action without admitting or denying the complaint's allegations.  Motorcar agreed not to commit future violations of the charged federal securities laws.  As to Bromberg, the Commission seeks a permanent injunction, an order barring him from serving as an officer or director of a public company, disgorgement of ill-gotten gains, and civil penalties.
+  In the related criminal case, Bromberg has agreed to plead guilty to a two-count information charging him with making false statements in two Form 10-K reports that were filed with the Commission.  In a plea agreement filed this morning, Bromberg admitted that he directed Motorcar employees to engage in fraudulent accounting practices and to falsify Motorcar's books and records, thereby causing false and misleading statements to be made to the investing public about Motorcar's revenues and income.  Bromberg's plea results from conduct similar to that alleged in the Commission's complaint.
+  This case is the product of an investigation by the Securities and Exchange Commission, the United States Attorney's Office in Los Angeles, the Federal Bureau of Investigation, and the U.S. Postal Inspection Service.  The Commission's investigation is continuing.
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diff --git a/raw/aaer/2002/AAER-1630.txt b/raw/aaer/2002/AAER-1630.txt
new file mode 100644
index 0000000000000000000000000000000000000000..15b647bb355a853f15e41543fdec9ecead0de6f2
--- /dev/null
+++ b/raw/aaer/2002/AAER-1630.txt
@@ -0,0 +1,1371 @@
+
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+ 
+ 
+   
+     
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+     SEC.gov | Asthma Disease Management, Inc., George H. Young, Richard A. Manini, Richard B. Anderson, and Colleen Erin Kelly Bishop 
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Asthma Disease Management, Inc., George H. Young, Richard A. Manini, Richard B. Anderson, and Colleen Erin Kelly Bishop
+           
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+        Asthma Disease Management, Inc., George H. Young, Richard A. Manini, Richard B. Anderson, and Colleen Erin Kelly Bishop
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+ Litigation Release No. 17739 /September 24, 2002
+  Accounting and Auditing Enforcement Release No. 1630 / September 24, 2002
+  SECURITIES AND EXCHANGE COMMISSION v. ASTHMA DISEASE MANAGEMENT, INC., GEORGE H. YOUNG, RICHARD A. MANINI, RICHARD B. ANDERSON, AND COLLEEN ERIN KELLY BISHOP, Civil Action No. 02-CV-7436 CW (E.D.Pa.)
+  SEC BRINGS FRAUD CHARGES AGAINST ASTHMA DISEASE MANAGEMENT, INC., ITS FORMER PRINCIPALS AND ITS FORMER AUDITOR
+  The Securities and Exchange Commission ("Commission") filed a civil fraud suit against Asthma Disease Management, Inc. ("ADMI"), George H. Young of Leesburg, New Jersey (ADMI's former President, CEO and Chairman of the Board), Richard A. Manini of Harleysville, Pennsylvania (a former director of ADMI) and Richard B. Anderson of Reno, Nevada (one of ADMI's current directors), in connection with their involvement in a fraudulent marketing scheme to inflate the price and increase the sale of ADMI securities.  Also named in the complaint is ADMI's former independent auditor, Colleen Erin Kelly Bishop of Canyon Lake, California, for her role in aiding and abetting the fraud.
+  ADMI was headquartered in Berlin, New Jersey until February 2001, when it ceased operating its allergy testing and physician training services.  The Commission previously suspended trading in ADMI securities because of concerns about the accuracy and adequacy of publicly disseminated information concerning, among other things, purported contracts between ADMI and three HMOs.  The false and misleading information relating to these purported contracts is one of the subjects of the current complaint.   See  Exchange Act Release No. 34-42763 (May 8, 2000).
+  In its complaint, the Commission alleges that:
+      In February and March 2000, ADMI, Young and Anderson issued false and misleading press releases, claiming ADMI had obtained contracts with three HMOs to provide physician training for asthma treatment services when no such contracts existed.      Anderson personally benefited from his role in the dissemination of the false press releases by selling 93,000 shares of ADMI stock for $59,973 when the market price was artificially inflated by the false information in the press releases.      ADMI and Young fraudulently inflated its assets by at least 70% in Commission filings.  In its Forms 10-K for the fiscal years ended May 31, 1998 and May 31, 
+     1999 and in its Forms 10-Q for the quarters ended August 31, 1998 and November 30, 1999, ADMI disseminated false and misleading information concerning the financial health of the company by including on its balance sheet a $500,000 litigation receivable in violation of Generally Accepted Accounting Principles ("GAAP").  In fact, ADMI had never filed a lawsuit seeking to recover these monies.  ADMI's former independent auditor, Bishop, aided and abetted ADMI's and Young's fraudulent inflation of ADMI's assets.      ADMI and Young also fraudulently omitted material information from ADMI's 1998 and 1999 Forms 10-K regarding compensation paid to Young and commissions paid to Manini.  ADMI issued millions of shares of SDMI stock to Young in lieu of salary and paid commissions to Manini in the form of cash and ADMI shares, for selling ADMI stock, none of which was disclosed.      As a result of ADMI's dissemination of false and misleading information, ADMI, Young, Manini and Anderson were able to sell millions of shares of unregistered ADMI stock to at least 100 investors in eight different states.  During ADMI's fiscal year ended May 31, 2000, they raised $1.3 million from investors and used it to pay operating expenses of the company.      In addition, Young and Manini misappropriated and converted for the personal use at least $260,000 of investor funds from the sales of ADMI stock.      Manini violated the registration requirements for broker-dealers by selling ADMI stock when he was not registered with the Commission as a broker or affiliated with a registered broker-dealer.    In sum, the complaint charges that defendants ADMI, Young, Manini and Anderson violated the registration and antifraud provisions of the federal securities laws, namely, Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.  Defendant Bishop is charged with aiding and abetting ADMI's and Young's primary violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  In addition, the complaint alleges that ADMI violated - and that Young and Bishop aided and abetted ADMI's violations of - the reporting provisions set forth in Section 15(d) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13.  Finally, the complaint alleges that Manini also violated the broker-dealer registration provisions of Section 15(a) of the Exchange Act.
+  The Commission seeks permanent injunctions against all defendants, as well as disgorgement, prejudgment interest and civil penalties from Young, Manini and Anderson; and civil penalties from Bishop.  The Commission also seeks to bar Young, Manini and Anderson from serving as officers or directors of any public company.
+  In a related matter, the Commission simultaneously instituted and settled cease-and-desist proceedings against Martin P. Jostwick of Palmetto, Florida, for touting ADMI securities on the Internet's Raging Bull Message Board.   See  Securities Act Release No. 33-8133.
+
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+       SEC Complaint  in this matter.   
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diff --git a/raw/aaer/2002/AAER-1631.txt b/raw/aaer/2002/AAER-1631.txt
new file mode 100644
index 0000000000000000000000000000000000000000..370a6e91eec4188b683965e062e11fdcc197c480
--- /dev/null
+++ b/raw/aaer/2002/AAER-1631.txt
@@ -0,0 +1,1650 @@
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+ Securities Act of 1933 
+Release No. 8134 / September 24, 2002 
+
+ Securities Exchange Act Of 1934 
+Release No. 46537 / September 24, 2002 
+
+ Accounting And Auditing Enforcement 
+Release No. 1631 / September 24, 2002 
+
+ Administrative Proceeding 
+File No.   3-10897 
+
+     In the Matter of 
+
+ Dynegy Inc., 
+
+ Respondent. 
+  
+ : : : : : : : : : 
+ 
+ ORDER INSTITUTING 
+PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES 
+ACT OF 1933 AND SECTION 21C OF 
+THE SECURITIES EXCHANGE ACT 
+OF 1934, MAKING FINDINGS AND 
+IMPOSING A CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate to institute cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 (the "Securities Act") and Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") against Dynegy Inc. ("Dynegy" or "Respondent"). 
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Dynegy has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept.  Solely for the purpose of these proceedings or any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings contained herein, except that Dynegy admits the Commission's jurisdiction over it and over the subject matter of these proceedings, Dynegy consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order.   III. 
+Findings 
+
+ On the basis of this Order and Respondent's Offer, the Commission makes the following findings:  1   
+
+ A. Respondent 
+
+  Dynegy  is an Illinois corporation headquartered in Houston, Texas.  Dynegy's shares are registered with the Commission under Section 12(b) of the Exchange Act and trade on the New York Stock Exchange under the symbol DYN.  Dynegy produces and delivers energy, including natural gas, electricity, natural gas liquids and coal, to customers in North America, the United Kingdom and Continental Europe.  In addition to energy production and delivery, energy trading is a key component of Dynegy's business. 
+
+ B. Other Relevant Entities 
+
+  ABG Gas Supply LLC  ("ABG Supply") is a Delaware limited liability company headquartered in New York, New York.  It is a special-purpose entity sponsored by Dynegy.  Dynegy has no direct or indirect ownership interest in ABG Supply, nor is Dynegy affiliated with any of ABG Supply's owners. 
+
+  ABG Holding LLC  ("ABG Holding") is a Delaware limited liability company.  It is the immediate parent company of ABG Supply.  ABG Holding is a special-purpose entity sponsored by a member of the syndicate of lenders involved in Alpha.  Dynegy has no ownership interest in ABG Holding. 
+
+  NGAI Funding LLC  ("NGAI Funding") is a Delaware limited liability company headquartered in San Francisco, California.  NGAI Funding is a special-purpose entity sponsored by Dynegy.  Dynegy has no ownership interest in NGAI Funding.  
+
+  DMT Supply LP  ("DMT Supply") is a Delaware limited partnership and is a wholly-owned subsidiary of Dynegy. 
+
+ C. Facts 
+
+ 1. Introduction 
+
+ This matter involves Dynegy's materially misleading (i) use of special-purpose entities ("SPEs") and (ii) pre-arranged, "wash" or "round-trip" energy transactions.  First, in a series of transactions code-named "Project Alpha" ("Alpha"), Dynegy used SPEs to report as cash flow from operations what was in actuality nothing more than a loan.  Specifically, Dynegy implemented Alpha to enhance cash flow from operations by $300 million in 2001, and to achieve an Alpha-linked $79 million tax benefit.  Dynegy failed to disclose the financing transactions underlying Alpha, and failed to otherwise clarify that the $300 million Alpha-related cash flow enhancing Dynegy's 2001 Statement of Cash Flows derived from financing, not operations.  These omissions by Dynegy were materially misleading.  Moreover, even when Dynegy admitted Alpha's existence following an April 3, 2002 newspaper article, Dynegy's then - now former - Chief Financial Officer ("CFO") claimed falsely that Alpha's primary purpose was to ensure a stable supply of gas, and Dynegy continued to assert that its obtaining a long-term gas supply was a principal purpose of Alpha.  It was not until Dynegy filed its Form 8-K that Dynegy acknowledged that Alpha's principal purposes were to minimize the gap between Dynegy's reported net income and reported operating cash flow and to realize an associated tax benefit.  Dynegy then announced that it would reverse Alpha's impact by restating its 2001 financial statements. 
+
+ According to Dynegy, the restatement will include, at least, the following: 1) reclassification of the cash flow associated with Alpha as deriving from financing activities, rather than operations - reducing, as a consequence, Dynegy's cash flow from operations in 2001 by 37%; 2) consolidation in Dynegy's financial statements of a certain SPE with Dynegy; and 3) reduction of Dynegy's 2001 net income by 12% - the amount of the purported $79 million tax benefit. Alpha's impact on Dynegy's financial statements was especially significant because the Statement of Cash Flows has historically been considered immune from cosmetic tampering.   
+
+ Second, Dynegy issued materially misleading information to the investing public about the amount of trading on its electronic trading platform, Dynegy direct . On November 15, 2001, Dynegy entered into two massive "round-trip" electricity transactions - simultaneous, pre-arranged buy-sell trades at the same price, terms and volume, in which neither Dynegy nor its trading counterparty earned a profit or incurred a loss.  In a January 2002 press release, Dynegy included the volume from one of these trades in a discussion of an increase in trading traffic on Dynegy direct .  Information in this press release was included in a February 19, 2002 prospectus supplement of Dynegy Holdings Inc ("Dynegy Holdings").  In an April 2002 press release, Dynegy included the results of these trades in its reported energy trading volume and in its first quarter 2002 revenues and cost of sales.  Copies of the textual portion of this press release were e-mailed to Dynegy's employees, who were offerees pursuant to an ongoing registration statement with the Commission.  In both instances, Dynegy failed to disclose that the resulting increases were materially attributable to the round-trip trades.  Because the round-trip trades lack economic substance, Dynegy's press releases were materially misleading. 
+
+ Background 
+
+ 2. Dynegy's Business, Mark-to-Market Accounting and the Growing Disparity between Dynegy's Net Income and Operating Cash Flow 
+
+ Energy trading is a prominent part of Dynegy's business.  Accounting rules require Dynegy and other energy traders to record today the value of contracts for the future delivery of gas, electricity and other commodities.  2    Under this "mark-to-market" accounting, the total contract values are recorded as assets (or liabilities) on the balance sheet.  Likewise, an increase (decrease) in a contract's value is recorded as unrealized gain (loss) and reflected as net income on the income statement, even though it generates no current cash flow. 
+
+ By 2000, some energy analysts following Dynegy had noticed the widening gap between Dynegy's net income and operating cash flow.  Some analysts viewed this widening gap as possible evidence that Dynegy's energy contracts were overvalued, and that Dynegy's liquidity and access to capital were potentially impaired. 
+
+ Dynegy's Use of Special Purpose Entities 
+
+ 3. Project Alpha 
+
+ a. Dynegy Entered into Project Alpha to Reduce the Growing Disparity between Dynegy's Net Income and Operating Cash Flow and to Reap a Tax Benefit 
+
+ In late 2000, Dynegy began exploring means of narrowing the gap between its net income and operating cash flow.  After months of high-level discussion, meetings and document exchanges among Dynegy's independent auditor-consultant ("auditor-consultant") and other outside consultants, Alpha emerged as the chosen strategy for accomplishing Dynegy's purpose of narrowing that gap, while at the same time securing for Dynegy an Alpha-linked tax benefit.  In its final form, Alpha embodied both a basis-shifting tax structure marketed to Dynegy by its auditor-consultant, and a "pre-paid" natural gas transaction.  Internal Dynegy documents make clear that one of Alpha's principal purposes was to address the "disconnect . . . between book and cash earnings" and to improve "quality of earnings" -  i.e. , to create the appearance that Dynegy's operations were generating far more cash than they actually were.  In 2001, Dynegy recorded $300 million in operating cash flow from Alpha. The $300 million was 37% of Dynegy's reported cash flow from operations in 2001.  In addition, through Alpha, Dynegy recorded a tax savings in 2001 of $79 million, or 12% of its net income. 
+
+ The lengths to which Dynegy went to reap Alpha's accounting and tax benefits are best conveyed by Alpha's inordinate complexity and its $35.8 million cost.  Alpha can be conceptualized as a flow-through matrix involving two SPEs, three interconnected loans, a gas purchase agreement, hedging transactions, and a transfer of basis and intended tax benefit.  The first Alpha "loan" was effected through a capital contribution made by an SPE, NGAI Funding, to a limited partnership, DMT Supply - a trading partnership established to conduct natural gas trades with another SPE, ABG Supply.  NGAI Funding received in return for its capital contribution a 99%, 9-month term limited partnership interest in DMT Supply; Dynegy held a 1% general partnership and remainder interest in DMT Supply.  NGAI Funding borrowed $310 million from a syndicate of lenders and, of that amount, contributed $307 million to DMT Supply's capitalization. By making the $307 million capital contribution to DMT Supply, NGAI Funding created $307 million in initial tax basis. 
+
+ The second Alpha "loan" was from DMT Supply to Dynegy in the amount of $300 million and payable by Dynegy upon demand of DMT Supply.  When NGAI Funding's interest in the partnership expired at the end of the first nine months of the Alpha transaction, its $307 million tax basis migrated to a wholly-owned subsidiary of Dynegy as the sole limited partner with the remainder interest in DMT Supply.  Through this tax basis shift, Dynegy planned to save $79 million in taxes and increase its net income by an equal amount in 2001.  Under this second loan arrangement, Dynegy is required to repay the "demand" loan to DMT Supply - noting however, that by that time, DMT Supply will be wholly owned by Dynegy.     
+
+ In the gas purchase portion of Alpha, ABG Supply entered into a five-year trading contract (the "Gas Contract") with DMT Supply, commencing in April 2001.  The purchase price of the gas under the Gas Contract was 86% variable and 14% fixed.  Under the Gas Contract, DMT Supply bought natural gas from ABG Supply at below-market prices for the first nine months of the Gas Contract - for re-sale by DMT Supply on the open market at a profit.  ABG Supply borrowed from various lenders (the third Alpha loan) to fund the losses it would incur over these first nine months of the Gas Contract.  3   
+
+ DMT Supply allocated 99% of the profits generated during the first nine months of the Gas Contract to NGAI Funding and distributed cash of approximately $300 million to NGAI Funding, thereby enabling NGAI Funding to repay a portion of its loan payable to the syndicate of lenders.  After this initial nine-month period, NGAI Funding ceased to hold an interest in DMT Supply, and Dynegy became DMT Supply's sole owner.  For the remaining 51 months of the Gas Contract, DMT Supply will pay ABG Supply above-market prices for gas, incurring losses.  4    As owner of DMT Supply, Dynegy will incur the losses generated during the latter 51 months of the Gas Contract.   
+
+ Dynegy's classification of Alpha's $300 million cash flow as operations-based was materially misleading: in essence, the $300 million transaction was a loan to Dynegy, not the result of Dynegy's operations.  Moreover, Dynegy's classification of the $300 million as cash flow from operations was inconsistent with generally accepted accounting principles ("GAAP") ( see  Section III.C.3.c. of this Order). 
+
+ b. Dynegy Failed to Disclose Alpha and the Financing Nature of the Alpha-Related Cash Flow 
+
+ Alpha reduced by a significant amount the gap between Dynegy's net income and operational cash flow, thereby concealing from the investing public the true extent of this gap.  Furthermore, Dynegy failed to disclose the true financing nature of the $300 million Alpha-related cash flow, which Dynegy could have done by disclosing the complex financing transactions underlying Alpha.  Instead of making this disclosure, Dynegy made no reference to the underlying transactions in its second and third quarter 2001 Forms 10-Q or its 2001 Form 10-K, even though Alpha fell outside Dynegy's normal course of business.  5   
+
+ Alpha first came to light on April 3, 2002, in a newspaper article critical of the transaction.  On April 9, 2002, Dynegy posted on its website a misleading letter to the "investment community" from its then - now former - CFO.  In the letter, the CFO asserted that Dynegy had not entered into "any questionable transactions" although he acknowledged that Dynegy had executed Alpha.  He further stated in the letter that a former Dynegy employee, who had disclosed Alpha to the press, had "seriously mischaracterized both the nature and disclosure of the transaction."  Also misleading was the CFO's statement in the letter that the "primary purpose" of Alpha was "to secure [a] long-term natural gas supply."  The statement was false: Alpha's primary purpose, as Dynegy was aware, was to enhance Dynegy's cash flow from operations and provide an Alpha-linked tax benefit.  The letter was removed from Dynegy's website within two days of its posting. 
+
+ c. Dynegy's Accounting for Project Alpha does not Conform to GAAP 
+
+ i. According to FAS 95, Alpha's Cash Flow Derived from Financing Activities, not Dynegy's Operations 
+
+ The substance of Alpha was a $300 million loan to Dynegy.  That loan was funded indirectly through contractually assured profits on the resale of gas at below-market prices in the first nine months of the Gas Contract.  Dynegy's promise to repay the loan was embedded in its promise to pay above-market prices for the remaining term of the Gas Contract.  Consequently, under Financial Accounting Standard 95 ("FAS 95"), the cash flow associated with Alpha should have been classified as cash flow from financing activities - not operations.  Where certain cash receipts and payments may have aspects of different types of cash flow, "the appropriate classification shall depend on the activity that is likely to be the  predominant  source of cash flow for the item."  (FAS 95, ¶ 24, emphasis added).   
+
+ ii. An Alpha Special Purpose Entity Violated GAAP 
+
+ Dynegy's treatment of the Alpha cash flow as operating cash flow did not conform to GAAP for an additional reason: the equity investment in the SPE, ABG Supply, by its owners did not meet the requisite minimal exposure to the "substantive risks and rewards of ownership" during the entire term of the Gas Contract between ABG Supply and DMT Supply.  Accounting guidelines state that independent owners of an SPE must make a substantive capital investment in the SPE, and that a prescribed minimum portion of the investment must demonstrate the substantive risks and rewards of ownership during the entire term of the transaction.  This  minimum  is 3% of the total capital invested in the SPE, but the appropriate level for any particular SPE depends on the prevailing facts and circumstances.  Investments are not at risk if they are supported by a letter of credit or other form of guaranty on the initial investment or have a guaranteed return.  6    Rather than maintain the requisite 3% risk exposure, the owners of ABG Supply avoided all commodity price risk using hedging transactions entered into by ABG Supply or ABG Holding with a member of the lending syndicate.  As a result, ABG Supply should have been consolidated in Dynegy's financial statements, and the $300 million loan to ABG Supply - covering its initial losses under the Gas Contract - should have been reflected by Dynegy, on a consolidated basis, as cash flow from financing.   
+
+ Dynegy's auditor-consultant instructed Dynegy that improper hedging of the risk to the equity investment in ABG Supply would require consolidation of ABG Supply with Dynegy, requiring Dynegy to classify the Alpha-related cash flow as financing.  Dynegy knew, or was reckless in not knowing, that its presentation of its financial statements - without consolidating ABG Supply - was not in conformity with GAAP.  In April 2001, in connection with closing on Alpha, Dynegy obtained a letter from its auditor-consultant, pursuant to Statement on Auditing Standards 50 (the "SAS 50 letter").  In the SAS 50 letter, the auditor-consultant states that, based on specified assumptions, Dynegy's accounting for Alpha was in conformity with GAAP.  One of these express assumptions was that ABG Supply would engage in certain hedging activities, but those hedging activities would not exceed the 3% limit.  In paragraph 8 of the SAS 50 letter, the auditor-consultant states: 
+
+ It is anticipated that ABG [ABG Supply] will enter into certain hedging transactions to minimize ABG's exposure to future price risk, consisting of fixed price and interest rate swaps.   The unhedged fixed price exposure is in an amount sufficient to refute an assertion that ABG is a `special purpose entity lacking economic substance...'      
+
+SAS 50 letter, ¶ 8 (emphasis added). 
+
+ Certain representatives of Dynegy knew that the ABG Supply owners' equity-at-risk never reached the requisite minimum 3% threshold - due to hedging activity by the owners.  7    Internal Dynegy documents show that certain representatives of Dynegy were aware, as early as April 2001- when Alpha closed - that the residual 3% equity investment in ABG Supply would not be at risk because of the ABG Holding hedge.  Dynegy has acknowledged that it  expected  that this hedge would occur because the ABG Supply owners, as sophisticated investors, would not expose their investment to undue risk by failing to hedge.  Moreover, Dynegy knew, based on the SAS 50 letter, that it had a duty to retain sufficient equity at risk within ABG Supply, that it would have the burden of proving that fact, and that it would have to consolidate ABG Supply if at least 3% of its owners' equity did not remain "at risk" over the course of the Gas Contract.  As stated in the SAS 50 letter: 
+
+ The [Emerging Issues Task Force]  8   believed that transactions would include documentation that would enable the lessee (in the transaction, DMT Partnership) to determine the lessor (in the Transaction, the equity investors in NGAI Funding and ABG) had maintained its minimum equity capital at risk.   The SEC thus placed the burden of proving the presence of initial and continuing equity squarely upon the sponsor of the SPE, such as DMT Partnership in this Transaction.    
+
+SAS 50 letter, p. 10 (emphasis added). 
+
+ In spite of the SAS 50 letter, Dynegy took no action to ensure that the equity investors did not hedge their minimum equity risk.  Certain representatives of Dynegy knew that ABG Supply or its parent hedged its full exposure under the Gas Contract.  Therefore, consistent with the SAS 50 letter, Dynegy should have consolidated ABG Supply in Dynegy's financial statements.  If ABG Supply had been consolidated, its $300 million borrowing from the lender to cover the below-market sale of natural gas to DMT Supply in the first nine months of the Gas Contract would not have been recorded as operating cash flow, but rather, as cash flow from financing.  In addition, there would have been accompanying changes to Dynegy's balance sheet and income statement. 
+
+ iii. Dynegy Failed to Disclose the True Basis of the Alpha-Linked $79 Million Tax Benefit 
+
+ Dynegy did not adequately disclose to the investing public the basis for its increasing in its financial statements its net income in 2001 by $79 million.  In conjunction with the SAS 50 letter, the auditor-consultant issued to Dynegy a tax opinion, dated April 6, 2001, regarding a large tax benefit associated with Alpha.  The Internal Revenue Service requires that structured tax transactions, at a minimum, have some non-tax business justification.  According to the tax opinion, Dynegy's desired  accounting treatment  of the Alpha cash flow - as flowing from operations, as opposed to financing - constituted the primary non-tax business justification for Alpha.  Consequently, when Dynegy publicly disclosed that it would restate its 2001 cash flow statement to reflect the Alpha cash flow as financing, rather than operating cash flow, the auditor-consultant withdrew its tax opinion.  As a result, Dynegy announced that it would restate its 2001 income statement to eliminate the previously reported tax savings of $79 million, reducing Dynegy's 2001 net income by 12%, but that it would continue to report its original tax position to the Internal Revenue Service. 
+
+ Dynegy's Round-Trip Transactions 
+
+ 4. Dynegy Misled Investors by Reporting Revenue, and Volume on its Dynegy direct  Platform, Resulting from Undisclosed Round-Trip Transactions 
+
+ Dynegy also overstated in public disclosures the amount of trading on its electronic trading platform, Dynegy direct .  9    On November 15, 2001, Dynegy entered into two massive round-trip trades of electricity with another energy trading company on Dynegy direct .  The round-trip trades, in which Dynegy simultaneously bought and sold power at the same price, terms and volume, resulted in neither profit nor loss to either transacting party.  10    Dynegy conducted the trades on Dynegy direct , which Dynegy was developing with an eye toward its potential for rapid growth.   
+
+ The two round-trip trades - the largest power trades, by volume, that Dynegy had ever conducted on Dynegy direct  - required for their execution that Dynegy override the platform's normal volume limits.  The trades involved the simultaneous purchase and sale of 5000 megawatts of on-peak electricity at $34/mwh for calendar year 2002, and the simultaneous purchase and sale of 15,000 megawatts of on-peak electricity at $25.50 for December 2001 (a combined total of over 25 million megawatt hours of electricity).   
+
+ Dynegy understood that the round-trip trades were not part of its ordinary business operations.  Although Dynegy took some steps to ensure that the results of the round-trip trades were not publicly reported, Dynegy's failure to implement comprehensive safeguards caused Dynegy to disclose to the public certain results from its round-trip trades.  In a January 23, 2002 press release, Dynegy reported on Dynegy direct , for the fourth quarter of 2001, $13 billion in notional trading value (absolute value of all trading traffic), of which $1.7 billion was attributable to the round-trip trades.  11    Later, in an April 30, 2002 press release, Dynegy reported 89.7 million megawatt hours of electricity traded in the first quarter of 2002, of which approximately five million megawatt hours were the product of round-trip trades.  12    In that same press release, Dynegy improperly reported $236 million in revenue (and $236 million in offsetting costs) from the round-trip trades.  Dynegy's disclosures of results attributable to the round-trip transactions conveyed a false picture of Dynegy's financial status and business activity. 
+
+ IV. 
+Discussion 
+
+ A. Dynegy's Antifraud Violations: Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5, thereunder 
+
+ Section 17(a) of the Securities Act prohibits employing a fraudulent scheme or making material misrepresentations and omissions in the offer or sale of a security.  Section 10(b) of the Exchange Act and Rule 10b-5, thereunder, prohibit the same conduct, if committed in connection with the purchase or sale of securities.  To violate these provisions, the alleged misrepresentations or omitted facts must be material.  Information is deemed material upon a showing of a substantial likelihood that the omitted facts would have assumed significance in the investment deliberations of a reasonable investor.   Basic, Inc. v. Levinson , 485 U.S. 224 (1988). 
+
+ Establishing violations of Section 17(a)(1) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder requires a showing of  scienter .   Aaron v. SEC , 446 U.S. 680 (1980).  However, actions pursuant to Sections 17(a)(2) and 17(a)(3) of the Securities Act do not require such a showing.   Id.    Scienter  is the "mental state embracing intent to deceive, manipulate or defraud."   Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 (1976).  The Fifth Circuit Court of Appeals has held that  scienter  is established by a showing that the defendants acted intentionally or with severe recklessness.   See   Broad v. Rockwell International Corp ., 642 F.2d 929 (5th Cir.) ( en banc ),  cert. denied , 454 U.S. 965 (1981).    
+
+ Dynegy violated the antifraud provisions of the Securities Act and the Exchange Act.  13    As demonstrated in this Order's findings, Alpha was an undisclosed, highly complex transaction that incorrectly reported Dynegy's true cash position and dramatically overstated Dynegy's cash flow from operations -- in violation of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  In addition, as a result of inadequate internal controls, Dynegy negligently disclosed to the public material information concerning the results of the round-trip trades, specifically, volumes and revenues, in violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act.  As a consequence of Alpha's impact on Dynegy's financial statements, Dynegy's failure to disclose the financing transactions underlying Alpha, and the negligent disclosure of the results of the round-trip trades, Dynegy materially misrepresented its financial performance.  There is a substantial likelihood that these false representations and associated omissions would have assumed actual significance in the investment deliberations of a reasonable investor by casting doubt on Dynegy's financial position, credit-worthiness and management team.  
+
+ Dynegy's false accounting treatment and inadequate disclosure of Alpha would have violated the antifraud provisions, even if Alpha had technically conformed to GAAP - which it did not.  As the Fourth Circuit pointed out in  Malone v. Microdyne Corp. : 
+
+ The Financial Accounting Standards of GAAP and the antifraud rules promulgated under § 10(b) of the 1934 Act serve similar purposes, and courts have often treated violations of the former as indicative that the latter were also violated.  The prohibitions contained in GAAP and in Rule 10b-5, however, are not perfectly coextensive.  In some circumstances, courts have found defendants liable for securities fraud under Rule 10b-5 despite having complied with GAAP.   
+
+26 F.3d 471, 478 (4th Cir. 1994)(citations omitted). 
+
+ Consistent with  Malone , a public company cannot wield technical conformity with GAAP as a shield against substantiated charges that the underlying transaction materially misled investors.  14    Because Dynegy failed to disclose Alpha, and the financing nature of the $300 million Alpha-related cash flow Dynegy presented in its 2001 Statement of Cash Flows, Dynegy violated the antifraud provisions - notwithstanding any argument that Alpha's accounting treatment conformed to GAAP.  In fact, Alpha's accounting treatment failed to conform to GAAP in two important respects.  First, pursuant to FAS 95, the predominant characteristic of the cash flow associated with Alpha was financing, not operations.  Alpha was essentially a $300 million loan, disguised as operating cash flow.  Second, certain representatives of Dynegy knew that the equity investors did not maintain the requisite 3% minimum investment at risk in the SPE.  The improper hedging rendered Dynegy's accounting treatment of Alpha inconsistent with GAAP. 
+
+ B. Dynegy's Reporting Violations: Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder 
+
+ Section 13(a) of the Exchange Act requires issuers such as Dynegy to file periodic reports with the Commission containing such information as the Commission prescribes by rule.  Exchange Act Rule 13a-1 requires issuers to file annual reports, and Exchange Act Rule 13a-13 requires issuers to file quarterly reports.  Under Exchange Act Rule 12b-20, the reports must contain, in addition to disclosures expressly required by statute and rules, such other information as is necessary to ensure that the statements made are not, under the circumstances, materially misleading.  The obligation to file reports includes the requirement that the reports be true and correct.   United States v. Bilzerian,  926 F.2d 1285, 1298 (2d Cir.),  cert. denied , 502 U.S. 813 (1991).  The reporting provisions are violated if false and misleading reports are filed.   SEC v. Falstaff Brewing Corp.,  629 F.2d 62, 67 (D.C. Cir. 1980).   Scienter  is not an element of a Section 13(a) violation.   SEC v. Savoy Indus., Inc.,  587 F.2d 1149,1167 (D.C. Cir. 1978). 
+
+ Dynegy violated these provisions by filing second and third quarter 2001 Forms 10-Q and a 2001 Form 10-K that were false and misleading.  Dynegy's false accounting treatment of Alpha, and the absence of any clarifying disclosure of Alpha's true purpose and effect, caused the violations.  Dynegy should have treated the cash flow from Alpha as a loan and ABG Supply should have been consolidated in Dynegy's financial statements, which would have had numerous material effects on Dynegy's financial statements.  If consolidated, ABG Supply's $300 million borrowing to fund the losses during the first nine months of the Gas Contract would have been reflected as cash flow from financing activities, rather than operations, on Dynegy's Statement of Cash Flow; the liability associated with Alpha would have appeared as debt on Dynegy's Balance Sheet, rather than risk-management liability; and the 
+tax benefit would not have been available to Dynegy, meaning that Dynegy's net income would have been reduced by $79 million on Dynegy's Income Statement. 
+
+ C. Dynegy's Books and Records and Internal Controls Violations: Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act 
+
+ Section 13(b)(2)(A) of the Exchange Act requires all issuers to make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets.   Scienter  and materiality are not elements of primary violations of this provision.   SEC v. World-Wide Coin Inv., Ltd.,  567 F. Supp. 724, 749-50 (N.D. Ga. 1983).   Dynegy, through its treatment of Alpha and the round-trip energy trades, violated Section 13(b)(2)(A) by failing to keep books, records and accounts that accurately and fairly reflected its assets and financial results.    
+
+ Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain an adequate system of internal accounting controls.  Scienter  and materiality are not elements of a violation of this provision.   World-Wide Coin , 567 F. Supp. at 749-50.  Dynegy violated Section 13(b)(2)(B) by failing to devise and maintain a system of internal controls sufficient to provide reasonable assurances that structured transactions involving special purpose entities are recorded as necessary to permit preparation of financial statements in conformity with GAAP.  Dynegy violated Section 13(b)(2)(B) for the additional reason that it failed to ensure against the inclusion of results from round-trip trades in Dynegy's computation and public disclosure of its trading volume and trading revenues.  Dynegy's reporting of revenue derived from these transactions was inconsistent with GAAP.  (Statement of Financial Accounting Concepts No. 5;  see also  Staff Accounting Bulletin 101). 
+
+ D. Dynegy's Falsification of Accounting Records Violation: Exchange Act Rule 13b2-1 
+
+ Exchange Act Rule 13b2-1 (promulgated under Section 13(b)(2) of the Exchange Act) prohibits any person from falsifying or causing to be falsified any accounting books and records of reporting public companies.   Scienter  is not an element of a violation of Rule 13b2-1.   SEC v. McNulty , 137 F.3d 732 (2d Cir. 1998).  Dynegy's falsification of its books in connection with Alpha effectively disguised a loan as operating cash flow.  Dynegy's failure to maintain adequate controls caused Dynegy to falsify its books in connection with the round-trip trades, effectively inflating Dynegy's trading volume and revenues.   Both falsifications were violations of Rule 13b2-1.    
+
+ V. 
+
+ The Commission finds that Dynegy violated Section 17(a) of the Securities Act, and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder. 
+
+ VI. 
+
+ In determining to accept Dynegy's Offer, the Commission considered the events set forth in footnote 5, as well as Dynegy's cooperation in the staff's investigation.  Additionally, the Commission considered the steps Dynegy has taken to ensure its employees' compliance with Dynegy's new policy prohibiting round-trip trades, and the internal procedures Dynegy has implemented to ensure exclusion of illicit round-trip trade results from Dynegy's public disclosures regarding its business activities. 
+
+ VII. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in the Offer.  15   
+
+ Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondent Dynegy cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act, and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder; and 
+
+ IT IS HEREBY FURTHER ORDERED that Dynegy shall comply with the following undertakings in its Offer: 
+
+ 1. Dynegy shall continue cooperating with the staff of the Commission in the staff's ongoing investigation in this matter; and 
+
+ 2. Dynegy shall restate its financial statements for its fiscal year 2001 in a manner that conforms to Generally Accepted Accounting Principles, which shall include the consolidation of ABG Gas Supply LLP in Dynegy's financial statements. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary   
+
+ Endnotes 
+
+   1     The findings herein are made pursuant to Respondent's Offer and are not binding on any other person or entity in these or any other proceedings. 
+
+   2     Financial Accounting Standard 133 and EITF 98-10. 
+
+   3     Dynegy was not one of the lenders, and did not otherwise fund ABG Supply. 
+
+   4     Specifically, for the first nine months, the 86% variable component is to be at market price, minus a pre-determined discount ( i.e. , NYMEX settlement price less a Base Period Price Adjustment, as defined in the Gas Contract between DMT Supply and ABG Supply).  For the remaining 51 months, the 86% variable component is to be at market price, plus a pre-determined premium ( i.e ., NYMEX settlement price plus a Term Period Price Adjustment, as defined in the Natural Gas Purchase Agreement between DMT Supply and ABG Supply).  For all 60 months, the remaining 14% was to be at a fixed price.   
+
+   5     Dynegy disclosed Alpha's impact on its financial performance in a Form 8-K Dynegy filed with the Commission on April 25, 2002, only after the Commission staff expressed to Dynegy concerns about Alpha.  After those concerns were first raised, but before the filing of the Form 8-K, Dynegy's CFO falsely stated to the public that Alpha's "primary purpose" was to secure a long-term natural gas supply, and Dynegy continued to assert that its obtaining a long-term gas supply was a principal purpose of Alpha.  Dynegy officials did not, prior to Dynegy's filing the Form 8-K, acknowledge that Alpha's principal purposes were, in fact, to minimize the gap between Dynegy's reported net income and reported operating cash flow and to realize an associated tax benefit.  In a television interview, Dynegy's former Chief Executive Officer ("CEO") admitted that Dynegy "could have disclosed [Alpha] earlier." 
+
+   6     The Financial Accounting Standards Board is currently reviewing these guidelines and is expected to issue new guidance in the near future. 
+
+   7     The Gas Contract called for 86% of the purchase price to be contingent on the prevailing market price, and 14% fixed.  If the risks in the 14% fixed-price component were not hedged, that component would be exposed to market price volatility.  For example, during months 10-60, when DMT Supply is expected to buy at above-market prices, if natural gas prices were to rise, the unhedged portion of the 14% fixed-price component would result in increased cost to ABG Supply. 
+
+   8     The Emerging Issues Task Force ("EITF") was formed in 1984 in response to the recommendations of the Financial Accounting Standards Board's ("FASB") task force on timely financial reporting guidance and a FASB Invitation to Comment on those recommendations.  Task Force members are drawn primarily from public accounting firms, but also include representatives of various non-accounting industries. 
+
+   9     Dynegy understood that energy industry analysts use trading volume as a measure of the activity of energy trading firms; an additional volumetric measure, "notional" volume, is also used by analysts and by Dynegy to denote the total amount of "traffic" on Dynegy's electronic trading platform.  Notional volume is computed by multiplying, for a given energy transaction, the term and amount. 
+
+   10     Dynegy entered into the trades at the other party's request. 
+
+   11     The January press release's round-trip notional trading value results also appear in the "Recent Developments" section of a prospectus supplement which Dynegy Holdings, a wholly-owned subsidiary of Dynegy, filed with the Commission on February 19, 2002, in connection with a $500 million bond offering Dynegy Holdings commenced in 2000, and which closed on February 21, 2002.  Dynegy Holdings filed with the Commission Form S-3 covering its bond offering.  The February 19 filing supplements the prospectus Dynegy Holdings filed with the Commission on August 23, 2001, as part of its Form S-3 registration statement.   
+
+   12     Before, during and after both the January 2002 and April 2002 press releases, Dynegy was conducting an ongoing offering of its common stock, in connection with its employee stock option plans, pursuant to a Form S-8 registration statement filed with the Commission.  The April 30 press release included text, which contained the round-trip  volume  information, and a financial attachment, which included both the round-trip  volume  information and the round-trip  revenue  information.  Dynegy posted the complete press release (text and attachment) on its website where it was readily accessible to the general public.  Dynegy also e-mailed the textual portion of the April 30 press release to all of its employees, including participants in Dynegy's stock option plans.   
+
+   13     Dynegy's misrepresentations and omissions relating to Alpha were committed in connection with purchases and sales of Dynegy securities on the secondary market, and violated, therefore, Section 10(b) of the Exchange Act and Rule 10b-5, thereunder.  Because Dynegy's Alpha-related misrepresentations and omissions were contained in Dynegy's second and third quarter 2001 Forms 10-Q and its 2001 Form 10-K, which are incorporated by reference in the registered securities offerings Dynegy was conducting during the period, and in the Dynegy financial statements distributed in connection with those offerings, those Alpha-related misrepresentations and omissions also violated Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act. 
+
+ That the round-trip related misrepresentations and omissions in Dynegy's January 23 press release violated Sections 17(a)(2) and 17(a)(3) of the Securities Act is demonstrated by their inclusion in Dynegy Holdings' February 19 prospectus supplement.  The round-trip related misrepresentations and omissions in Dynegy's April 30 press release also violated Sections 17(a)(2) and 17(a)(3) of the Securities Act because Dynegy e-mailed the textual portion of the release to all of its employees, including participants in Dynegy's stock option plans. 
+
+   14     See, e.g., In the Matter of The PNC Financial Services Group, Inc ., 2002 SEC LEXIS 1847 (Admin Proc. File No. 3-10838, July 18, 2002);  In the Matter of Caterpillar, Inc ., 51 S.E.C. Docket 147 (Admin. Proc. File No. 3-7692, March 31, 1992). 
+
+   15     Dynegy has agreed to pay a $3 million civil penalty in connection with a parallel civil action. 
+
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+     SEC.gov | Dynegy Inc. 
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+              Dynegy Inc.
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+ Litigation Release No.  17744 / September 25, 2002 
+ ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1632 / September 25, 2002 
+
+ Securities and Exchange Commission v. Dynegy Inc. Civil Action No. H-02-3623, U.S.D.C./Southern District of Texas (Houston Division) 
+ In the Matter of Dynegy Inc. Securities Exchange Act of 1934 Release Number 34-46537 
+ SEC Settles Securities Fraud Case with Dynegy Inc. Involving SPEs and Round-Trip Energy Trades 
+ The Securities and Exchange Commission announced today that it filed a settled enforcement action against Dynegy Inc., in connection with alleged accounting improprieties and misleading statements by the Houston-based energy production, distribution and trading company.  The Commission's case arises from (i) Dynegy's improper accounting for and misleading disclosures relating to a $300 million financing transaction, known as Project Alpha, involving special-purpose entities (SPEs), and (ii) Dynegy's overstatement of its energy-trading activity resulting from "round-trip" or "wash" trades - simultaneous, pre-arranged buy-sell trades of energy with the same counter-party, at the same price and volume, and over the same term, resulting in neither profit nor loss to either transacting party. 
+ The Commission issued a settled cease-and-desist Order against Dynegy and filed a settled civil suit in the Southern District of Texas, Houston Division, seeking a $3 million penalty.  The Commission made findings in the cease-and-desist order (and alleged in the civil complaint) that Dynegy engaged in securities fraud in connection with its disclosures and accounting for Project Alpha, and negligently included materially misleading information about the round-trip energy trades in two press releases it issued in early 2002. In settlement of the Commission's enforcement action, Dynegy, without admitting or denying the Commission's findings, has agreed to the entry of the cease-and-desist order and to pay a $3 million penalty in a related civil suit filed in U.S. district court in Houston. 
+ The Commission's investigation is continuing as to others. 
+ More specifically, with respect to the action against Dynegy, the Commission's Order finds (and civil complaint alleges) as follows:  
+ Project Alpha 
+ By 2000, some energy analysts following Dynegy had noticed a widening gap between Dynegy's net income and operating cash flow.  The gap resulted from Dynegy's recognition of net income in the form of unrealized gains from net forward positions, and the fact that the net forward positions generate no current cash flow.  This treatment of unrealized gains as net income was required under "mark-to-market" accounting principles. In April of 2001, Dynegy closed on Project Alpha, a complex web of transactions involving SPEs, to boost its 2001 operating cash flow by $300 million, or 37%, and thereby reduce the gap between its net income and operating cash flow, as well as to achieve a $79 million tax benefit. 
+ Dynegy defrauded the investing public by failing to disclose in its 2001 Form 10-K the true financing, as opposed to operating, nature of the $300 million.  In reality, the $300 million was a loan masquerading as operating cash flow on Dynegy's 2001 Statement of Cash Flows.  This is particularly significant for two reasons: first, analysts view operating cash flow as a key indicator of the financial health of energy trading firms such as Dynegy; and second, historically, the Statement of Cash Flows has been considered immune from cosmetic tampering.   
+ In addition, Dynegy's accounting in its financial statements for the $300 million failed to conform to GAAP in at least two respects. Under Financial Accounting Standard 95, Dynegy should have accounted for the Alpha-related cash flow as financing, rather than operating, cash flow. Moreover, Dynegy failed to comply with the 3% at-risk requirement for SPEs.  Consequently, Dynegy overstated net income in 2001 by 12% - the amount of the purported $79 million Alpha-linked tax benefit. 
+ The Commission's Order emphasizes that public companies using off-balance sheet, special purpose entities must ensure not only that their accounting treatment complies with GAAP, but also, that they have accurately portrayed the economic realities of the transactions.  In this case, Dynegy portrayed as operating cash flow what was essentially a loan.  As a result, Dynegy investors were deceived.  
+ Round-Trip Energy Trades 
+ Dynegy issued materially misleading information to the investing public about the amount of trading on its electronic trading platform, Dynegy direct .  On November 15, 2001, Dynegy entered into two massive "round-trip" electricity transactions.  In a January 2002 press release, Dynegy included the notional trading value (multiple of volume, price and term) from one of these trades in a discussion of an increase in trading traffic on Dynegy direct .  In an April 2002 press release, Dynegy included the results of these trades in its reported energy trading volume and in its first quarter 2002 revenues and cost of sales.   
+ In both releases, Dynegy negligently failed to disclose that the resulting increases in energy trading volume, revenue and notional trading value were materially attributable to the round-trip trades.  The contents of the press releases were also used in the offer and sale of securities.  Because the round-trip trades lacked economic substance, Dynegy's statements were materially misleading to the investing public. This case is the first enforcement action resulting from an energy trading company's misleading disclosures regarding use of "round-trip" or "wash" trades. 
+ Dynegy's Conduct after Contact by Commission Staff 
+ Dynegy disclosed Alpha's impact on its financial performance in a Form 8-K that the company filed with the Commission on April 25, 2002, only after the Commission staff expressed to Dynegy concerns about Alpha.  After those concerns were first raised, but before the filing of the Form 8-K, Dynegy's former Chief Financial Officer falsely stated to the public that Alpha's "primary purpose" was to secure a long-term natural gas supply, and Dynegy continued to assert that its obtaining a long-term gas supply was a principal purpose of Alpha. Dynegy officials did not, prior to Dynegy's filing of the Form 8-K, acknowledge that Alpha's principal purposes were, in fact, to minimize the gap between Dynegy's reported net income and reported operating cash flow and to realize an associated tax benefit. 
+ ********** 
+ The $3 million penalty imposed directly against Dynegy in this case reflects the Commission's dissatisfaction with Dynegy's lack of full cooperation in the early stages of the Commission's investigation, as discussed in the Commission's Order. 
+ In assessing a penalty directly against Dynegy, the Commission was mindful of the impact that a penalty on a corporate entity can have on the entity's innocent shareholders.  The amount of the penalty here reflects the commitment of the company's present board of directors to cooperate with the Commission and certain remedial actions undertaken by the company, as well as a careful balancing by the Commission between the need to encourage full cooperation and the desire to avoid imposing the economic consequences of a penalty on shareholders.  As the Commission's investigation continues, it will consider the responsibility of and take appropriate actions against others with respect to the penalty that the company has agreed to pay. 
+ The cease-and-desist order finds (and civil complaint alleges) that Dynegy, with regard to Project Alpha, violated, committed or caused violations of Sections 17(a)(1), (2) and (3) of the Securities Act, and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1, thereunder, and with regard to round-trip trading, Sections 17(a)(2) and (3) of the Securities Act and Section 13(b)(2) of the Exchange Act and Rule 13b2-1, thereunder. 
+ 
+  SEC Complaint in this matter   
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diff --git a/raw/aaer/2002/AAER-1633.txt b/raw/aaer/2002/AAER-1633.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bbb5381d5331e9cf5579726cd299f02fcb78b7cb
--- /dev/null
+++ b/raw/aaer/2002/AAER-1633.txt
@@ -0,0 +1,1378 @@
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+ 
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+     SEC.gov | William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc.), Karen Losordo, Diane M. Trainor, Daniel J. Trainor, Geraldine Trainor and Mary N. Celentano 
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+              William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc.), Karen Losordo, Diane M. Trainor, Daniel J. Trainor, Geraldine Trainor and Mary N. Celentano
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc.), Karen Losordo, Diane M. Trainor, Daniel J. Trainor, Geraldine Trainor and Mary N. Celentano
+       
+
+             
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+
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+                   
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+    
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+
+ Litigation Release No. 17746  / September 26, 2002 
+ Accounting and Auditing Enforcement
+ Release No. 1633  / September 26, 2002 
+
+ SEC v. William P. Trainor, Vincent D. Celentano, Medical Diagnostic Products, Inc. (f/k/a Novatek International, Inc.), Karen Losordo, Diane M. Trainor, Daniel J. Trainor,  Geraldine Trainor and Mary N. Celentano , Civil Action No. 98CV01533 (EGS) (D.D.C.) 
+
+  MEDICAL DIAGNOSTIC PRODUCTS, INC.  
+  ENJOINED IN FRAUD ACTION 
+
+  The United States Securities and Exchange Commission ("Commission") today announced that on September 17, 2002, the Honorable Emmet G. Sullivan of the United States District Court for the District of Columbia entered a Final Judgment As To Medical Diagnostic Products, Inc. ("MDP") ("Final Judgment") in the above-captioned civil action.  The Commission sued MDP, a Columbia, Maryland-based company, for its role in a fraudulent scheme involving the sale and purchase of its securities.  
+
+  MDP (f/k/a Novatek International, Inc.), consented, without admitting or denying the allegations of the Commission's complaints, to entry of a Final Judgment that permanently enjoins the company from violating Sections 10(b), 13(d), and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 promulgated thereunder.
+
+  On June 18 and August 12, 1998, the Commission filed its complaint and amended complaint ("Complaints"), respectively, against MDP and others based on their participation in a fraudulent "pump and dump" scheme involving the purchase and sale of MDP securities.  MDP claimed to have the distribution rights to distribute in South America medical diagnostic test kits designed to rapidly detect the presence of infectious diseases such as cholera and HIV.  Between April 11 and September 3, 1996, MDP issued a series of false press releases announcing that it had entered into contracts, worth more than $400 million, with several South American entities for the distribution of the diagnostic test kits. According the Commission's Complaints, these contracts never existed.   
+
+  On January 10, 2002, Judge Sullivan entered an order staying the Commission's action against the remaining defendants in the Commission's case, pending the outcome of the criminal proceeding against defendant William P. Trainor.
+
+  For additional information, see Litigation Release Nos.  15786 ,   15844  and  17313 , and Securities Exchange Act of 1934 Release Nos.  40169 ,  40170  and  40171 .
+    
+
+
+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1634.txt b/raw/aaer/2002/AAER-1634.txt
new file mode 100644
index 0000000000000000000000000000000000000000..516e09859778dafb94aa13e21dd93c52dc883c42
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+++ b/raw/aaer/2002/AAER-1634.txt
@@ -0,0 +1,1374 @@
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+           
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+        Barry M. Budilov and Raymond J. Green
+       
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+
+ LITIGATION RELEASE No.  17752  / September 26, 2002 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT RELEASE No.  1634 /
+ September 26, 2002 
+
+ COMMISSION FILES FINANCIAL FRAUD ACTION AGAINST BARRY M. BUDILOV AND RAYMOND J. GREEN 
+
+  Securities and Exchange Commission v. Barry M. Budilov and Raymond J. Green  ,  Civil Action No. 02-7479 (E.D. Pa.) 
+
+ The Securities and Exchange Commission ("Commission") today filed a complaint in the United States District Court for the Eastern District of Pennsylvania against Barry M. Budilov, of Lafayette Hill, Pennsylvania, and Raymond J. Green, of Springfield, Pennsylvania.  Budilov is the former president, director, and chief executive officer of Ambassador Eyewear Group, Inc. ("Ambassador"), a now defunct eyeglass frame distributor whose stock was traded on the Chicago Stock Exchange.  Green is the former treasurer and principal financial accounting officer of Ambassador.  The Commission's complaint alleges that, from at least 1997 through at least December 1998, Budilov and Green engaged in a fraudulent scheme to artificially inflate Ambassador's assets, income and retained earnings.  As a result of the scheme, Ambassador falsely claimed, in a registration statement, annual and quarterly reports filed with the Commission and in press releases, that it was profitable when, in fact, the company had incurred substantial losses.  In addition, Ambassador overstated its assets by as much as 35 percent.
+
+  The Commission's complaint alleges that, as part of the scheme, Budilov and Green falsified Ambassador's books and records related to income, expense, accounts receivable, retained earnings, and inventory, and lied to Ambassador's auditors.  The complaint further alleges that, after others began suspecting the fraud, Budilov attempted to conceal his involvement by destroying evidence, causing others to destroy evidence, and persuading others to accept responsibility for the fraud.
+
+  The complaint charges Budilov and Green with violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder.  The complaint further charges both defendants with aiding and abetting Ambassador's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  The complaint seeks permanent injunctions, disgorgement and civil penalties, and an officer and director bar against Budilov and Green.
+    
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2002/AAER-1635.txt b/raw/aaer/2002/AAER-1635.txt
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@@ -0,0 +1,1378 @@
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+     SEC.gov | David F. Myers 
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+ Litigation Release No. 17753  / September 26, 2002
+
+  Accounting and Auditing Enforcement Release No. 1635 / September 26, 2002
+
+  SEC Charges Former WorldCom Controller Myers
+ With Participating In Multi-Billion Dollar Financial Fraud
+
+   Securities and Exchange Commission v. David F. Myers, Civil Action No. 02 CV7749  
+
+  The Securities and Exchange Commission today filed a civil enforcement action against David F. Myers, formerly the Controller and a Senior Vice President of WorldCom, Inc., and a CPA.  The Commission charges that Myers participated in a massive fraud that inflated the company's earnings at the direction and with the knowledge of WorldCom's senior management.  Also today, in connection the same conduct, Myers pled guilty to criminal charges filed by the U.S. Attorney's Office for the Southern District of New York.
+
+  The Commission's action against Myers is its second civil enforcement action related to the WorldCom fraud.  The first was filed against WorldCom, Inc. on June 27 of this year. (Litigation Release No. 17588.)  Since then, WorldCom has admitted that beginning in 1999, as a result of undisclosed and improper accounting, it materially overstated the income it reported in its financial statements by approximately $7.2 billion.  It has also filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.  
+
+  The Commission's complaint filed today against former Controller Myers alleges that in the second half of 2000, by improperly decreasing certain reserves to reduce "line costs" (expenses for accessing the networks of other telecommunications companies), Myers and others caused WorldCom to overstate pre-tax earnings by at least $1.2 billion.  Thereafter, from the first quarter 2001 through the first quarter 2002, Myers and others improperly capitalized certain line costs, which resulted in an overstatement of WorldCom's pre-tax earnings by approximately $3.8 billion.  During the same period, Myers and others, including members of senior management, made materially false or misleading statements or omissions to WorldCom's independent auditors in connection with audits and the preparation of filings with the Commission.  
+
+  For this misconduct, the complaint charges Myers with violating numerous provisions of the federal securities laws, including the antifraud, books and records, internal controls, and lying-to-auditors provisions (Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder).  It further charges him with aiding and abetting WorldCom's violations of the periodic reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a) and 13(b)(2)(A) & (B) and Rules 12b-20, 13a-1 and 13a-13 thereunder).  The Commission seeks a permanent injunction, disgorgement of all ill-gotten gains, civil money penalties, and an order barring Myers from serving as an officer or director of a public company.
+
+  The Commission acknowledges the assistance and cooperation of the U.S. Attorneys' Offices for the Southern District of New York and Southern District of Mississippi, and the Federal Bureau of Investigation.
+
+  The Commission's investigation into matters related to WorldCom's financial fraud is continuing. 
+
+   SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2002/AAER-1637.txt b/raw/aaer/2002/AAER-1637.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8d182842b081ae22a570238707f2484e855d9ef4
--- /dev/null
+++ b/raw/aaer/2002/AAER-1637.txt
@@ -0,0 +1,1722 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | FLIR Systems, 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}(); 
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+                                                                                                                                                                                                                                                                                                                                                 
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+           
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+              FLIR Systems, Inc.
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        FLIR Systems, Inc.
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+             
+
+ Securities Act of 1933 
+Release No.  8135 / September 30, 2002 
+
+ Securities Exchange Act of 1934 
+Release No.  46573 / September 30, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.  1637 / September 30, 2002 
+
+ Administrative Proceeding 
+File No.   3-10903 
+
+     In the Matter of 
+
+ FLIR Systems, Inc. 
+
+ Respondent. 
+  
+ : : : : : : : : : 
+ 
+ ORDER INSTITUTING PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS AND IMPOSING 
+CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted against FLIR Systems, Inc. ("Respondent" or "FLIR") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). 
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  1   that: 
+
+ Respondent 
+
+ 1. FLIR is an Oregon corporation headquartered in Portland, Oregon.  Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Nasdaq National Market System.  FLIR designs and manufactures thermal imaging and broadcast camera systems that detect infrared radiation.  Its customers include commercial and government users, and its products are used for environmental monitoring, search and rescue, and surveillance and reconnaissance, among other things. 
+
+ Pressure to Meet Analysts' Estimates 
+
+ 2. Throughout 1998 and 1999, FLIR's senior management established budgets and expected results for FLIR's growth, maintained sales and revenue data, and used that data to compare FLIR's actual results against both budgeted results and several analysts' estimates.  FLIR's senior management met to discuss FLIR's performance.  During these meetings, FLIR's management faced pressure to meet internal earnings projections.  In periods preceding major events at FLIR, such as public offerings, bank loan approvals, or mergers, this pressure for results was exacerbated.  To achieve expected results, FLIR engaged in improper revenue recognition practices.  Additionally, FLIR used suspense accounts to overstate assets and understate expenses, and double-booked two accounts receivables, causing earnings to be overstated in 1998.  FLIR's actual earnings per share generally met or exceeded analysts' estimates, although its revenues did not.   
+
+ 3. FLIR materially overstated its earnings before income taxes for each of the quarters of 1998 and 1999 as well as for fiscal year 1998.  FLIR's fraudulent revenue recognition practices resulted in material misstatements and omissions in FLIR's financial statements contained in periodic reports filed with the Commission on Form 10-K as originally filed for the period ended December 31, 1998, and on Form 10-Q as originally filed for the periods ending March 31, 1998, June 30, 1998, September 30, 1998, March 31, 1999, June 30, 1999, and September 30, 1999.   
+
+ 4. In 1998, FLIR reported pre-tax earnings of $411,000 in its Form 10-Q for the first quarter when FLIR actually had a loss of $325,000 for that quarter.  FLIR reported pre-tax earnings in its Forms 10-Q for the second and third quarters of 1998 that were overstated by 62% and 25%, respectively.  For the fiscal year 1998, FLIR overstated pre-tax earnings in its Form 10-K by 161%.  In 1999, FLIR also understated losses before income taxes by 11% in its Form 10-Q for the first quarter; overstated pre-tax earnings by 578% in its Form 10-Q for the second quarter; and overstated pre-tax earnings by 60% in its Form 10-Q for the third quarter.  Additionally, FLIR filed two registration statements, one in June 1998 and the other in December 1999, that incorporated and re-reported these overstatements of pre-tax earnings. 
+
+ 5. FLIR restated its 1998 and 1999 financial statements three times in 2000 and 2001 to correct these misstatements.  Since May 2000, FLIR has undertaken remedial measures and obtained new independent auditors, a new Chief Executive Officer, new Chief Financial Officer, new treasurer, and new controller and new Vice President of Sales and Marketing.  
+
+ FLIR's Improper Revenue Recognition Practices 
+
+ 6. FLIR fraudulently recognized revenue for numerous transactions in 1998 and 1999.  The table below sets forth the revenue and pre-tax earnings as reported by FLIR and as adjusted for the transactions involving improper revenue recognition. 
+
+ Originally Reported vs. Results Adjusted for Transactions that Are the Subject of this Order 
+(in thousand of dollars except for percentages) 
+
+    
+  As Originally Reported 
+ As Adjusted for Transactions 
+ Amount of Overstatement 
+ Percentage of Overstatement    1998 1st quarter 10-Q Revenue 
+Pre-tax earnings 
+
+ 27,699 
+411 
+
+ 25,963 
+
+(325) 
+ 1,736 
+
+736 
+ 7%  
+N/A      1998 2nd quarter 10-Q 
+
+   Revenue 
+
+  Pre-tax earnings 
+ 35,072 
+
+3,883 
+ 32,322 
+
+2,394 
+ 2,750 
+
+1,489 
+ 9% 
+
+62%    1998 3rd quarter 10-Q 
+
+  Revenue 
+
+  Pre-tax earnings 
+ 41,261 
+
+7,166 
+ 38,303 
+
+5,721 
+ 2,958 
+
+1,445 
+ 8% 
+
+25%    1998 10-K 
+
+  Revenue 
+
+  Pre-tax earnings 
+ 153,932 
+
+22,192 
+ 139,456 
+
+14,163 
+ 14,476 
+
+8,029 
+ 10% 
+
+57%    1999 2nd quarter 10-Q 
+
+  Revenue 
+
+  Pre-tax earnings 
+ 42,202 
+
+4,188 
+ 40,849 
+
+3,252 
+ 1,353 
+
+936 
+ 3% 
+
+29%    1999 3rd quarter 10-Q Revenue 
+
+  Pre-tax earnings 
+ 54,706 
+
+12,564 
+ 50,886 
+
+10,291 
+ 3,820 
+
+2,273 
+ 8% 
+
+22%    7. In 1998 and 1999, FLIR engaged in six improper revenue recognition practices: (1) booking false sales; (2) shipping placeholders; (3) entering into side agreements with customers providing rights of return or contingencies; (4) booking rental agreements as sales even though title to the product did not transfer to the renter; (5) recognizing revenue on sales with consignment or contingency language in the purchase orders; and (6) recognizing revenue for improper bill and hold transactions.   
+
+ False Sales 
+
+ 8. FLIR recognized $2,800,154 in revenue on four false sales as follows: 
+
+   Initial Reporting Period 
+ Amount of Transaction Improperly Recognized    2nd Qtr. 1998 Form 10-Q 
+ $630,000    3rd Qtr. 1998 Form 10-Q 
+ $900,000    3rd Qtr. 1998 Form 10-Q 
+ $215,000    1998 Form 10-K 
+ $1,055,154    9. In a transaction in the second quarter of 1998, the purported customer never submitted a purchase order, and had no intention of purchasing systems from FLIR during that quarter.  Nevertheless, FLIR recognized $630,000 in revenue based solely on management's unverified representations that a purchase order was forthcoming.  FLIR failed to reverse the sale until the commencement of the 1998 year-end audit even though the purported customer never submitted a purchase order.   
+
+ 10. Similarly, FLIR recognized revenue totaling $1,115,000 in the third quarter of 1998 based on two non-existent orders.  As with the false sale in the second quarter, in one transaction for $900,000, FLIR management made verbal representations to FLIR's finance personnel that a purchase order would be submitted the day after the quarter closed.  Based upon these representations, FLIR recognized the revenue and reported the sale.  FLIR's finance department files did not contain any purchase documentation from a customer for the $215,000 transaction.     
+
+ 11. Moreover, at year-end 1998, FLIR used a duplicate purchase order to recognize $1,055,154 in revenue.  In December 1998, FLIR received a purchase order from a customer acting on behalf of a U.S. government agency.  This purchase order had two duplicate pages attached to it.  These carbon copy pages were separated and used to create two orders - instead of the one order actually placed by the customer - and FLIR recognized revenue on both of these orders at year-end 1998.   
+
+ Placeholders 
+
+ 12. FLIR recognized revenue on eight transactions in which the configurations of the units shipped were not what the customer had ordered.  Personnel at FLIR referred to these sales as "placeholders."  FLIR frequently sent placeholders to a third-party warehouse (the "bonded warehouse") that was originally intended to store units awaiting export licenses from either the State Department or the Commerce Department.  FLIR's revenue recognition policy allowed revenue to be recognized upon shipment of the units to the bonded warehouse if the only outstanding obligation was the approval of a license for the units.  2   
+
+ 13. FLIR abused its policy by, among other things, shipping units to the bonded warehouse that differed from what the customer ordered or were not built to the customer's specifications.  FLIR recognized revenue upon shipment and then later brought the units back to rework them or replace them with units ordered by the customers.  In these instances, title had not passed to the customer, FLIR retained specific performance obligations regarding the goods, and FLIR shipped incomplete equipment.  As a result, FLIR violated generally accepted accounting principles ("GAAP") by recognizing revenue on these sales. 
+
+ 14. The following chart outlines FLIR's placeholder transactions: 
+
+   Initial Reporting Period 
+ Amount of Transaction Improperly Recognized    3rd Qtr. 1998 Form 10-Q 
+ $1,373,000    1998 Form 10-K  
+ $ 4,100,000    1998 Form 10-K 
+ $ 874,466    1998 Form 10-K 
+ $ 454,100    1998 Form 10-K 
+ $ 703,000    2nd Qtr. 1999 Form 10-Q 
+ $ 255,374    2nd Qtr. 1999 Form 10-Q 
+ $ 250,000    2nd Qtr. 1999 Form 10-Q  
+ $ 848,000    15. At year-end 1998, FLIR recognized $4.1 million in revenue by shipping placeholder units to the bonded warehouse based on two letters of intent provided by one of FLIR's independent sales representatives in South America.  3    In October 1998,  FLIR learned that Congress was considering legislation to use funds to purchase helicopters for drug interdiction efforts in South America. From October 1998 through December 16, 1998, FLIR management pressured its sales staff to obtain a contract from the helicopter manufacturer for the purchase of FLIR units to use in the drug interdiction effort.  When the helicopter manufacturer declined to issue a contract before year-end 1998,  FLIR management instructed the sales staff to obtain letters of intent from FLIR's own representative instead.  These letters of intent were not binding obligations to purchase.  In fact, FLIR management knew that FLIR's representative had no obligation to purchase or pay for the units.   
+
+ 16. Once FLIR's representative sent the letters of intent to FLIR, FLIR management instructed the sales staff to create sales orders in FLIR's accounting system.  Because the sales orders were based on non-binding letters of intent, FLIR management had to approve the entry of the orders into the system.  Further, FLIR did not have sufficient items in stock to fulfill the "order."  In order to recognize revenue in 1998, FLIR management chose substitute units to ship to the bonded warehouse different from those specified in the letters of intent.   
+
+ 17. FLIR shipped the placeholder units, resulting in FLIR's accounting system automatically recognizing revenue on them.  Those placeholder units were returned to FLIR in later periods.  FLIR's representative never actually placed an order for these units; instead, almost a year later, the helicopter manufacturer placed a purchase order for units different from those shipped to the bonded warehouse.   
+
+ 18. In another placeholder transaction, FLIR management directed sales staff to change product specifications on a sales order from the units ordered by the customer to other units that FLIR had in inventory and could ship by the end of 1998.  A FLIR manager then directed his staff to provide the customer with FLIR's shipping account number and a return authorization number for the return of the improperly built units.  The manager gave these instructions before the units were shipped to the customer because he knew that the units did not conform to the specifications in the purchase order.  The improper units were shipped to the customer before year-end 1998 and were later returned to FLIR as pre-arranged.       
+
+ 19. In some placeholder transactions, FLIR management authorized the shipment of "loaner" units to customers when the units actually ordered by the customer could not be manufactured by FLIR.  In the second and third quarter 1999 transactions, customers sought units of a technology still under development at FLIR.  With management's knowledge, FLIR personnel shipped these customers "loaner" units while the desired units were being developed and manufactured.  FLIR recognized revenue for the loaner units knowing they would be returned to FLIR once the customers received the newer technology units. 
+
+ Side Agreements 
+
+ 20. At year-end 1998, FLIR engaged in at least three transactions in which it offered additional terms to its customers in side agreements containing rights of return, special discounts, contingencies, consignment sales, or rental terms.  FLIR management approved these side agreements.  When FLIR recognized revenue on sales containing these side agreements, it did so in violation of GAAP.   
+
+ 21. At the end of 1998, FLIR management directed sales staff to "incentivize" one of its customers to place an order.  The customer had not yet finalized its own contract with its customer.  FLIR management approved a side letter providing its customer with an unconditional right of return within 60 days and extended payment terms to induce the customer to place the order before December 31, 1998 - even though the customer did not want the unit until June 1, 1999.  The customer's purchase order did not reflect these terms but it did reference the side agreement. 
+
+ 22. FLIR, however, took no steps to ensure that revenue was not recognized on the transaction.  As a result, FLIR recognized revenue in 1998 for this transaction in violation of GAAP.  4    Ultimately, the customer never obtained a contract from its end-user and never paid FLIR for this unit.   
+
+ Rentals Treated as Sales 
+
+ 23. FLIR also improperly recognized revenue in 1998 totaling $1,700,000 on two transactions that were rentals.  These sales were not sales in substance, as the earnings process had not been completed and the risks of ownership never transferred.  Rather, as the lessor, FLIR should have recognized only the rental revenue earned from these two transactions.  5   
+
+ 24. In the larger of these transactions, FLIR entered into a joint venture with one of its customers, in which the customer rented FLIR units to its customers and shared the rental proceeds with FLIR.  Pursuant to this joint venture agreement, FLIR's customer did not take title to the units.  It never intended nor desired to own the units - a fact communicated to FLIR.  Nevertheless, FLIR required the customer to submit a purchase order to FLIR for five units valued at $1,200,000.  The customer's purchase order stated that the order was subject to attached terms.  FLIR management relied on this purchase order to approve the entry of a sales order, even though the purchase order referenced additional terms.  The terms referenced in the purchase order consisted of a draft lease agreement.  This agreement specified that title to the units remained with FLIR throughout the duration of the agreement.  The customer and FLIR executed a lease agreement containing that provision in 1999 - after FLIR had recognized revenue for the transaction.        
+
+ Contingent Orders and Consignment Sales 
+
+ 25. FLIR also inappropriately recognized revenue for transactions containing unresolved contingencies and for consignment sales.  Many FLIR customers were aircraft integrators responsible for assembly or customization of aircraft for their own customers ("end-users"), which were often foreign or domestic governmental agencies.  The end-users often designated FLIR units for their customized aircraft and the integrator companies placed an order with FLIR for the units.  Because integrator companies only purchased the FLIR unit as part of a package ordered by an end-user, the integrator companies wanted to receive payment from their customer before paying FLIR rather than advancing the payment for the units on behalf of the end-users.  Often this arrangement led FLIR to allow extended payment terms, contingencies or consignment deals in sales contracts between FLIR and the integrator companies.  Revenue recognition for sales with contingencies or consignment terms is not supported under GAAP.  6   
+
+ 26. FLIR improperly recognized $1,909,000 in revenue based on the following four contingent or consignment orders:  
+
+
+   Initial Reporting Period 
+ Amount of Transaction Improperly Recognized    1st Qtr. 1998  
+ $ 600,000    2nd Qtr. 1998 
+ $ 225,000    3rd Qtr. 1998 
+ $ 150,000    1998 Form 10-K 
+ $ 934,000    27. During the last day of FLIR's first quarter in 1998, one of FLIR's customers submitted a contingent purchase order.  The purchase order stated that the order could be revoked without penalty should the customer fail to obtain a contract with its end-user.  Despite the outstanding contingency, FLIR shipped the units to its bonded warehouse, invoiced the customer, and improperly recognized $600,000 in revenue.  Similarly, in a year-end 1998 transaction, FLIR management directed sales personnel to obtain a letter of intent from a customer ordering on behalf of a South American government.  This letter of intent was contingent upon FLIR's customer securing a contract with the aircraft provider.    Again, despite the outstanding contingency in the letter of intent, FLIR shipped two units for this order to the bonded warehouse on December 30, 1998, and improperly recognized $934,000 in revenue.     FLIR's customer never obtained a contract with the aircraft provider nor did FLIR's customer ever pay FLIR.  For both of these transactions, FLIR's finance department files contained documents that had been redacted to remove the language demonstrating that the sales were contingent.   
+
+ 28. FLIR also improperly recognized revenue on consignment sales.  In the second quarter of 1998, FLIR recognized $225,000 in revenue for a "sale" to a customer.  The purchase order submitted by the customer stated specifically: "Payment for each system to be made when a system is sold by [the customer] to an outside customer, or upon dedicated usage of a system by [the customer]."  Despite this language, FLIR recognized revenue on the sale.  Similarly, in the third quarter of 1998, FLIR recognized $150,000 in revenue from a customer on a purchase order with similar contingent language.  In the consignment sales, no end-user had even been identified at the time FLIR recognized the revenue. 
+
+ Improper Bill and Hold Sales   7   
+
+ 29. FLIR also improperly recognized $6,228,000 as revenue in 1998 and 1999 based upon non-binding letters of intent or other non-binding documents, in violation of bill and hold requirements articulated by the Commission.   
+
+ 30. These transactions and the period in which they were recognized are as follows:    
+
+   Initial Reporting Period 
+ Amount of Transaction Improperly Recognized    1st Qtr. 1998  
+ $ 1,136,000    2nd Qtr. 1998 
+ $ 549,000    2nd Qtr. 1998 
+ $ 573,000    3rd Qtr. 1998 
+ $ 320,000    3rd Qtr. 1999 
+ $ 2,650,000    3rd Qtr. 1999 
+ $ 1,000,000    31. In each of these transactions, FLIR recognized revenue based upon an inadequate purchase commitment.  For example, in the third quarter of 1999, FLIR recognized $2,650,000 as revenue in one transaction based upon a purported "sale" to a customer acting on behalf of a Middle Eastern government.  For this transaction, FLIR obtained a letter of intent from the customer.  FLIR relied upon the letter of intent even though it characterized the customer's commitment to purchase solely as an "intent to purchase."  The letter of intent also allowed the customer to change the configuration of the units and to set a delivery schedule in the future "per Purchase Order requirement when issued."  Because this letter of intent was not a binding commitment to purchase from either FLIR's customer or the end-user, FLIR should not have recognized revenue. 
+
+ FLIR's Understatement of Expenses and Double-Booking of Receivables 
+
+ 32. In addition to FLIR's improper revenue recognition practices, FLIR fraudulently overstated assets and understated expenses, thereby overstating pre-tax earnings, by improperly using suspense accounts and double-booking accounts receivables.   
+
+ 33. In 1999, FLIR used the "project inventory" account as a suspense account to hold returns, traded-in units, underabsorbed overhead, shutdown expenses for foreign operations, and other arbitrary entries.  None of these entries were appropriate under GAAP, nor were they appropriate uses for the project inventory account.  The project inventory account was intended to account for units removed from finished goods inventory by FLIR's engineers for use in research and development.  Because FLIR still had an asset (the unit), the amounts in project inventory were accounted for as assets in inventory on FLIR's balance sheet.  When the engineers were done using the unit, if it was undamaged, it was transferred back into finished goods inventory.  If it was damaged, it was expensed to research and development costs.   
+
+ 34. In 1999, however, FLIR began to use the account as a place to hold accounting entries that were not reconciled to the general ledger.  By the end of 1999, FLIR's finance department had made entries to project inventory causing FLIR to overstate its assets, specifically inventory, by $17.4 million and understate its expenses, largely cost of goods sold, by $15.4 million.  These overstatements were spread among the quarters of 1999; FLIR overstated inventory by nearly $3.4 million in the first quarter, by $2.7 million in the second quarter, by $2.4 million in the third quarter, and by $8.9 million in the fourth quarter.   
+
+ 35. As a result, FLIR's financial statements were misstated in the first quarter because they understated losses by 11% (project inventory only).  FLIR overstated pre-tax earnings in the second quarter by 578% (project inventory misstatements and revenue misstatements) and overstated pre-tax earnings by 60% in the third quarter (project inventory misstatements and revenue misstatements).  The fourth quarter misstatements were not reported to shareholders in a periodic filing. 
+
+ 36. Further in 1998, FLIR overstated pre-tax earnings in its Form 10-K by $5.6 million through booking two receivables at FLIR's facilities in Portland and the United Kingdom.  These receivables were double-counted in FLIR's accounts receivable balances at December 31, 1998.  As a result, in the 1998 Form 10-K as originally filed, FLIR overstated accounts receivable by $6.7 million and earnings before income taxes by $5.6 million.   
+
+ Legal Analysis 
+
+ 37. As a result of the conduct described above, FLIR violated Section 17(a) of the Securities Act, which prohibits making untrue statements of material fact or omitting to state material facts in the offer or sale of securities.  As discussed above, FLIR committed fraud when it filed two registration statements in June 1998 and December 1999 that misstated and misrepresented its financial condition and results of operations by overstating revenue and pre-tax earnings. 
+
+ 38. As a result of the conduct described above, FLIR also violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit misstatements or omissions of material fact in connection with the purchase or sale of securities.  As discussed above, FLIR committed fraud when it filed periodic reports with the Commission for three quarters of 1998, three quarters of 1999 and year-end 1998 that misstated and misrepresented its financial condition and results of operations.  FLIR overstated pre-tax earnings for each reporting period by a material amount in each of these reports.  Moreover, FLIR falsely represented in these reports that it had complied with its stated revenue recognition policy.   
+
+ 39. Further, as a result of the conduct described above, FLIR violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, which require issuers of securities registered pursuant to Section 12 of the Exchange Act to file accurate periodic reports on Forms 10-K and 10-Q.  These reports must contain any material information necessary to make the required statements made in the reports not misleading.  As previously discussed, FLIR filed periodic reports with the Commission that misrepresented its financial results.  FLIR's Form 10-K for 1998 and all three Forms 10-Q for 1999 were restated; FLIR's Form 10-K was restated twice. 
+
+ 40. In addition, as a result of the conduct described above, FLIR violated Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies registered under Section 12 of the Exchange Act to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions of the issuer.  In 1998 and 1999, FLIR's books and records were not merely inaccurate, they were intentionally falsified.  FLIR's multiple restatements demonstrate that FLIR's books and records were not accurate throughout 1998 and 1999.    
+
+ 41. As a result of the conduct described above, FLIR also violated Section 13(b)(2)(B) of the Exchange Act, which requires reporting companies to devise and maintain a system of internal accounting controls sufficient to reasonably assure that transactions are recorded and financial statements are prepared in conformity with generally accepted accounting principles.    FLIR had insufficient internal controls to assure that it accounted for its revenue, expenses, and assets correctly throughout 1998 and 1999.   
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent FLIR's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED :  
+
+ Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent FLIR shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1     The findings herein are not binding on anyone other than Respondent.  
+
+   2     Generally under GAAP, revenue is not recognized until delivery.   See  Statement of Accounting Concepts No. 5 ¶¶ 83 & 84 and Staff Accounting Bulletin 101. 
+
+   3     FLIR recognized revenue on two transactions at year-end 1998 as sales to the sales representative.  Because both of these sales were based upon letters of intent, and the facts surrounding both transactions are similar, they are discussed as one transaction. 
+
+   4     Sales made contingent upon the resale of the product to an end-user cannot be recognized as revenue under GAAP.  Statement of Accounting Concepts No. 5, ¶ 83.  Sales with rights of return may be treated as revenue transactions if there is a history of such sales to provide a basis for estimating the amount of future returns and if income is reduced to reflect the estimated future returns through establishing a reserve for returned merchandise.  See Statement of Financial Accounting Standards (SFAS) No. 48.  FLIR met neither of these conditions for sales with rights of return in 1998.     
+
+   5     See  SFAS No. 13 ,  ¶ 19 .    
+
+   6     Statement of Accounting Concepts No. 5, ¶ 83.   
+
+   7     A bill and hold transaction is generally a practice whereby a customer agrees to purchase goods but the seller retains physical possession until the customer requests shipment to designated locations.   In 1986, the Commission articulated the following conditions for revenue recognition on bill and hold sales: (1) the risks of ownership must have passed to the buyer;  
+
+ (2) the customer must have made a fixed commitment to purchase the goods, preferably reflected in written documentation; (3) the buyer, not the seller, must request that the transaction be on a bill and hold basis and must have a substantial business purpose for ordering the goods on a bill and hold basis; (4) there must be a fixed schedule for delivery of the goods that is reasonable and consistent with the buyer's business purpose; (5) the seller must not retain any specific performance obligations such that the earnings process is not complete; (6) the ordered goods must have been segregated from the seller's inventory and not be subject to being used to fill other orders; and (7) the equipment must be complete and ready for shipment.   See In the Matter of Stewart Parness , Exchange Act Release No. 23507, AAER No. 108 (August 5, 1986). 
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diff --git a/raw/aaer/2002/AAER-1638.txt b/raw/aaer/2002/AAER-1638.txt
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+
+
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+   
+     
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+ 
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+     
+     
+     SEC.gov | Arthur A. Goodwin, William J. Burke and Christopher P. Whalen 
+     
+     
+     
+     
+     
+     
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+  Securities and Exchange Commission v. Arthur A. Goodwin, William J. Burke and Christopher P. Whalen , (United States District Court for the District of Massachusetts) (Civil Action No. 02 CV 11913 JLT) 
+ 
+The Securities and Exchange Commission announced that on September 30, 2002 it filed a civil injunctive action for financial fraud against three former officers of Interspeed, Inc., a North Andover, Massachusetts Internet hardware developer.  In the suit, filed in federal court in the District of Massachusetts, the Commission alleged that the three defendants participated in fraudulent revenue recognition, causing Interspeed to engage in a $9 million fraud which inflated its reported sales between 25% and 93% from January to September 2000.  One defendant, Christopher P. Whalen, has agreed to settle the matter by agreeing to a permanent injunction and payment of disgorgement and a civil monetary penalty. 
+ 
+The Commission's complaint names Arthur A. Goodwin of Plano, Texas (formerly of Boxford, Massachusetts), William J. Burke of Andover, Massachusetts and Christopher P. Whalen of Bolton, Massachusetts.  According to the complaint, Goodwin, the company's senior vice president of world-wide sales, orchestrated the scheme to inflate revenue in order to meet analysts' revenue expectations and to boost his own bonus.  The Commission alleges that Goodwin, with Whalen's assistance, arranged improper transactions with customers in which secret side letters relieved them of any obligation to pay until the goods were sold to an end-user.  Accounting rules prohibit recognizing revenue on such contingent sales.  The Commission also alleges that Goodwin arranged "round-trip" transactions in which funds were funneled to a customer for it to use in paying for Interspeed product.  In addition, Goodwin allegedly forged a signature and falsified the terms of a contract, thereby causing a non-existent transaction to be recognized improperly on Interspeed's books for the 3rd quarter of 2000.  This $6.4 million transaction constituted 92% of Interspeed's reported income for the quarter.  
+ 
+The Commission's complaint alleges that Burke, the company's chief financial officer, recorded the contingent sales as revenue even though he was aware of the side terms which made revenue recognition improper.  In addition, the complaint alleges that Burke altered accounting records to keep Interspeed's outside auditors from discovering that the sales were shams.  Through the alteration, the complaint alleges, Burke and Goodwin made it appear that Interspeed was receiving payment for the round-tripping sales in which Interspeed provided the funds to the customer. 
+ 
+According to the complaint, Interspeed's directors uncovered the fraudulent scheme in late September 2000, and the company restated its financial results for the first three quarters of its fiscal year ended September 30, 2000, reducing its originally reported revenue of $14 million to $5 million.  Goodwin and Whalen were terminated in October 2000.  Burke resigned in August 2000.  Interspeed has since ceased operations. 
+ 
+In its complaint, the Commission requests that the court issue a final judgment permanently enjoining Goodwin, Burke and Whalen from violating or aiding and abetting violations of the antifraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-13 and 13b2-1, and additionally as to Goodwin and Burke, Rule 13b2-2, which prohibits officers of a company from lying to auditors as well as, for Burke, Section 13(b)(2)(B) of the Exchange Act, which requires maintenance of internal accounting controls.  The Commission also seeks disgorgement of the bonuses and sales commissions the defendants received based on the fraudulent sales.  According to the complaint, Goodwin received over $70,000, Burke received $41,000 and Whalen received $1,361.  In addition, the Commission's complaint asks the court to impose civil monetary penalties.  The Commission is also seeking an order permanently barring Goodwin and Burke from acting as officers or directors of any public company. 
+ 
+Whalen, without admitting or denying the allegations against him, has agreed to settle the matter by consenting to an injunction, to pay disgorgement of his entire revenue-based bonus of $1,361 and to payment of a civil monetary penalty of $15,000.  In accepting Whalen's offer of settlement, the Commission considered Whalen's cooperation during the Commission's investigation. 
+   SEC Complaint in this matter  
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+              J. Kenneth Stringer III, J. Mark Samper, William N. Martin, and Steven R. Eagleburger
+           
+     
+ 
+
+   
+
+     
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+      
+      
+             
+        J. Kenneth Stringer III, J. Mark Samper, William N. Martin, and Steven R. Eagleburger
+       
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+ Litigation Release No. 17760 / October 1, 2002
+
+  Accounting and Auditing Release No. 1639 / October 1, 2002
+
+   SEC v. J. Kenneth Stringer III, J. Mark Samper, William N. Martin, and Steven R. Eagleburger , (U.S. District Court for the District of Oregon, Civil Action No. CV02-1341 (ST))
+
+  SEC CHARGES FORMER MANAGEMENT OF FLIR SYSTEMS, INC. WITH SCHEME TO INFLATE REVENUE
+
+    The Securities and Exchange Commission announced the filing of a complaint on September 30, 2002 against four former senior executives of government contractor FLIR Systems, Inc. for engaging in a wide-ranging scheme to inflate earnings in 1998 and 1999.  The former executives charged today are FLIR's former President and CEO, J. Kenneth Stringer III; its former Senior Vice President of Finance and CFO, J. Mark Samper; its former Vice President of Sales for Airborne Products Worldwide, William N. Martin; and its former Director of Sales Operations, Steven R. Eagleburger.  Samper, Martin, and Eagleburger settled the Commission's action without admitting or denying the allegations in the complaint.
+
+    FLIR, based in Portland, Oregon, manufactures infrared imaging equipment.  FLIR's customers include government and commercial users, and its products are used for surveillance and reconnaissance, among other things.  Its stock is listed on Nasdaq's National Market.  FLIR restated its 1998 and 1999 financial statements three times in 2000 and 2001 to correct its financials. 
+
+    The Commission's complaint alleges that Stringer, Samper, Martin, and Eagleburger engaged in fraudulent accounting practices throughout 1998 and 1999 in order to meet revenue and earnings projections.  The actions taken by these individuals caused FLIR to report false financial information in FLIR's annual and quarterly reports in 1998 and 1999.  The complaint alleges that, as a result of this scheme, FLIR's pre-tax earnings in 1998 and 1999 were overstated by at least 25% to as much as 578%; in one quarter FLIR reported a profit of $411,000 when it actually had a loss of $325,000.  In 1998, FLIR reported that it had earned $22.2 million before taxes for the year when in fact FLIR had earned less than half that amount.  
+
+    The complaint alleges that as a result of pressure to meet earnings targets by Stringer, Samper, Martin, and Eagleburger caused FLIR's overstatement of earnings by engaging in six improper revenue recognition practices:
+
+       False Sales   FLIR recognized revenue on four transactions in which no customer placed an order.
+
+        Placeholders   FLIR recognized revenue on eight transactions in which it shipped units - termed "placeholders" at FLIR -  that were not what the customer ordered.  FLIR shipped placeholder units to a third party warehouse, recognized revenue on shipment, then brought the units back to be replaced or reworked per customer specifications.  
+
+        Side Agreements   FLIR recognized revenue on three transactions in which it offered additional terms such as rights or return, special discounts, or extended payment terms documented in side agreements with the customer.    
+
+        Rentals   FLIR recognized revenue on two transactions that were not sales in substance because title to the product had not passed to the customer.
+
+        Contingent Orders and Consignment Sales   FLIR recognized revenue on four transactions that contained unresolved contingencies or were consignment sales.  
+
+        Improper Bill and Hold Sales   FLIR recognized revenue on six transactions based upon non-binding letters of intent or inadequate purchase commitments from the customer.
+   In addition to these improper revenue practices, the complaint also alleges that Samper caused FLIR to fraudulently overstate assets and understate expenses in each quarter in 1999 by improperly using suspense accounts and by double-booking accounts receivables.
+
+    The defendants are:
+       J. Kenneth Stringer III , 49, of Lake Oswego, Oregon, FLIR's former CEO and President.  The SEC seeks an injunction, disgorgement of ill-gotten gains, civil money penalties, and an order prohibiting Stringer from acting as an officer or director of a publicly-traded company.  The complaint alleges that Stringer participated in fraudulent sales transactions, that he knew or was reckless in not knowing about the revenue recognition schemes perpetrated by management, and that he lied about the schemes to FLIR's independent auditors.  The complaint further alleges that Stringer received a 1998 bonus of $180,000 which he would not have received had FLIR accurately reported its earnings.
+
+        J. Mark Samper , 41, of Portland, Oregon, FLIR's former CFO and Senior Vice President of Finance.  Samper simultaneously settled the SEC's action without admitting or denying the allegations in the complaint.  Samper agreed to the entry of a court order enjoining him from committing future violations of the charged federal securities laws, barring him from serving as an officer or director of a publicly-traded company, and ordering him to pay $52,500 in disgorgement (representing his 1998 bonus), $8,859 in prejudgment interest, and $110,000 as a civil money penalty.  The complaint alleges that Samper was responsible for FLIR's financial record keeping and reporting, signed FLIR's periodic reports filed with the SEC, authorized revenue recognition for false sales, placeholders, rentals, consignment sales, and bill and hold sales with insufficient commitments from customers, caused the double-booking of two transactions, used suspense accounts to inflate FLIR's results, and lied to the auditors.
+
+
+
+      William N. Martin  , 46, of Lake Oswego, Oregon, FLIR's former Vice President of Sales for Airborne Products Worldwide.  Martin simultaneously settled the SEC's action without admitting or denying the allegations in the complaint.  Martin agreed to the entry of a court order enjoining him from committing future violations of the charged federal securities laws, barring him bar from serving as an officer or director of a publicly-traded company for a period of ten years, and ordering him to pay $40,000 in disgorgement (representing his 1998 bonus), $7,025 in prejudgment interest, and $40,000 as a civil money penalty.  The complaint alleges that Martin authorized and directed sales personnel to obtain non-binding letters of intent, contingent purchase orders, side letters with rights of return, and rental agreements, and that he lied to FLIR's auditors about the scheme.
+
+       Steven R. Eagleburger  , 55, of West Linn, Oregon, FLIR's former Director of Sales Operations.  Eagleburger simultaneously settled the SEC's action without admitting or denying the allegations in the complaint.  Eagleburger agreed to the entry of a court order enjoining him from committing future violations of the charged federal securities laws and to pay a civil money penalty of $25,000.  The complaint alleges that Eagleburger facilitated the fraudulent scheme by authorizing and ordering manufacturing personnel to ship placeholder units and directing the entry of sales orders with insufficient or no documentation.
+    The Commission charged Stringer, Samper, Martin, and Eagleburger with violating or aiding and abetting violations of numerous provisions of the federal securities laws, including the antifraud provisions (Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and additionally as to Samper and Stringer, Section 17(a) of the Securities Act of 1933), reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, and additionally as to Stringer, Samper, and Martin, Rule 13a-13 of the Exchange Act), the record-keeping provisions (Section 13(b)(2)(A) of the Exchange Act, and Rule 13b2-1 thereunder), internal controls provisions (Sections 13(b)(2)(B) and 13(b)(5) of the Exchange Act) and as to Stringer, Samper, and Martin, the lying-to-an-accountant provision (Rule 13b2-2 of the Exchange Act).   
+
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diff --git a/raw/aaer/2002/AAER-1640.txt b/raw/aaer/2002/AAER-1640.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3b509c93f46f2b8053cce2df4ed54ad1037a1b7d
--- /dev/null
+++ b/raw/aaer/2002/AAER-1640.txt
@@ -0,0 +1,1395 @@
+
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+     SEC.gov | Andrew S. Fastow 
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+              Andrew S. Fastow
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+       
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+
+ Litigation Release No. 17762 / October 2, 2002
+
+  Accounting and Auditing Enforcement Release No. 1640 / October 2, 2002
+
+  Securities and Exchange Commission v. Andrew S. Fastow, Civil Action No. H-02-3666 (K.Hoyt) (SDTX) (October 2, 2002)
+
+  SEC CHARGES ANDREW S. FASTOW, FORMER CHIEF FINANCIAL OFFICER OF ENRON, WITH FRAUD
+
+  The Securities and Exchange Commission filed a civil enforcement action today against Andrew S. Fastow, the former chief financial officer of Enron Corp., alleging violations of the anti-fraud, periodic reporting, books and records, and internal controls provisions of the federal securities laws.  The Commission is seeking disgorgement of all ill-gotten gains, including all compensation received subsequent to the commencement of the alleged fraud, civil money penalties, a permanent bar from acting as a director or officer of a publicly held company, and an injunction from future violations of the federal securities laws.  The Commission brought this action in coordination with the Justice Department's Enron Task Force, which filed a related criminal complaint against Fastow.
+
+  The complaint allegations stem from Fastow's conduct relating to six transactions.  Three of the transactions, RADR, Chewco, and Southampton, were the subject of the Commission's earlier settled action against Michael Kopper.  Those transactions were part of an alleged scheme to hide Fastow's and Kopper's interest in and control of certain entities in order to keep those entities off Enron's balance sheet.  This was done, according to the complaint, for self-enrichment and to mislead analysts, rating agencies, and others about Enron's true financial condition.  As to Fastow's role in RADR, Chewco, and Southampton, the complaint alleges that Fastow secretly nominated certain of the owners of these entities, funded certain of their investments through undisclosed loans, collected undisclosed fees, and demanded and received under-the-table payments, including payments to himself and his family members disguised as yearly $10,000 non-taxable gifts.
+
+    Two of the remaining three transactions, the Nigerian barges and the Cuiaba transaction, are alleged to have been sham sales - best described as secret asset-parking arrangements.  In one of these sales, a sale of an interest in certain Nigerian barges to a financial institution, Fastow is alleged to have personally promised that the financial institution would be taken out of its so-called investment and later arranged for an entity he controlled to buy the financial institution's interest at a pre-arranged rate of return on a pre-arranged time table.
+
+    In the second sale, Enron entered into a transaction with an off-balance-sheet entity controlled by Fastow to sell an interest in a severely troubled power plant in Cuiaba, Brazil, in order to avoid consolidation of project debt and recognize earnings.  In connection with this transaction, Fastow allegedly entered into an unwritten side agreement with Enron requiring Enron to buy back the interest it just sold to Fastow at a guaranteed profit. 
+
+    The last set of allegations included in the complaint relate to an alleged instance of backdating documents to avoid diminution in Enron's investment in the stock of a technology company.  Specifically, according to the complaint, in September 2000, Fastow and others created documents that purported to lock in the value of Enron's investment in that company back in August of 2000, when that company's stock was trading at its all-time high price.  
+
+  Throughout the period of his alleged fraudulent conduct, Fastow sold millions of dollars worth of Enron securities.
+
+  Specifically, the Commission's complaint further alleges as follows:
+
+        RADR :   In early 1997, Enron needed to divest itself of certain electricity-generating windmill farms to maintain certain financial benefits under applicable energy regulations.  A sale to independent third-party investors would have entailed relinquishing control over these windmill farms, an eventuality Enron wanted to avoid.  To maintain control of these assets, Fastow selected certain individuals to act as nominee investors in the entities (collectively referred to as "RADR") that purchased the windmill farms.  To provide the funds for the purchase, Fastow made a secret personal loan to Kopper, who in turn made loans to the nominee investors.  Between August 1997 and July 2000, these entities generated approximately $2.7 million in unlawful profits.  In July 2000, Enron repurchased the facilities from the entities, generating an additional gain of approximately of $1.8 million.  Between 1997 and 2000, Kopper made substantial payments to Fastow from these unlawful profits.  One mechanism employed to funnel to Fastow money generated by this scheme was a "gifting" program whereby Kopper and Kopper's domestic partner made annual "gifts" of $10,000 to each member of Fastow's immediate family.  Fastow chose the $10,000 amount to avoid IRS reporting rules.  
+
+         Chewco :   In 1997, Enron and the California Public Employees' Retirement System (CalPERS) were joint venture partners in an off-balance-sheet investment vehicle called Joint Energy Development Limited Partnership (JEDI).  When CalPERS wanted to cash out its investment in JEDI prior to investing in a larger Enron venture, Fastow and others at Enron formed a special purpose entity called Chewco to buy CalPERS' interest in JEDI thereby allowing Enron to continue accounting for JEDI as an off-balance-sheet entity.  Initially, Fastow planned to serve as Chewco's general partner and as an equity investor, but was advised that his involvement would require disclosure by Enron.  Fastow then selected Michael Kopper to fill the Chewco general partner role.  Fastow secretly controlled Chewco and Kopper and, by virtue of that control, received a share of Chewco's profits as kickbacks from Kopper.  In addition, Fastow siphoned funds from Enron by using his position as Enron's CFO to funnel funds to Chewco for his own benefit.  As a result of these various machinations, Chewco was improperly kept off Enron's balance sheet because it did not have the third-party equity at risk required by the applicable accounting rules.  Improper deconsolidation of Chewco caused material overstatement of Enron's reported net income and a material understatement of its debt.  
+
+         Southampton :   Fastow unlawfully enriched himself and others   using another off-balance-sheet partnership he controlled called LJM Cayman, L.P. ("LJM1").  In approximately February 2000, Fastow and others caused Enron to buy out the partnership interests of LJM1's two limited partners, Credit Suisse First Boston and National Westminster Bank (NatWest).  In connection with this transaction, Fastow and others told Enron that NatWest wanted $20 million for its interest in the partnership assets, but paid NatWest only $1 million of that sum and pocketed the rest.  A purported charitable foundation in the name of the Fastow's   family received $4.5 million in proceeds of this fraud.
+
+         Nigerian Barges :   In December 1999, Enron and a financial institution entered into a sham "sale" transaction that enabled Enron to book approximately $12 million in earnings in 1999.  In the transaction, the financial institution agreed to "buy" from Enron an interest in certain power-producing barges in Nigeria based on an express oral promise from Fastow that Enron would arrange to take the financial institution out of the investment within six months.  Enron also agreed to a specified profit for the financial institution's "investment."  The transaction closed at the end of December 1999.  Six months later, Fastow fulfilled his promise to take the financial institution out of the deal.  He arranged for a partnership he controlled, LJM2 Co-Investment, L.P. ("LJM2") to purchase the financial institution's interest on the previously-agreed terms.
+
+         Raptor I/Avici :   Enron and LJM2 engaged in complex transactions with an entity called Raptor I.  Raptor I was used to manipulate Enron's balance sheet and income statement and to generate profits for LJM2 and Fastow at Enron's expense.  In September 2000, Fastow and others used Raptor I to effectuate a fraudulent hedging transaction and thus avoid a decrease in the value of Enron's investment in the stock of a public company called Avici Systems Inc.  Specifically, Fastow and others back-dated documents to make it appear that Enron locked in the value of its investment in Avici in August of 2000, when Avici's stock was trading at its all time high price. 
+
+         The Cuiaba Project :   To avoid consolidation of debt related to a power-plant project in Cuiaba, Brazil, and to recognize earnings, Enron entered into a sham sale with LJM1.  Fastow arranged for LJM1 to buy an interest in the plant despite significant cost overruns, completion delays, and operational problems, after Enron failed to secure an independent buyer.  However, in connection with this transaction, Fastow had entered into an unwritten side agreement with Enron (which Enron later honored) requiring Enron to buy back the interest it sold to LJM1 at a guaranteed profit regardless of the risks associated with the project.  
+   The complaint alleges that by engaging in the above-described conduct, Fastow violated Section 17(a) of the Securities Act of 1933 ("Securities Act"); violated and aided and abetted the violation of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2; aiding and abetting the violation of Sections 13(a), and 13(b)(2)(A) and (B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13; and acted as a controlling person of Enron Corp. and certain of its executives and employees within the meaning of Section 20(a) of the Exchange Act, and by virtue of that control, violated and aided and abetted the violation of the above-enumerated Exchange Act provisions and rules.
+
+  The Commission's investigation is continuing.  For additional information see  Litigation Release No. 17692  (August 21, 2002).
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diff --git a/raw/aaer/2002/AAER-1641.txt b/raw/aaer/2002/AAER-1641.txt
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+++ b/raw/aaer/2002/AAER-1641.txt
@@ -0,0 +1,1368 @@
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+     SEC.gov | System Software Associates, Inc., Roger Covey and Joseph Skadra 
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+              System Software Associates, Inc., Roger Covey and Joseph Skadra
+           
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+        System Software Associates, Inc., Roger Covey and Joseph Skadra
+       
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+ Litigation Release No. 17770 / October 7, 2002
+  Accounting and Auditing Enforcement Release No.  1641 / October 7, 2002
+   SECURITIES AND EXCHANGE COMMISSION v. SYSTEM SOFTWARE ASSOCIATES, INC., ROGER COVEY and JOSEPH SKADRA , Civ. No. 00C 4240 (N.D. Ill.)
+  FORMER TOP OFFICERS OF SYSTEM SOFTWARE ASSOCIATES, INC. SETTLE SEC CHARGES; COVEY AND SKADRA CONSENT TO FRAUD-BASED INJUNCTIONS, COVEY TO PAY $316,205 IN DISGORGEMENT AND CIVIL PENALTIES.
+
+    On October 3, 2002, the U.S. District Court for the Northern District of Illinois entered final judgments against the former Chairman and Chief Executive Officer of System Software Associates, Inc. ("SSA"), Roger Covey, and SSA's former Chief Financial Officer, Joseph Skadra, in litigation brought by the Securities and Exchange Commission in July 2000.  Without admitting or denying the allegations in the Commission's complaint, Covey and Skadra agreed to the entry of judgments: (1) permanently enjoining each of them from violating or aiding and abetting violations of antifraud, reporting, books and records, and internal controls provisions of the federal securities laws, and (2) requiring Covey to pay $216,205.38 in disgorgement and prejudgment interest and $100,000 in civil penalties.  The Commission has agreed to waive disgorgement and to not seek a civil penalty from Skadra based on representations Skadra made in his sworn financial statement.  
+
+    According to the Commission's complaint, Covey and Skadra caused SSA to misstate its financial results during its fiscal years 1994 through 1996 by improperly reporting revenue on sales of a UNIX-language software product before the product was developed sufficiently to support revenue recognition under Generally Accepted Accounting Principles ("GAAP").  The complaint alleged that Covey and Skadra knew or were reckless in not knowing that the software did not function properly and that there were significant uncertainties about customer acceptance of that software.  The complaint also alleged that, during SSA's fiscal years 1995 and 1996, SSA improperly recognized an additional $52 million in revenue from sales of UNIX software to middlemen, which sales were subject to material conditions or otherwise did not satisfy GAAP.  According to the complaint, the conduct of Covey, Skadra, and SSA resulted in substantial losses to those public investors who purchased SSA stock during the period when the company's financial statements were misstated.  
+
+    The consent judgments enjoin Covey from violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, and 13a-13, 13b2-1, and 13b2-2 thereunder.  Skadra is enjoined from violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13, 13b2-1, and 13b2-2 thereunder.     
+
+    For information about earlier developments in this matter,  see   Litigation Release No. 16627  (July 14, 2000), and  Litigation Release No. 16694  (September 8, 2000).
+  
+ 
+  
+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1643.txt b/raw/aaer/2002/AAER-1643.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6a9e5e937c2e90a0ef54e68e53081e6f278cf3e6
--- /dev/null
+++ b/raw/aaer/2002/AAER-1643.txt
@@ -0,0 +1,1402 @@
+
+
+ 
+ 
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+     SEC.gov | A.C.L.N., Ltd.; Abderrazak "Aldo" Labiad; Joseph J.H. Bisschops; Alex de Ridder; Pearlrose Holdings International S.A.; Emerald Sea Marine, Inc.; Scott Investments S.A.; BDO International (Cyprus); Minas Ioannou; and Christakis Ioannou (Defendants); and Scandinavian Car Carriers A/S; Pandora Shipping, S.A.; Sergui, Ltd.; Westbound Development Corp.; Maverick Commercial, Inc.; and DCC Limited (Relief Defendants) 
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+              A.C.L.N., Ltd.; Abderrazak "Aldo" Labiad; Joseph J.H. Bisschops; Alex de Ridder; Pearlrose Holdings International S.A.; Emerald Sea Marine, Inc.; Scott Investments S.A.; BDO International (Cyprus); Minas Ioannou; and Christakis Ioannou (Defendants); and Scandinavian Car Carriers A/S; Pandora Shipping, S.A.; Sergui, Ltd.; Westbound Development Corp.; Maverick Commercial, Inc.; and DCC Limited (Relief Defendants)
+           
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+        A.C.L.N., Ltd.; Abderrazak "Aldo" Labiad; Joseph J.H. Bisschops; Alex de Ridder; Pearlrose Holdings International S.A.; Emerald Sea Marine, Inc.; Scott Investments S.A.; BDO International (Cyprus); Minas Ioannou; and Christakis Ioannou (Defendants); and Scandinavian Car Carriers A/S; Pandora Shipping, S.A.; Sergui, Ltd.; Westbound Development Corp.; Maverick Commercial, Inc.; and DCC Limited (Relief Defendants)
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+ Litigation Release No. 17776 / October 8, 2002
+
+  Accounting and Auditing Enforcement Release No.  1643 / October 8, 2002
+
+   Securities and Exchange Commission v. A.C.L.N., Ltd.; Abderrazak "Aldo" Labiad; Joseph J.H. Bisschops; Alex de Ridder; Pearlrose Holdings International S.A.; Emerald Sea Marine, Inc.; Scott Investments S.A.; BDO International (Cyprus); Minas Ioannou; and Christakis Ioannou (Defendants); and Scandinavian Car Carriers A/S; Pandora Shipping, S.A.; Sergui, Ltd.; Westbound Development Corp.; Maverick Commercial, Inc.; and DCC Limited (Relief Defendants)  ,  Civ. No. 02 CIV 7988 (S.D.N.Y.)
+
+   SEC Files Fraud Action Against ACLN, Ltd., Three Officers and the Company's Auditing Firm, BDO Cyprus 
+
+   Action Seeks Repatriation of $45 Million in Frozen Funds 
+
+  Today the Commission filed a civil injunctive action in the United States District Court for the Southern District of New York against ACLN, Ltd., a Cyprus corporation operating from Antwerp, Belgium that purportedly ships used vehicles to North and East Africa and sells new cars in that region.  The complaint alleges that, from 1998 through the third quarter of 2001, ACLN was the vehicle for an exceptionally bold and elaborate financial fraud that resulted in losses of hundreds of millions of dollars to investors in the U.S. and abroad.  Defendants Abderrazak "Aldo" Labiad, Joseph J.H. Bisschops and Alex de Ridder, who controlled the Company, are alleged by the Commission to have constructed a fraudulent scheme to represent ACLN as a substantial business entity with escalating profits when it was, in fact, little more than a shell company.   From 1998 through 2001, specifically, they caused ACLN to grossly misrepresent its revenues and income, fabricate an entire line of business, and claim ownership of assets that did not exist or it did not own.  The Commission alleges that Labiad, Bisschops and de Ridder exploited their financial fraud by selling over $80 million in ACLN stock at inflated prices.
+
+  The common stock of ACLN was traded on the Nasdaq National Market System and, additionally, on the New York Stock Exchange until March 18, 2002, when it was de-listed immediately following a Commission trading suspension.  ACLN's market capitalization reached approximately $700 million in September 2001, but has subsequently declined to a nominal amount.
+
+  The Commission's complaint names ACLN's former president, Labiad, former CEO, Bisschops, and former COO Ridder; three offshore corporations through which those individuals are alleged to have engaged in fraudulent stock transactions: Emerald Sea Marine, Scott Investments and Pearlrose Holdings; and six relief defendants alleged to be holding proceeds of the illegal conduct.  Also named are ACLN's former auditors, the Cyprus affiliate of BDO International ("BDO Cyprus"), and two BDO Cyprus partners, Minas Ioannou and Christakis Ioannou, all of whom have agreed to settle this matter.  The Commission and agencies of other governments working in cooperation with it have frozen approximately $45 million in bank accounts in Denmark, the Netherlands, Luxembourg and Monaco, which the Commission will seek to repatriate for distribution to defrauded shareholders.
+
+  According to the Commission's complaint: 
+
+      In its Commission filings and press releases in 2000 and 2001, ACLN significantly overstated the volume of its used car transactions, and claimed substantial revenue from a purported new car sales operation that, in fact, never existed;  
+
+       In a particularly brazen aspect of the fraud, ACLN grossly misrepresented the amount of its cash assets from 1998 through the third quarter of 2001.  For example, in its financial statements for the nine months ending September 30, 2001, ACLN claimed to have bank deposits of over $117 million.  The actual balance at that time was less than $2 million.  This deception was furthered through the creation of forged bank documents that ACLN provided to its auditors;  
+
+       ACLN does not own the largest physical asset on its balance sheet, the car-carrier vessel the  Sea Atef , and, in any event, significantly inflated the vessel's value; 
+
+       ACLN's auditors, BDO International (Cyprus), furthered the scheme by failing to conduct even the most basic audit procedures that would have detected ACLN's financial fraud and forgery of bank account statements.  BDO Cyprus issued audit reports for fiscal years 1995 through 2000 that falsely stated that its audits were conducted in accordance with Generally Accepted Auditing Standards and that ACLN's financial statements were fairly presented in conformity with Generally Accepted Accounting Principles. The audit reports also falsely represented BDO Cyprus to be independent of its audit client when, in fact, its independence was compromised because an affiliate of BDO Cyprus prepared ACLN's books and records; 
+
+       Defendants Labiad, Bisschops and de Ridder exploited the success of their financial fraud by selling over $80 million of their holdings of ACLN stock at inflated prices.  To conceal their role in these transactions, and make the proceeds of the fraud difficult to trace, they acted through a complicated web of offshore corporations and bank accounts, created to facilitate the scheme; and 
+
+       These stock sales were conducted without compliance with the registration requirements of the securities laws and were not publicly disclosed, as required by law.
+   The Complaint alleges that through these actions: 
+      ACLN, Labiad, Bisschops and de Ridder violated Sections 5 and 17(a) of the Securities Act of 1933 ("Securities Act"), and violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1 and 13a-16 promulgated thereunder.  Further, defendants Labiad, Bisschops and de Ridder violated Sections 13(b)(5) and 13(d) of the Exchange Act and Rules 13b2-1, 13d-1 and 13d-2 thereunder, and Bisschops violated Exchange Act Rule 13b2-2;  
+
+       Pearlrose Holdings International S.A., Emerald Sea Marine, Inc., and Scott Investments S.A., acting as nominees of Labiad, Bisschops and de Ridder, violated Section 5 of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;  
+
+       BDO International (Cyprus) and Minas Ioannou violated Section 17(a) of the Securities Act, and, along with Christakis Ioannou, violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-16 promulgated thereunder; and
+
+       Relief defendants Scandinavian Car Carriers A/S, Pandora Shipping, S.A., Sergui, Ltd., Westbound Development Corp., Maverick Commercial, Inc., and DCC Limited are in possession of funds derived from the illegal conduct of Labiad, Bisschops and de Ridder that are subject to disgorgement for the benefit of defrauded investors.
+   In its action, the Commission seeks: disgorgement of ill-gotten gains and prejudgment interest thereon from all defendants; civil money penalties from all defendants except the relief defendants, ACLN, BDO Cyprus, Minas and Christakis Ioannou; injunctions from all defendants (except the relief defendants) against future violations of those sections of the securities laws they are alleged to have violated; and officer and director bars and monetary penalties under the Insider Trading Sanctions Act as to Labiad, Bisschops and de Ridder.
+
+    BDO Cyprus, Minas Ioannou and Christakis Ioannou have agreed to settle the Commission's claims against them by consenting to the entry of an order of the U.S. District Court enjoining them from violating or aiding and abetting violations of the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-16 thereunder.  They have also consented to the entry of an order, to be based on the injunction, permanently suspending them from appearing or practicing before the Commission as accountants.  In addition, BDO Cyprus will disgorge $62,196, which includes all fees received as a result of its engagements to audit the financial statements of ACLN, with prejudgment interest.
+
+    The Commission gratefully acknowledges the assistance of the following law enforcement authorities in its investigation of this matter: the United States Attorney for the Southern District of New York; INTERPOL-Washington; the Belgian Judicial Authorities, including the Office of the Investigating Judge, Antwerp Court, the Prosecuting Officer for Financial Crimes, Antwerp, and the Belgian Federal Police, Money Laundering Unit, Antwerp; the Danish Financial Supervisory Authority; the Danish Ministry of Justice; the Danish Public Prosecutor for Serious Economic Crime; the Luxembourg Commission de Surveillance du Secteur Financier; the Tribunal de Premi¨re Instance de Monaco; the Banking, Insurance, and Securities Commission of Norway; the Netherlands Authority for the Financial Markets; the Netherlands Public Prosecution Service, Criminal Assets Deprivation Bureau; and the United Kingdom Financial Services Authority.
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diff --git a/raw/aaer/2002/AAER-1644.txt b/raw/aaer/2002/AAER-1644.txt
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+              John Giesecke Jr., CPA
+           
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+        John Giesecke Jr., CPA
+       
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+ Securities Exchange Act of 1934 
+Release No.  46622 / October 8, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No. 1644 / October 8, 2002 
+
+ Administrative Proceeding 
+File No.  3-10912 
+
+     In the Matter of 
+
+ JOHN GIESECKE JR., CPA 
+
+ Respondent. 
+  
+ : : : : : : 
+ ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS 
+   I. 
+
+ The Securities and Exchange Commission ("Commission") deems it in the public interest that public administrative proceedings be, and hereby are, instituted against John Giesecke ("Respondent" or "Giesecke") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings and the findings contained in Section III.3. below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+
+ 1. Giesecke was the Chief Financial Officer ("CFO") of Homestore, Inc. ("Homestore") from December 1998 until about January 2001, when he was promoted to Homestore's Chief Operating Officer ("COO").  As Homestore's COO, Giesecke was responsible for certain of the company operations including integration of acquired businesses.  While Giesecke was not responsible for Homestore's filings with the Commission throughout 2001, he still played a role in Homestore's financial reporting.  Giesecke participated in quarterly analyst and investor conference calls, reviewed press releases and portions of the quarterly filings, and participated in certain meetings with Homestore's outside auditors.  Giesecke is a Certified Public Accountant in the State of California.  His license was inactive during the time he was CFO and COO of Homestore and remains inactive.  He is 41 years old and lives in Malibu, California. 
+
+ 2. Homestore is, and at all relevant times was, a Delaware corporation with its principal place of business in Westlake Village, California.  Homestore is an Internet provider of residential real estate listings and related content.  Homestore's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and trades on Nasdaq. 
+
+ 3. On September 25, 2002, the Commission filed a complaint against Giesecke in  SEC v. John Giesecke Jr., Joseph Shew, and John DeSimone , in the United States District Court for the Central District of California (the "Court") (Civil Action No. 02-7471SVW).  On September 26, 2002, the Court entered a Final Judgment Of Permanent Injunction And Other Relief Against Defendant John Giesecke ("Judgment") which (a) permanently enjoins Giesecke from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; (b) orders Giesecke to pay $3,284,075 in disgorgement plus $160,946 in prejudgment interest; (c) orders Giesecke to pay a civil penalty in the amount of $360,000; and (d) bars Giesecke from serving as an officer or director of a reporting company.  Giesecke consented to the entry of the Judgment without admitting or denying any of the allegations in the complaint.  
+
+ 4. The Commission alleged that Homestore and Giesecke fraudulently inflated Homestore's revenue throughout the first three quarters of 2001.  The complaint alleged that Homestore engaged in round-trip sales transactions that were improperly recognized as revenue.   Specifically, Homestore, through Giesecke and others, overstated revenue in the first quarter by $15,000,000, or 16%, by $22,445,000, or 21%, in the second quarter, and by $8,965,000, or 8%, in the third quarter.  The complaint further alleged that Giesecke knew about the round-trip transactions and that he took steps to hide their true nature from Homestore's auditors by making representations he knew were misleading.  During 2001, Giesecke also reviewed all of Homestore's earnings releases and portions of the quarterly filings prior to their release. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it in the public interest to impose the sanction agreed to in Respondent Giesecke's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED,   effective immediately:   
+
+ Giesecke is suspended from appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+   1    Rule 102(e)(3) provides, in relevant part, that: 
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. 
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diff --git a/raw/aaer/2002/AAER-1645.txt b/raw/aaer/2002/AAER-1645.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e6a971ba0ef7885c98fab77959ee95f03fea6af5
--- /dev/null
+++ b/raw/aaer/2002/AAER-1645.txt
@@ -0,0 +1,1479 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | Joseph J. Shew, CPA 
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+              Joseph J. Shew, CPA
+           
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+        Joseph J. Shew, CPA
+       
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+ Securities Exchange Act of 1934 
+Release No.  46623 / October 8, 2002 
+
+ Accounting And Auditing Enforcement 
+Release No.  1645 / October 8, 2002 
+
+ Administrative Proceeding 
+File No.  3-10913 
+
+     In the Matter of 
+
+ JOSEPH J. SHEW, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it in the public interest that public administrative proceedings be, and hereby are, instituted against Joseph J. Shew ("Respondent" or "Shew") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings and the findings contained in Section III.3. below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+
+ 1. Shew was the Chief Financial Officer ("CFO") of Homestore, Inc. ("Homestore") from February 2001 until he was terminated as a result of Homestore's internal investigation in January 2002.  Shew, as Homestore's CFO, was responsible for the preparation of accurate financial statements.  Shew signed Homestore's Forms 10-Q for the first three quarters of 2001 filed with the Commission.  He is a Certified Public Accountant in the State of Pennsylvania.  His license was inactive during the time he was CFO of Homestore and remains inactive.  He is 36 years old and lives in West Chester, Pennsylvania. 
+
+ 2. Homestore is, and at all relevant times was, a Delaware corporation with its principal place of business in Westlake Village, California.  Homestore is an Internet provider of residential real estate listings and related content.  Homestore's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and trades on Nasdaq. 
+
+ 3. On September 25, 2002, the Commission filed a complaint against Shew in  SEC v. John Giesecke Jr., Joseph Shew, and John DeSimone , in the United States District Court for the Central District of California (the "Court") (Civil Action No. 02-7471SVW).  On September 26, 2002, the Court entered a Final Judgment Of Permanent Injunction And Other Relief Against Defendant Joseph J. Shew ("Judgment") which (a) permanently enjoins Shew from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; (b) orders Shew to pay $1,004,825 in disgorgement plus $48,926.64 in prejudgment interest; and (c) bars Shew from serving as an officer or director of a reporting company.  Shew consented to the entry of the Judgment without admitting or denying any of the allegations in the complaint.  
+
+ 4. The Commission alleged that Homestore and Shew fraudulently inflated Homestore's revenue throughout the first three quarters of 2001.  The complaint alleged that Homestore engaged in round-trip sales transactions that were improperly recognized as revenue.   Specifically, Homestore, through Shew and others, overstated revenue in the first quarter by $15,000,000, or 16%, by $22,445,000, or 21%, in the second quarter, and by $8,965,000, or 8%, in the third quarter.  The complaint further alleged that Shew took extensive steps to hide the true nature of these round-trip transactions from Homestore's auditors.  The complaint further alleges that Shew made material misrepresentations to the auditors related to the round-trip transactions. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it in the public interest to impose the sanction agreed to in Respondent Shew's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately:   
+
+ Shew is suspended from appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+   1    Rule 102(e)(3) provides, in relevant part, that: 
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. 
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diff --git a/raw/aaer/2002/AAER-1646.txt b/raw/aaer/2002/AAER-1646.txt
new file mode 100644
index 0000000000000000000000000000000000000000..76f54671277e35b147870e7415f588990c773c78
--- /dev/null
+++ b/raw/aaer/2002/AAER-1646.txt
@@ -0,0 +1,1474 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge 
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+              Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
+           
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+        Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
+       
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+ July 18, 2002 
+
+     In the Matter of 
+
+ JEAN-PAUL BOLDUC, BRIAN J. SMITH, C.P.A., RICHARD N. SUKENIK, C.P.A., PHILIP J. RYAN III, CONSTANTINE L. HAMPERS, A. MILES NOGELO, and ROBERT W. ARMSTRONG III, C.P.A 
+
+ Respondent. 
+  
+ : : : : : : : : : :    On July 2, 1999, an administrative law judge granted a motion by Robert W. Armstrong, a vice president and controller from 1985 to 1997 of National Medical Care, Inc. ("NMC"), a wholly-owned subsidiary of W.R. Grace & Co. ("Grace"), to dismiss proceedings brought against him pursuant to Rule 102(e) of our Rules of Practice (the "Rule").   1    On November 4, 1999, we denied the application of the Division of Enforcement and the Office of the Chief Accountant (collectively, the "Division") for interlocutory review of the law judge's order dismissing proceedings, but determined to review the law judge's ruling on our own motion.   2    We also had earlier granted the Division's motion for a partial stay of the hearing pending our consideration of the Division's appeal.   3   
+
+ The Division alleges that, from 1991 to 1996, various Grace personnel, including Armstrong, manipulated and falsely reported the earnings of NMC, resulting in Grace making materially false and misleading statements in Commission filings and press releases, and at analyst teleconferences.  Armstrong was charged with willfully violating, or causing violations of, Sections 10(b) and 13(b)(5) of the Exchange Act   4   and Exchange Act Rules 10b-5 and 13b2-1,   5   and causing violations of Sections 13(a) and 13(b)(2) of the Exchange Act   6   and Exchange Act Rules 12b-20, 13a-1, and 13a-13.  7   7    Armstrong also was charged with "willfully violat[ing] the federal securities laws or the rules and regulations thereunder pursuant to Rule 102(e)(1)(iii) of the Commission's Rules of Practice, or engag[ing] in improper professional conduct by intentionally or recklessly engaging in conduct that resulted in a violation of applicable professional standards pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice."   8   
+
+ Although Armstrong had been licensed as a certified public accountant ("CPA") in Massachusetts from 1977 to 1983, he allowed his CPA license to lapse in 1983 and never renewed it.  Based on this fact, the law judge concluded that neither of the charged provisions of the Rule applied to Armstrong. 
+
+ This is a complicated case, involving numerous parties and various provisions of the securities laws and accounting requirements.  Under all the circumstances, we believe it would be premature at this point in the proceedings to determine the extent to which the Rule may apply to Armstrong.  Rather, the parties should be permitted to develop before the law judge a record regarding all of the Division's allegations, including those relating to the Rule.   9    After that record is developed, Armstrong may renew his motion to dismiss proceedings under the Rule.  We believe that consideration of such a motion should be substantially assisted by a more fully developed record.   10   
+
+ We recognize that the parties' efforts to address the Rule 102(e) allegations may ultimately prove unnecessary in the event those allegations are dismissed based on the undisputed fact that Armstrong's license had lapsed.  Nevertheless, we believe that, in light of the overlapping nature of the factual matters at issue, the resulting burden will not be excessive, and, in any event, is amply warranted by the importance of the issues involved. 
+
+ Accordingly, it is ORDERED that the administrative law judge's order dismissing Exchange Act Rule 102(e) proceedings against Robert W. Armstrong III be, and it hereby is, set aside and the motion of Armstrong for dismissal is denied without prejudice to renewal after the close of the taking of evidence; and it is further 
+
+ ORDERED that the partial stay issued on August 31, 1999 be lifted and that hearings in this matter be recommenced in accordance with the foregoing opinion. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1   17 C.F.R. § 201.102(e). 
+
+   2    Jean-Paul Bolduc , Securities Exchange Act Rel. No. 42096 (Nov. 4, 1999), 70 SEC Docket 3224. 
+
+   3    Jean-Paul Bolduc , Exchange Act Rel. No. 41812 (Aug. 31, 1999), 70 SEC Docket 1492. 
+
+   4   15 U.S.C. §§ 78j(b) and 78m(b)(5). 
+
+   5   17 C.F.R. §§ 240.10b-5 and 240.13b2-1. 
+
+   6   15 U.S.C. §§ 78m(a) and 78m(b)(2). 
+
+   7   17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13. 
+
+   8   Rule 102(e) permits the Commission to "censure . . . or deny . . . the privilege of appearing or practicing before it . . . to any person who is found . . . (i) Not to possess the requisite qualifications to represent others; or (ii) To be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) To have willfully violated . . . the Federal securities laws . . . ." 
+
+   9   Among other things, the parties should address the question of, if Armstrong is subject to the Rule, the nature of any professional standards to which he was subject during the period at issue.  Similarly, the parties should address whether Armstrong's actions constituted "appearing or practicing" before the Commission and whether they threatened the integrity of the Commission's processes. 
+
+   10   Armstrong's motion for oral argument is denied.   See  17 C.F.R. § 201.451. 
+
+
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diff --git a/raw/aaer/2002/AAER-1647.txt b/raw/aaer/2002/AAER-1647.txt
new file mode 100644
index 0000000000000000000000000000000000000000..189ffc923f6a4238d5ed44dc88fa8d36c8e08444
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@@ -0,0 +1,1376 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Las Vegas Entertainment Network, Inc., Joseph A. Corazzi, Carl A. Sambus,and Jay I. Goldberg 
+     
+     
+     
+     
+     
+     
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+              Las Vegas Entertainment Network, Inc., Joseph A. Corazzi, Carl A. Sambus,and Jay I. Goldberg
+           
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+        Las Vegas Entertainment Network, Inc., Joseph A. Corazzi, Carl A. Sambus,and Jay I. Goldberg
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+ Litigation Release No. 17779 / October 9, 2002
+
+  Accounting & Auditing Release No. 1647 / October 9, 2002
+
+   SEC v. LAS VEGAS ENTERTAINMENT NETWORK, INC., JOSEPH A CORAZZI, CARL A. SAMBUS, AND JAY I. GOLDBERG , Civil Action No. CV 02-7852-JFW (FMOx) (C.D. Cal.)
+
+   SEC CHARGES GAMING COMPANY WITH FINANCIAL FRAUD  
+
+    The Securities and Exchange Commission today filed and settled charges against Las Vegas Entertainment Network, Inc. and its CEO and CFO for fraudulently overstating its assets.  The Commission's complaint, filed in U.S. District Court in Los Angeles, alleges that the Los Angeles-based company, and two executives -- CEO Joseph A. Corazzi, 52, of Albuquerque, New Mexico, and CFO Carl A. Sambus, 51, of Garden City, New York -- made false statements about certain assets in its 1999 filings with the Commission.  For instance, the company stated that it had a $3 million "gold certificate," when in fact the certificate was counterfeit.  Additionally, the Commission filed and settled anti-touting charges against Las Vegas Entertainment's investor relations consultant Jay I. Goldberg, 71, of Las Vegas, Nevada.  The complaint alleges that Goldberg hyped or "touted" Las Vegas Entertainment's stock on the Internet in September and October 1999 without disclosing that he had previously received 85,000 company shares as compensation.
+
+    In a related administrative proceeding, the Commission revoked the registration of Las Vegas Entertainment's common stock, finding that the company had fraudulently overstated its assets and had failed to file reports with the Commission since the quarterly report filed on September 24, 1999.  The company consented to the entry of the Commission order without admitting or denying its findings.
+
+      Las Vegas Entertainment trades on the over-the-counter market (symbol: LVEN.PK) and claims to be in the gaming industry.  Previously, the Commission suspended the trading of Las Vegas Entertainment's stock in October 1999.  In addition to the counterfeit gold certificate listed on its balance sheet, the complaint alleges that Las Vegas Entertainment falsely reported that it had $3.5 million worth of  "marketing rights" for the El Rancho Hotel in Las Vegas, Nevada when in fact those rights had expired.  The expired rights and counterfeit gold comprised virtually all of the company's assets in 1999.  Also, the company stated that it had received a $190 million cash investment and then made a tender offer in October 1999 for an NYSE-listed gaming company.  The cash investment, however, was based on counterfeit Indonesian bank guarantees and the tender offer was therefore fraudulent and subsequently withdrawn.
+
+      The complaint charges Las Vegas Entertainment, Corazzi and Sambus with violating the antifraud provisions (Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 thereunder) and reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder), and Goldberg with violating the anti-touting provision (Section 17(b) of the Securities Act of 1933), of the federal securities laws.      Simultaneously, all of the defendants settled the Commission's action without admitting or denying the allegations in the complaint.  All agreed not to commit future violations of the charged federal securities laws.  In addition, Corazzi and Sambus agreed to be barred from serving as an officer or director of a public company.  Finally, Corazzi, Sambus and Goldberg agreed to pay civil penalties in the amounts of $75,000, $25,000, and $10,000, respectively.
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+              Lernout & Hauspie Speech Products, N.V.
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+        Lernout & Hauspie Speech Products, N.V.
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+ Litigation Release No. 17782 / October 10, 2002 
+
+ Accounting and Auditing Enforcement Release No. 1648 / October 10, 2002 
+
+  The Commission Files Accounting Fraud Action against Lernout & Hauspie Speech Products  
+
+  Securities and Exchange Commission v. Lernout & Hauspie Speech Products, N.V.  Civ. No. 1:02CV01992 (D.D.C.) 
+
+ Today the Commission announced the filing of a civil injunctive action in United States District Court for the District of Columbia against Lernout & Hauspie Speech Products, N.V., a developer, licensor, and provider of speech and language technologies, headquartered in Ieper, Belgium and Burlington, Massachusetts.  The complaint alleges that, from 1996 through the second quarter of 2000, while its common stock was listed on the Nasdaq National Market System and Nasdaq Europe, Lernout & Hauspie engaged in a variety of fraudulent schemes to inflate its reported revenue and income.  The result of this conduct was an international financial scandal, the destruction of Lernout & Hauspie as an operating company, and a loss of at least $8.6 billion dollars in market capitalization, borne by investors in Belgium, the United States and elsewhere.   
+
+ According to the Commission's complaint: 
+
+ The Dictation Consortium and Brussels Translation Group Transactions 
+
+  Between 1996 and 1999, Lernout & Hauspie improperly recorded over $60 million in revenue from transactions with two Belgian entities: Dictation Consortium, N.V. and Brussels Translation Group N.V. These entities were formed for the specific purpose of engaging in transactions to allow Lernout & Hauspie to claim revenue from its own research and development activities, which otherwise would not have resulted in reported revenue unless and until the projects resulted in marketed products.  Lernout & Hauspie subsequently acquired both of these companies on terms that repaid the amounts they had previously paid to Lernout & Hauspie, plus a substantial profit.  Because the transactions were, in substance, disguised loans and not sales or service transactions, Lernout & Hauspie should not have recognized revenue from those transactions under Generally Accepted Accounting Principles.     The Language Development Companies 
+
+  By late 1998, the revenue boost obtained by Lernout & Hauspie from the Dictation and BTG transactions had waned.  To bolster its reported revenue, Lernout & Hauspie launched a new and elaborate fraudulent scheme to, in essence, create additional customers.  These new customers, dubbed "Language Development Companies" (or "LDCs"), enabled Lernout & Hauspie to claim revenue of $102 million in license fees and $8.5 million in prepaid royalties in 1998 and 1999 combined, giving the false impression of exponential growth.  The LDC revenues were not separately identified by Lernout & Hauspie in its financial statements, but instead were buried in overall revenue figures.   
+
+ The LDCs were structured in a manner that masked their actual role at the time of their creation.  All were private companies.  Most were incorporated in Singapore, although they had no actual operations in that country.  The "managing director" of many of the Singapore LDCs was a Belgian national associated with Lernout & Hauspie.   
+
+ Lernout & Hauspie, in its public disclosure, contended that the LDCs were formed to develop speech recognition and translation software applicable to various regional languages.  In actuality, the LDCs were little more than shell companies created, like Dictation and BTG, as a means for Lernout & Hauspie to improperly fabricate revenue.  The LDCs had few, if any, employees, and were dependent on Lernout & Hauspie personnel for research and development activities.  None of the LDCs ever produced any significant product.   
+
+ Lernout & Hauspie supplied or arranged for others to supply financing for at least certain of the LDCs.  For example, in late 1999, Lernout & Hauspie solicited an investment bank in Bahrain to help in the search for investors for two LDCs.  The investment bank advanced Lernout & Hauspie $8 million for technology licenses for the LDCs, with the understanding that Lernout & Hauspie would repurchase the licenses at a substantial premium (representing a 25% internal rate of return) should the investment bank be unable to locate investors to fund the LDCs.   
+
+ Thus, to the extent Lernout & Hauspie obtained funds from the LDCs, these funds were subject to material conditions imposing significant potential liabilities on Lernout & Hauspie.  Lernout & Hauspie, however, did not disclose these arrangements and did not reflect its potential liabilities to the LDCs on its balance sheet.   The Fraudulent Korean Transactions 
+
+  From September 1999 to June 2000, L&H reported approximately $175 million in sales revenue from its Korean operations ("L&H Korea").  The purported dramatic growth in sales from its Korean subsidiary accompanied the inflation of the price of L&H stock.  The majority of this revenue was fraudulent.   
+
+ L&H Korea engaged in "sales" subject to written and oral side agreements that did not appear in the L&H Korea contract files.  These terms included, in some instances, agreements by L&H Korea not to pursue collection of license fees unless and until the "customer" generated sufficient revenue from use of the L&H software to cover those fees.   
+
+ To prevent uncollectible receivables from remaining on L&H Korea's books, thereby raising questions about the quality of the company's reported earnings, a series of transactions with four Korean banks were staged to give the impression that the receivables had been factored to those banks on a non-recourse basis.  In fact, L&H Korea entered into side agreements with the banks requiring L&H Korea to maintain blocked deposits to cover the amounts of the "factored" receivables, which the banks could apply to satisfy any collection shortfalls.  Thus, these transactions were essentially fully secured loans from the banks to L&H Korea, rather than sales of receivables from L&H Korea to the banks.   
+
+ In another scheme to disguise that its escalating accounts receivable did not reflect genuine sales, L&H Korea arranged to have third parties "purchase" the licensing agreements from the original customers.  The transferees would then obtain loans, collateralized by L&H Korea assets but not reflected in L&H Korea's books, and use the proceeds to pay L&H Korea through the original customers.  By this means, L&H Korea was, in effect, paying down its own receivables, while creating the appearance of successfully collecting payments from customers.   Subsequent Events 
+
+ The Commission's complaint further alleges that: 
+
+  During the last quarter of 2000, as information about the company's financial fraud became public through the press, the price of Lernout & Hauspie stock declined dramatically, falling from a high of $72.50 in March 2000 to $.76 on December 29, 2000.  On December 6, 2000, the common stock of Lernout & Hauspie was de-listed by Nasdaq.  Thereafter, Lernout & Hauspie voluntarily de-listed from Nasdaq Europe in March 2001.  Lernout & Hauspie common stock is currently quoted on the "Pink Sheets" disseminated by Pink Sheets LLC.   
+
+ On November 29, 2000, Lernout & Hauspie filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware.  On December 27, 2000, Lernout & Hauspie filed a voluntary petition under Belgium's insolvency statutes.  Both courts determined that reorganization and recovery were not possible, and the company is currently in liquidation proceedings in the U.S. and Belgium.   According to the Commission's complaint, the conduct described above violated the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13a-16 thereunder.  The Commission seeks a permanent injunction against future violations by Lernout & Hauspie of the above provisions of the federal securities laws. 
+
+ The Commission acknowledges the assistance of the United States Attorney for the Southern District of New York; the Belgian Ministry of Justice (pursuant to the provisions of the Mutual Legal Assistance Treaty in effect between the United States and Belgium); and the Jersey Attorney General.   
+
+ The Commission's investigation is continuing with respect to other persons and entities. 
+
+   SEC Complaint in this matter  
+
+
+ 
+ 
+ 
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diff --git a/raw/aaer/2002/AAER-1649.txt b/raw/aaer/2002/AAER-1649.txt
new file mode 100644
index 0000000000000000000000000000000000000000..601763f786673e640faf77344b1e7edb223e4f04
--- /dev/null
+++ b/raw/aaer/2002/AAER-1649.txt
@@ -0,0 +1,1474 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | J. Mark Samper, CPA 
+     
+     
+     
+     
+     
+     
+     
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+              J. Mark Samper, CPA
+           
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+
+   
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+      
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+        J. Mark Samper, CPA
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46634 / October 10, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1649 / October 10, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10915
+
+         In the Matter of 
+		      J. MARK SAMPER, CPA 
+		      Respondent. 
+      
+  : : : : :   
+     ORDER INSTITUTING PUBLIC 
+   ADMINISTRATIVE PROCEEDINGS
+           PURSUANT TO RULE 102(e) OF THE
+   COMMISSION'S RULES OF PRACTICE,
+           MAKING FINDINGS, AND IMPOSING
+   REMEDIAL SANCTIONS      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it in the public interest that public administrative proceedings be, and hereby are, instituted against J. Mark Samper ("Respondent" or "Samper") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1     II. 
+
+    In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings and the findings contained in Section III.3. below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.
+
+   III. 
+
+    On the basis of this Order and Respondent's Offer, the Commission finds that:
+
+      1. From 1995 until his resignation in February 2000, Samper was the Senior Vice President of Finance and the Chief Financial Officer ("CFO") of FLIR Systems, Inc. ("FLIR").  As FLIR's CFO, Samper prepared, signed, and reviewed FLIR's Forms 10-Q for each of the 1998 and 1999 quarters, the Form 10-K for 1998, and registration statements in May 1998 and November 1999.  Samper drafted the financial statement footnote disclosures and prepared the financial statements throughout 1998 and 1999.  Samper is a Certified Public Accountant in the State of Oregon.  His license was inactive during the time he was CFO of FLIR and is currently lapsed.  He is 41 years old and lives in Portland, Oregon.
+
+      2. FLIR is, and at all relevant times was, an Oregon corporation with its principal place of business in Portland, Oregon.  FLIR's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Nasdaq National Market System.  FLIR designs and manufactures thermal imaging and broadcast camera systems that detect infrared radiation.
+
+      3. On September 30, 2002, the Commission filed a complaint against Samper in  SEC v. J. Kenneth Stringer, III, J. Mark Samper, William N. Martin, and Steven R. Eagleburger , in the United States District Court for the District of Oregon (the "Court") (Civil Action No. CV02-1341ST).  On October 2, 2002, the Court entered a Final Judgment Of Permanent Injunction And Other Relief Against Defendant J. Mark Samper ("Judgment") which (a) permanently enjoins Samper from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; (b) orders Samper to pay $52,500 in disgorgement plus $8,859 in prejudgment interest; (c) orders Samper to pay a civil penalty in the amount of $110,000; and (d) bars Samper from serving as an officer or director of a reporting company.  Samper consented to the entry of the Judgment without admitting or denying any of the allegations in the complaint.
+
+      4. The Commission alleged that FLIR, through Samper and others, fraudulently inflated its earnings before income taxes throughout 1998 and the first three quarters of 1999.  The complaint alleged that Samper authorized the recognition of revenue for fraudulent sales in order to inflate FLIR's earnings.  The complaint also alleged that Samper concealed expenses incurred by FLIR as assets in a suspense account called the "project inventory" account.  The complaint further alleged that Samper caused two receivables to be recorded twice in FLIR's accounts receivable by booking the receivables in the accounting records for two different FLIR locations, resulting in inflated earnings.  In addition, the complaint alleged that Samper lied to FLIR's outside auditors regarding fraudulently recognized sales, project inventory, and the double-booked accounts receivable.  Finally, the complaint alleged that Samper provided financial information for a misleading press release issued by FLIR in February 2000.  
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it in the public interest to impose the sanction agreed to in Respondent Samper's Offer.
+
+  Accordingly, IT IS HEREBY ORDERED,   effective immediately:  
+
+  Samper is suspended from appearing or practicing before the Commission as an accountant.
+
+    By the Commission.
+
+                    Jonathan G. Katz
+               Secretary
+     
+ _______________________
+      1      Rule 102(e)(3) provides, in relevant part, that:
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.
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diff --git a/raw/aaer/2002/AAER-1650.txt b/raw/aaer/2002/AAER-1650.txt
new file mode 100644
index 0000000000000000000000000000000000000000..269c4c4a983cda3452e500ea71d7c89b935cf90b
--- /dev/null
+++ b/raw/aaer/2002/AAER-1650.txt
@@ -0,0 +1,1377 @@
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+        Betty L. Vinson and Troy M. Normand
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+ Litigation Release No. 17783 / October 10, 2002 
+
+ Accounting and Auditing Enforcement Release No.  1650 / October 10, 2002 
+
+ SEC Charges Two Former WorldCom Accountants, Betty Vinson and Troy Normand, with Participating in Multi-Billion Dollar Financial Fraud 
+
+  Securities and Exchange Commission v. Betty L. Vinson and Troy M. Normand, Civil Action No. 02 CV 8083 (JSR)   
+
+ The Securities and Exchange Commission today filed a civil enforcement action against Betty L. Vinson and Troy M. Normand, former accountants in the General Accounting Department of WorldCom, Inc.  The Commission charges that Vinson and Normand participated in a massive fraud that inflated the company's earnings at the direction and with the knowledge of WorldCom's senior management.  WorldCom has admitted that from at least as early as 1999 through the first quarter of 2002, as a result of undisclosed and improper accounting, it materially overstated the income it reported in its financial statements by approximately $7.2 billion.   
+
+ Also today, in connection with the same conduct, Vinson and Normand pleaded guilty to criminal charges filed by the U.S. Attorney's Office for the Southern District of New York.   
+
+ Vinson and Normand are charged by the Commission with violating the antifraud, books and records, and internal controls provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder).  They are also charged with aiding and abetting WorldCom's violations of the periodic reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a) and 13(b)(2)(A) & (B) and Rules 12b-20, 13a-1 and 13a-13 thereunder).  The Commission seeks against Vinson and Normand permanent injunctions, disgorgement of all ill-gotten gains, and civil money penalties. 
+
+ The Commission's action against Vinson and Normand is its fourth civil enforcement action related to the WorldCom fraud.  The first was filed against WorldCom, Inc. on June 27 of this year. ( Litigation Release No. 17588 .)  The Commission sought, among other things, the appointment of a corporate monitor, and on July 3, U.S. District Court Judge Jed S. Rakoff appointed former Commission Chairman Richard Breeden to that position.  The Commission's second enforcement action was filed against former WorldCom Controller David F. Myers on September 26.  ( Litigation Release No. 17753 .)  The Commission's third enforcement action was filed against Vinson and Normand's supervisor, former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7.  ( Litigation Release No. 17771 .) 
+
+ The Commission acknowledges the assistance and cooperation of the U.S. Attorneys' Offices for the Southern District of New York and Southern District of Mississippi, and the Federal Bureau of Investigation. 
+
+ The Commission's investigation into matters related to WorldCom's financial fraud is continuing.   
+
+   SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2002/AAER-1651.txt b/raw/aaer/2002/AAER-1651.txt
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+++ b/raw/aaer/2002/AAER-1651.txt
@@ -0,0 +1,1374 @@
+
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+ 
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+     SEC.gov | G. Matthias Heinzelmann, III 
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+      
+             
+        G. Matthias Heinzelmann, III
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+             
+
+ LITIGATION RELEASE NO. 17788  / October 16, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+ RELEASE NO.  1651 / October 16, 2002
+
+   UNITED STATES v. G. MATTHIAS HEINZELMANN, III , Criminal Action No. 302-CR-178-R, United States District Court for the Northern District of Texas, Dallas Division.
+
+   SECURITIES AND EXCHANGE COMMISSION V. G. MATTHIAS HEINZELMANN, III , Civil Action No. 4:02-CV-0403-A, United States District Court for the Northern District of Texas, Fort Worth Division (filed April 25, 2002).
+
+      On October 3, 2002, Judge Jerry Buchmeyer, United States District Judge for the Northern District of Texas, sentenced G. Matthias Heinzelmann, III, the former executive vice president of Surety Bank of Fort Worth, Texas ("Surety Bank"), to a term of 36 months probation with six months of home confinement, in connection with an elaborate scheme through which Heinzelmann used bank customers' money to conceal bad loans and inflate bank revenues.  In addition, the Court ordered Heinzelmann to pay a $10,000 fine.
+
+  Previously, Heinzelmann entered into a plea agreement with the United States Attorney for the Northern District of Texas, Dallas Division, pursuant to which he pleaded guilty to one count of conspiracy to make false entries in the books and records of a bank.  By conducting the scheme, Heinzelmann also violated the federal securities laws.  These violations are the subject of the Commission's pending civil action against Heinzelmann, filed in the Northern District of Texas, Ft. Worth Division, on April 25, 2002.  In its action, the Commission is seeking a permanent injunction, an officer and director bar, and a civil money penalty.
+
+    According to the Commission's complaint, from 1996 through September 1999, Heinzelmann, while president and director of Surety Capital Corporation ("Surety Capital"), a Fort Worth based reporting company whose sole asset is Surety Bank, a wholly-owned subsidiary, engaged in an elaborate scheme to conceal loan losses incurred by Surety Bank.  The scheme had a material impact on financial statements included in Surety Capital's Forms 10-K and 10-Q.  Specifically, Surety Capital overstated its pre-tax income by 7% in 1996, and understated its pre-tax losses by 16% in 1997 and 97% in 1998.  Further, Surety Capital failed to file its Form 10-Q for the period ending September 30, 1999.  Because of the scheme, Surety Capital failed to make and keep books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets.  Surety Capital also failed to maintain an adequate system of internal financial controls.
+
+    At the time the Commission filed its complaint against Heinzelmann, it simultaneously instituted settled administrative cease-and-desist proceedings against Surety Capital for violations of the reporting, internal controls, and books and records provisions of the Exchange Act.
+     
+
+
+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1652.txt b/raw/aaer/2002/AAER-1652.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0e131e450e050afeba31c32a408a1ee5808b502f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1652.txt
@@ -0,0 +1,1492 @@
+
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+     SEC.gov | Aaron Chaitovsky and Robert Glass 
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+Securities Exchange Act of 1934 
+Release No.  46694  / October 21, 2002 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1652 / October 21, 2002 
+ 
+Administrative Proceeding 
+File No.  3-10917 
+        
+In the Matter of 
+  
+AARON CHAITOVSKY, CPA AND 
+ROBERT GLASS, CPA, 
+  
+Respondents 
+  
+     
+    : : : : : : : : :   
+   ORDER INSTITUTING A 
+PUBLIC ADMINISTRATIVE 
+PROCEEDING PURSUANT 
+TO RULE 102(e) OF THE  
+COMMISSION'S RULES OF 
+PRACTICE AND FINDINGS AND  ORDER OF THE COMMISSION       I. 
+ 
+The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted against Aaron Chaitovsky ("Chaitovsky") and Robert Glass ("Glass") pursuant to Rule 102(e) of the Commission's Rules of Practice.    1   
+
+
+ II. 
+ 
+In anticipation of the institution of this public administrative proceeding, Chaitovsky and Glass have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings, except that each admits the entry of the injunction set forth in paragraph III.2, and further admits the Commission's jurisdiction over him and over the subject matter of this proceeding, Chaitovsky and Glass consent to the entry of this Order Instituting a Public Administrative Proceeding Pursuant to Rule 102(e) of the Commission's Rules of Practice and Findings and Order of the Commission ("Order").  
+
+ III. 
+ 
+On the basis of this Order and the Offers, the Commission makes the following findings:    2   
+  Chaitovsky and Glass are certified public accountants licensed in New York.  Chaitovsky and Glass served as the audit and SEC review partners, respectively, for Citrin Cooperman & Co., LLP's audit of AppOnline.com, Inc.'s ("AppOnline") December 31, 1999 financial statements.   
+ On October 18, 2002, the United States District Court for the Eastern District of New York entered final judgments permanently enjoining Chaitovsky and Glass from violating Sections 10A and 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.   SEC v. Paul Skulsky, et al. , No. 02-CV-1524 (DRH).   
+ In its complaint in  SEC v. Paul Skulsky, et al. , the Commission, among other things, alleges:   
+  AppOnline misappropriated funds that warehouse banks had advanced to close mortgage loans, and used these funds to pay, among other things, its operating expenses.  In order to conceal its misappropriation of funds, AppOnline materially misrepresented its financial condition.  Among other things, AppOnline created a phantom payable on its books and records to a related party, the Skulsky Trust.  This liability to the Skulsky Trust generally reflected the amount of funds that AppOnline had misappropriated from the warehouse banks. In fact, AppOnline did not owe the Skulsky Trust any funds.  Because this sham liability to the Skulsky Trust became too large, AppOnline also improperly netted unrelated receivables to reduce the amount of the supposed liability. As of December 31, 1999, AppOnline had misappropriated approximately $47 million from its warehouse banks.   
+ Chaitovsky and Glass caused the issuance of an audit report containing an unqualified opinion stating that the audit was conducted in accordance with Generally Accepted Auditing Standards ("GAAS") and that the financial statements had been prepared in conformity with Generally Accepted Accounting Principles ("GAAP").  Chaitovsky and Glass knew, or were reckless in not knowing, that these representations were false.  Specifically, Chaitovsky and Glass knew, or were reckless in not knowing, that AppOnline:  (i) had mischaracterized its debt to the warehouse banks as a debt to the Skulsky Trust; (ii) improperly netted unrelated receivables against the sham liability to the Skulsky Trust to reduce the stated balance owed; (iii) improperly recorded ordinary operating expenses as nonrecurring expenses associated with the development of AppOnline's internet division; and (iv) failed to disclose the significant managerial role of Paul Skulsky, a convicted felon, in the operations of AppOnline. Chaitovsky and Glass knew, or were reckless in not knowing, that the audit of AppOnline's financial statements had not been conducted in accordance with GAAS.   
+ Chaitovsky and Glass knew that AppOnline had filed false financial statements with the Commission.  Specifically, Chaitovsky and Glass knew that AppOnline's financial statements contained in the Form 10-QSB for the period ended September 30, 1999 were materially false in that they failed to include losses associated with the company's internet division.  Chaitovsky and Glass took no steps to notify the board of directors of AppOnline, or any committee thereof, with regard to whether AppOnline had committed an illegal act.   
+  Based on the foregoing, the Commission finds that: (i) Chaitovsky and Glass have been permanently enjoined within the meaning of Rule 102(e)(3)(i) of the Commission's Rules of Practice "by … [a] court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder;" and (ii) Chaitovsky and Glass engaged in improper professional conduct and willfully violated, or willfully aided and abetted the violation of, provisions of the Federal securities laws and rules, for purposes of Rule 102(e)(1)(ii) and (iii) respectively, of the Commission's Rules of Practice. Specifically, Chaitovsky and Glass violated Sections 10(b) and 10A of the Exchange Act and Rule 10b-5, and aided and abetted violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1.   
+ In determining to accept the Offers, the Commission considered remedial acts promptly undertaken by Respondents and cooperation afforded the Commission staff. 
+  IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to accept the Offers and impose the relief agreed to therein. 
+ 
+Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+  Chaitovsky and Glass are suspended from appearing or  practicing before the Commission as an accountant.   
+ After five years from the date of this order, Chaitovsky and Glass each may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:   
+  a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that his work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or   
+ an independent accountant. Such an application must satisfy the Commission that:   
+   (a)  
+ Chaitovsky or Glass, or the firm with which either is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");    (b)  
+ Chaitovsky or Glass, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and     (c)  
+ As long as Chaitovsky or Glass appear or practice before the Commission as an independent accountant either will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.       The Commission will consider an application by Chaitovsky or Glass to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy. However, if state licensure is dependent on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to his character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+  
+By the Commission. 
+ 
+ 
+ 
+ 
+Jonathan G. Katz 
+Secretary 
+ 
+ 
+ 
+        1   
+ Rule 102(e)(3)(i) of the Commission's Rules of Practice provides, in relevant part, that:  [t]he Commission, with due regard to the public interest and without preliminary hearing may … suspend from appearing or practicing before it any … accountant ... who has been by name: (A) [p]ermanently enjoined by any court of competent jurisdiction, by reason of his or her conduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. Paragraph 1 of Rule 102(e) provides, in relevant part, that: The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter: . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder.        2   
+ The findings herein are made pursuant to the Offers and are not binding on any other person or entity in this or any other proceeding.    
+ 
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diff --git a/raw/aaer/2002/AAER-1653.txt b/raw/aaer/2002/AAER-1653.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3083af649acc7f515ec8f0f41a14009112612cd2
--- /dev/null
+++ b/raw/aaer/2002/AAER-1653.txt
@@ -0,0 +1,1377 @@
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+ 
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+   
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+ LITIGATION RELEASE NO. 17794 / October 21, 2002
+
+ Accounting and Auditing Enforcement Release No.  1653 / October 21, 2002 
+
+   Securities and Exchange Commission v. Paul Skulsky, et al. , No. 02-CV-1524 (DRH) (E.D.N.Y. Oct. 18, 2002)
+
+  SEC SETTLES CIVIL FRAUD CASE AGAINST AARON CHAITOVSKY
+ AND ROBERT GLASS, FORMER AUDITORS FOR APPONLINE.COM, INC.
+
+  The Commission today announced that on October 18, 2002, the Honorable Denis R. Hurley, United States District Judge, Eastern District of New York, entered final judgments of permanent injunction and other relief against defendants Aaron Chaitovsky and Robert Glass.
+
+  Without admitting or denying the allegations of the complaint, defendants consented to the entry of final judgments permanently enjoining them from violating Sections 10(b) and 10A of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.  The Court also ordered Chaitovsky to pay a civil penalty of $35,000, and Glass to pay a civil penalty of $25,000.
+
+  In its complaint filed on March 12, 2002, the Commission alleged that defendants Chaitovsky and Glass served as the engagement partner and SEC review partner, respectively, on the audit of AppOnline.com, Inc.'s ("AppOnline") December 31, 1999 financial statements, which were filed with the Commission.  The complaint alleged that Chaitovsky and Glass violated Sections 10(b) and 10A of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, by causing the issuance of an audit report, which contained an unqualified opinion stating that the audit had been conducted in accordance with Generally Accepted Auditing Standards ("GAAS") and that the financial statements had been prepared in conformity with Generally Accepted Accounting Principles ("GAAP").  Chaitovsky and Glass knew, or were reckless in not knowing, that the audit had not been performed in accordance with GAAS and that the financial statements had not been prepared in conformity with GAAP.  Chaitovsky and Glass also knew that AppOnline had filed false financial statements with the Commission, but took no steps to notify AppOnline's board of directors, or any committee thereof, that an illegal act had or might have occurred.
+
+ 
+
+  The Commission acknowledges the assistance of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation for their assistance in this matter.  For additional information, see  Litigation Release No. 17407  (March 12, 2002)
+     
+
+
+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1654.txt b/raw/aaer/2002/AAER-1654.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ab1c3cfa2960f4402a28e4dfcaae6f4fac98fc3b
--- /dev/null
+++ b/raw/aaer/2002/AAER-1654.txt
@@ -0,0 +1,1490 @@
+
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+ Securities Exchange Act of 1934 
+Rel. No.46710 / October 23, 2002 
+
+ Accounting and Auditing Enforcement 
+Rel. No. 1654 / October 23, 2002 
+
+ Admin. Proc. File No. 3-10786 
+
+
+   
+  In the Matter of 
+ Ernst & Young LLP   
+ : : : : : :  
+  ORDER     Introduction and Procedural Background 
+
+ On May 20, 2002, the Commission authorized the institution of this administrative proceeding against respondent Ernst & Young LLP ("E&Y") pursuant to Section 21C of the Securities Exchange Act of 1934   1   and Rule 102(e) of the Commission's Rules of Practice.   2    In the Order Instituting Proceedings ("OIP") the Division of Enforcement and the Office of the Chief Accountant ("the Staff") alleged that, by auditing the financial statements of PeopleSoft, Inc. ("PeopleSoft") in fiscal years 1994 through 1999 while E&Y and PeopleSoft engaged in joint business relationships, E&Y violated auditor independence requirements, was a cause of PeopleSoft's alleged violations of the Exchange Act, and engaged in improper professional conduct.   3    The Staff sought a cease and desist order, disgorgement of audit fees, and Rule 102(e) sanctions.   
+
+ The decision to authorize the institution of this proceeding was made by then-Commissioner Isaac C. Hunt, Jr.   4    Commissioner Hunt acted as Duty Officer pursuant to the provisions of 17 C.F.R. § 200.43 ("Rule 43").   5    E&Y knew that only one Commissioner authorized the institution,   6   and responded with a motion for summary disposition filed on June 12, 2002 pursuant to Rule 250 of the Commission's Rules of Practice, challenging Commissioner Hunt's exercise of duty officer authority.   7   
+
+ On July 2, 2002, the law judge granted E&Y's motion for summary disposition on the ground that this proceeding was not lawfully authorized.  The Order concluded that Commissioner Hunt's use of Rule 43 authority to authorize the institution of this proceeding "was plainly erroneous and inconsistent with the plain language of the Rule."   
+
+ On July 23, 2002, the Staff filed a Petition for Review of the Order.  On July 29, 2002, E&Y filed an application for leave to file an opposition to the Staff's petition, and on August 5, 2002, the Staff filed an application for leave to file a reply.  On September 5, 2002, the Staff filed a Notice of Withdrawal of its petition for review, requesting that we make immediately effective the law judge's decision, which dismissed the proceeding without prejudice, allowing the Staff to seek authorization for the filing of a new OIP.  
+
+ Analysis and Disposition 
+
+ We have reviewed this matter in the exercise of our supervisory power to direct and control administrative proceedings before us.  That review has led us to conclude that the Commission, not an administrative law judge, has the authority to review action taken by a Commissioner as Duty Officer. The appropriate course, therefore, is to vacate the law judge's Order.   
+
+ The issue posed by E&Y's motion was a question of law -- Commissioner Hunt's authority to authorize the institution of the proceeding as Duty Officer.  Rule 43(c) provides that the Commission may, in its discretion, at any time review any unaffirmed action taken by a duty officer.   8    Rule 43(c) does not give a Commission administrative law judge authority to review such action.   
+
+ The law judge concluded that the Rules of Practice afforded her a vehicle to review Commissioner Hunt's action.  However, the first of these rules, Rule 100, states that the Rules of Practice do not apply to "[a]ctions taken by the duty officer pursuant to delegated authority under 17 C.F.R. 200.43."   9    The comment to Rule 100 amplifies this, specifying that "[c]ertain agency processes are specifically excluded from the scope of the Rules. . . . [T]hese Rules do not cover an appeal from a decision of the duty officer. Rules governing appeals of such decisions are contained in 17 C.F.R. 200.43(c)."   10    Reading Rule 43 and Rule 100 together leads to the conclusion, which we underscore here, that the exclusive means for a party to seek Commission review of a decision made by a duty officer is to request review by the Commission under Rule 43. 
+
+  In its application for leave to file a reply regarding E&Y's petition for review, the Staff requested that the law judge's Order be vacated.  We have construed that request, together with the Staff's Notice of Withdrawal, as a request that we vacate the Order and dismiss the proceeding without prejudice.  We have determined to grant that request.   
+
+ Finally, this matter has provided us an opportunity to consider the operation of Rule 43, including our notice procedures.  We intend to revisit those procedures and adopt  mechanisms to increase the transparency of the duty officer's exercise of authority under Rule 43. 
+
+ Accordingly, it is ORDERED that the Order issued by the administrative law judge in this proceeding on July 2, 2002 be, and it hereby is, VACATED; and it is further 
+
+ ORDERED that this administrative proceeding be, and it hereby is, DISMISSED without prejudice.   
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1   15 U.S.C. § 78u-3.  
+
+   2   17 C.F.R. § 201.102(e) (2002). 
+
+   3   The OIP alleged that E&Y directly violated Rule 2-02(b) of Regulation S-X, was a cause of PeopleSoft's alleged violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, and engaged in improper professional conduct within the meaning of Rule 102(e). 
+
+   4   Commissioner Hunt resigned his position on August 2, 2002. 
+
+   5   This fact is established by the declaration of the Commission's Secretary, Jonathan G. Katz, which is part of the record of this proceeding. 
+
+   6   A  Los Angeles Times  article that appeared the day after the OIP issued attributed to a Commission spokesperson the statement that "the charges were approved by a single SEC member, Isaac Hunt, because Chairman Harvey Pitt and Commissioner Cynthia Glassman recused themselves."  
+
+   7   17 C.F.R. § 201.250 (2002).  E&Y attached a copy of the  Los Angeles Times  article to its summary disposition motion.  The Katz declaration, discussed  supra  note 5, was filed by the Staff in response to E&Y's motion. 
+
+   8   Rule 43(c)(2)(i), 17 C.F.R. § 200.43(c)(2)(i) (2002). 
+
+   9   Rule 100(b)(2), 17 C.F.R. § 201.100(b)(2) (2002). 
+
+   10   Comment to Rule of Practice 100, 60 Fed. Reg. 32738, 32745 (June 23, 1995).  The comment to Rule 430 of the Rules of Practice, which governs appeal of actions made by Commission staff pursuant to delegated authority, likewise specifies that, "[d]ue to the different nature of matters delegated to hearing officers, senior staff or the duty officer, the Commission's rules provide different mechanisms for review of such actions.   See  Rules 410 and 411 (procedures relating to initial decisions by a hearing officer); 17 C.F.R. 200.43 (procedures relating to duty officer).  Rule 430 relates to certain delegations made to staff." 60 Fed. Reg. at 32777. 
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diff --git a/raw/aaer/2002/AAER-1655.txt b/raw/aaer/2002/AAER-1655.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7fe0fe272fa827b29479914ad8c8aee0faae0eb1
--- /dev/null
+++ b/raw/aaer/2002/AAER-1655.txt
@@ -0,0 +1,1374 @@
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+ LITIGATION RELEASE NO.  17815 / October 30, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO.  1655 / October 30, 2002
+
+   Securities and Exchange Commission v. Stephen R. Becker , Civil Action No.  02CV02126 (JDB)  (D.D.C. filed Oct. 30, 2002)
+
+   SEC CHARGES FORMER REGIONAL CONTROLLER OF  
+  EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. WITH  
+  RECORDING FICTITIOUS REVENUE ON THE COMPANY'S BOOKS 
+
+  The Securities and Exchange Commission ("Commission") today filed a settled civil action in the U.S. District Court for the District of Columbia alleging that Stephen R. Becker ("Becker") violated the antifraud, periodic reporting, and corporate record keeping provisions of the federal securities laws by concealing project contract losses at EA Engineering, Science, and Technology, Inc. ("EA Engineering") during the company's fiscal year ended August 31, 1999.  EA Engineering, which has its principal executive offices in Hunt Valley, Maryland, is primarily engaged in the business of energy, environmental, and health and safety consulting.  In September 2001, the company was taken private pursuant to a management-led tender offer. 
+
+  The Commission's Complaint alleges that Becker, a Regional Controller at EA Engineering at the time, hid the project contract losses by intentionally recording fictitious revenue (in the form of unbilled accounts receivable) on the company's books, thereby concealing the losses from EA Engineering managers who had emphasized the importance of the company making its projected earnings.  The Commission alleged that, as a result of Becker's actions, the company overstated its unbilled accounts receivable at the end of its quarter ended May 31, 1999, by $1,408,800 and at the end of its fiscal year ended August 31, 1999, by $1,469,000 and understated its loss before income taxes by $93,000 for that fiscal year.  Becker, without admitting or denying the allegations in the Complaint, consented to the entry of a final judgment permanently enjoining him from violations of Sections 10(b) and 13(b)(5) of the Securities Exchange act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13 and ordering him to pay a civil money penalty of $20,000. 
+
+  Becker also agreed, without admitting or denying the Commission's substantive findings therein, to settle a proposed administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice.  The settled proceeding, to be based on, and instituted upon, entry of the injunction in the Commission's civil action, suspends Becker from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after three years.  
+  
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diff --git a/raw/aaer/2002/AAER-1656.txt b/raw/aaer/2002/AAER-1656.txt
new file mode 100644
index 0000000000000000000000000000000000000000..25794d2bc39aa9d4fb127938bd8d2cae92ef17aa
--- /dev/null
+++ b/raw/aaer/2002/AAER-1656.txt
@@ -0,0 +1,1375 @@
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+ LITIGATION RELEASE NO.  17816 / October 30, 2002
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1656 / October 30, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION V. LARRY OHMS, Defendant , Civil Action No. 3:02-CV-2361-D (U.S.D.C. N.D. TX)(Dallas Division)
+
+    SEC CHARGES FORMER OFFICER OF PUBLICLY TRADED COMPANY WITH FINANCIAL FRAUD   
+
+  On October 29, 2002, the Securities and Exchange Commission filed a securities fraud case in the United States District Court for the Northern District of Texas (Dallas Division) against Larry Ohms, the former treasurer of Dallas-based United States Lime & Minerals, Inc. (Nasdaq: USLM) ("U.S. Lime" or "the company").  The SEC charged Ohms with financial fraud and other securities law violations related to his embezzlement of nearly $2.2 million from the company during a four-year period.  Ohms, age 40, resides in Carrollton, Texas
+
+  According to the complaint, Ohms held a number of positions at U.S. Lime between January 1998 and December 2001, including corporate controller, secretary, treasurer, and vice president of finance.  During that period, Ohms forged the signatures of other company officers on dozens of checks, and falsified the company's check register to create the appearance that the amounts that he personally received or gave to his creditors went to vendors for U.S. Lime's legitimate business expenses.  Initially, Ohms embezzled relatively small amounts, but over time, his thefts escalated.  By January 2002, his thefts were too large to conceal, and Ohms abruptly resigned.
+
+  The SEC further alleges that Ohms acted alone, and without the knowledge of other U.S. Lime employees.  Throughout the relevant period, Ohms supervised U.S. Lime's internal accounting controls and financial reporting, and he used his position to escape detection by falsifying the company's books and records, lying to its outside auditors, and preparing false financial statements that he then caused the company to file with the SEC.
+
+  The company's management, with the help of its outside auditors, discovered the fraud shortly after Ohms resigned.  The company immediately reported Ohms' misconduct to the SEC, the criminal authorities, and the Nasdaq.  U.S. Lime also hired expert securities counsel to conduct an internal investigation, and cooperated fully with the SEC's investigation of the matter.
+
+  The specific charges against Ohms include securities fraud, circumventing internal controls, falsifying books and records, lying to auditors, violations of periodic reporting and books and records requirements, in violation of, or aiding and abetting violations of, Sections 10(b), 13(a)(2), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder.  In its Complaint, the Commission requested that Ohms be enjoined from future securities violations, that he be barred from serving in the future as an officer or director of a public company, and that he be ordered to disgorge the full amount that he stole from U.S. Lime, with prejudgment interest.
+  
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diff --git a/raw/aaer/2002/AAER-1657.txt b/raw/aaer/2002/AAER-1657.txt
new file mode 100644
index 0000000000000000000000000000000000000000..37b2177cf360c6dabeba5dbf128ac62b928e9cc7
--- /dev/null
+++ b/raw/aaer/2002/AAER-1657.txt
@@ -0,0 +1,1364 @@
+
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+              Richard P. Smyth, Arnold E. Johns, Jr., Michael J. Becker and Alan T. Davis
+           
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+             
+        Richard P. Smyth, Arnold E. Johns, Jr., Michael J. Becker and Alan T. Davis
+       
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+ The Securities and Exchange Commission ("Commission") announced today that on October 31, 2002, the Honorable Clarence Cooper of the United States District Court for the Northern District of Georgia, entered an order of permanent injunction and other relief against Arnold E. Johns, Jr. of Atlanta, Georgia for engaging in a wide-range of securities laws violations, including that misstatements were made by Vista 2000, Inc. ("Vista") in filings with the Commission.  Johns was a director and president of Vista, a now defunct consumer products company formerly headquartered in Roswell, Georgia.   
+
+  Judge Cooper's recent order permanently enjoined Johns from further violating the antifraud provisions, books and records provisions, internal accounting control and reporting provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and Rules 10b-5, 12b-20, 13-11, 13a-13 and 13b2-1 thereunder].  Johns consented to the entry of the order without admitting or denying the allegations of the Commission's amended complaint.  Johns was ordered to pay disgorgement and prejudgment interest in amounts to be resolved upon motion of the Commission at a later date. The Commission previously sued Johns and three other men for various violations of the federal securities laws.  The other defendants are Richard P. Smyth of Fernandina Beach, Florida, Alan T. Davis of Gainesville, Georgia and Michael J. Becker of Marietta, Georgia, all of whom have been previously enjoined by the Court.  
+
+  The Commission's amended complaint alleged a wide-range of securities law violations committed by Johns during 1995 and 1996.  The allegations included Johns': (1) failure to conform with generally accepted accounting principles ("GAAP") resulting in the overstatement in various filings made with the Commission of Vista's revenues, income, earnings per share, and assets during 1995 and 1996 (the misstated amounts ranged up to 83,592% and in most periods, resulted in Vista reporting income when it was, in fact, experiencing losses), (2) failure to disclose the misappropriation of $481,000 in 1996 by Vista's chairman of the board, and (3) engaging in illegal insider selling of Vista common stock during 1996. The Commission alleged in its amended complaint that the misstatements contained in Vista's financial statements, during Johns' tenure, were material and caused numerous reports on Forms 10-QSB and 8-K to be false and misleading.  
+
+   See also :  L.R. 17566  (June 17, 2002);  L.R. 17211  (October 30, 2001);  L.R. 17175  (October 5, 2001);  L.R. 17044  (June 21, 2001).
+  
+ 
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+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2002/AAER-1658.txt b/raw/aaer/2002/AAER-1658.txt
new file mode 100644
index 0000000000000000000000000000000000000000..953c2edb82509bbb36fc9745c284b549b2829237
--- /dev/null
+++ b/raw/aaer/2002/AAER-1658.txt
@@ -0,0 +1,1369 @@
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+              WorldCom, Inc.
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+The Securities and Exchange Commission today filed an amended complaint against WorldCom, Inc.  The amended complaint, filed in the Commission's pending civil action in federal district court in New York with WorldCom's consent, adds claims that WorldCom violated the antifraud provision of the Securities Act of 1933 (Section 17(a)), in connection with several securities offerings during the fraud, and also violated the internal controls and books and records provisions of the Securities Exchange Act of 1934 (Sections 13(b)(2)(A) and 13(b)(2)(B)).  The amended complaint broadens the Commission's charges to allege that WorldCom misled investors from at least as early as 1999 through the first quarter of 2002, and further states that the company has acknowledged that during that period, as a result of undisclosed and improper accounting, WorldCom materially overstated the income it reported on its financial statements by approximately $9 billion. 
+ 
+The Commission filed its initial complaint against WorldCom on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for five quarters-all quarters in 2001 and the first quarter of 2002.  (Litigation Release No. 17588.)  The initial complaint charged WorldCom with violating various antifraud and reporting provisions of the federal securities laws, including Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5, 13a-1, 13a-13 and 12b-20, during those five quarters.  The Commission also sought the appointment of a corporate monitor, and on July 3, U.S. District Court Judge Jed S. Rakoff appointed former Commission Chairman Richard Breeden to that position. 
+ 
+Since the Commission filed its action against WorldCom, the company has made a series of announcements expanding its anticipated restatement in amount and time.  In addition, the Commission has brought civil actions against four former employees of WorldCom.  The Commission filed civil actions against former WorldCom Controller David F. Myers on September 26 (Litigation Release No. 17753); former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7 (Litigation Release No. 17771); and Betty L. Vinson and Troy M. Normand, former accountants in the WorldCom's General Accounting Department, on October 10 (Litigation Release No. 17783).  All of these actions are still pending.  
+ 
+The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York, and the Federal Bureau of Investigation. 
+ 
+The Commission's investigation into matters related to WorldCom's financial fraud is continuing.   
+
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diff --git a/raw/aaer/2002/AAER-1659.txt b/raw/aaer/2002/AAER-1659.txt
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index 0000000000000000000000000000000000000000..265ee0a8d4b9dd498817b55766dd9218550824b7
--- /dev/null
+++ b/raw/aaer/2002/AAER-1659.txt
@@ -0,0 +1,1615 @@
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+              Frederick W. Kolling III, CPA
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+        Frederick W. Kolling III, CPA
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+ Securities Exchange Act of 1934 
+Release No.  46777 / November 6, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.  1659 / November 6, 2002 
+
+ Administrative Proceeding 
+File No. 3-10718 
+
+
+     In the Matter of 
+
+ FREDERICK W. KOLLING III, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : : 
+ 
+ ORDER PURSUANT TO SECTION 21C AND RULE 102(e) MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS, AND ISSUING A CEASE-AND-DESIST ORDER    I. 
+
+ On March 12, 2002, the Securities and Exchange Commission ("Commission") instituted administrative proceedings pursuant to Section 21C of the Securities and Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice  1   against Frederick W. Kolling III, CPA ("Respondent" or "Kolling"). 
+
+ II. 
+
+ Kolling has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's jurisdiction over him and over the subject matter of the proceedings, which are admitted, Respondent consents to the entry of the findings, a cease-and-desist order, and the imposition of the remedial sanctions set forth herein. 
+
+ III. 
+
+ On the basis of this Order and the Offer submitted by Respondent, the Commission finds that:  
+
+ A. Summary 
+
+ 1. This proceeding involves violations of the federal securities laws by Kolling arising out of financial fraud at Gunther International, Ltd. ("Gunther"), a Delaware Corporation with its principal executive offices in Norwich, CT. during its fiscal years ended March 31, 1997 and March 31, 1998.  On January 14, 1999, Gunther restated the financial statements in its Forms 10-KSB for fiscal years 1997 and 1998 and the financial statements in its Forms 10-QSB for the first three quarters of fiscal year 1998. 
+
+ 2. The fiscal year 1997 financial results, which initially reported $259,000 in net income, were restated to a $1.3 million net loss.  The fiscal year 1998 financial results, which initially reported a $2.7 million net loss and $9.3 million of total assets, were restated to a $2.63 million net loss and $8 million of total assets.  In the restated quarters of fiscal year 1998, Gunther reported net losses of $897,430, $961,668 and $610,784 in the first, second and third quarters, respectively, after it had previously reported a first quarter net loss of $227,580, second quarter net income of $43,778 and third quarter net income of $125,026.   
+
+ 3. The financial statements in the Form 10-KSB for fiscal year 1997 were restated because (1) revenue was improperly recognized for service contracts that should have been deferred, (2) accounts receivables were improperly included in the company's assets with respect to contracts for the sale of systems that had not been signed by the end of the fiscal year, (3) a significant invoice was not recorded at year end for Gunther's largest vendor and (4) a liability was improperly reversed for an invoice that was allegedly in dispute.  The quarterly and annual financial results reported for fiscal 1998 were restated, in part, because (1) expenses were understated when assets were not reduced following the completion of certain machine subassemblies and (2) assets and net income were overstated when machine deposits were improperly recorded. 
+
+ 4. Kolling was Gunther's Chief Financial Officer during the relevant time period.  He assisted in the preparation of the financial statements in question and signed them.  Kolling knew, or was reckless in not knowing, that Gunther's annual and periodic financial statements were materially false or misleading.  Kolling overstated assets and revenues and understated expenses when he made or permitted to be made improper entries into Gunther's accounting system and ignored "red flags" that should have alerted him to material errors in Gunther's financial statements.  In addition, Kolling knew, or was reckless in not knowing, that the statements he made in the Management's Discussion and Analysis ("MD&A") section of Gunther's Annual Report on Form 10-KSB for fiscal year 1997 were materially false or misleading.  Kolling also made materially false or misleading statements in management representation letters given to Gunther's independent auditors in connection with their audit of Gunther's fiscal year 1997 and 1998 financial statements.  Finally, Kolling sold Gunther stock in January 1998 when he knew, or was reckless in not knowing, that Gunther had filed materially false or misleading financial statements with the Commission. 
+
+ 5. Kolling, age 53, was at all relevant times the Vice President, Chief Financial Officer, Treasurer and a director of Gunther and a Certified Public Accountant licensed in the state of Rhode Island.   Kolling's job responsibilities included drafting SEC filings, maintaining the percentage of completion schedule for systems revenue recognition, supervising accounts payable, accounts receivable, and human resources.  The employees in Gunther's accounting department reported to Kolling during the relevant time period.  Kolling also managed Gunther's relationship with the Bank of Boston, the bank that provided Gunther's financing.  Kolling resides in East Greenwich, Rhode Island. 
+
+ 6. Gunther manufactures, sells and services complex document finishing systems.  Its systems copy, selectively collate, staple or bind documents and insert them into envelopes.  Gunther's 1997 fiscal year ran from April 1, 1996 through March 31, 1997, and its 1998 fiscal year ran from April 1, 1997 through March 31, 1998. 
+
+ 7. Gunther's sole source of liquidity during fiscal years 1997 and 1998, other than payments on the systems and service contracts, was a financing agreement with the Bank of Boston.  In 1996, Gunther borrowed $1,750,000 in a revolving note that was secured by assets held by Gunther's largest investor at the time.  Also in 1996, Gunther entered into a $250,000 revolving note that was secured by all the deposits, credits, collateral and property of the company.  In February 1997, Kolling negotiated an increase in Gunther's revolving note to $500,000.  In order to secure the increase in Gunther's line of credit, Kolling had to provide the Bank of Boston with profit projections for Gunther's 1997 fiscal year.  Kolling also committed to the Bank of Boston that Gunther would meet certain operating profit requirements at the end of fiscal year 1997 and every quarter in fiscal year 1998. 
+
+ 8. The materially false or misleading financial statements that Kolling filed in fiscal year 1997 enabled Gunther to report the profit that Kolling had assured the bank in Kolling's projections and to meet the operating profit requirement in the revolving loan agreement that had recently been increased.  Also, the materially false or misleading quarterly financial statements that Kolling filed in fiscal year 1998 enabled Gunther to (1) report improved results as compared to fiscal year 1997, (2) avoid violating the debt covenants in the second and third quarters of fiscal year 1998 and (3) avoid the possibility of the bank liquidating the collateral securing the $1,750,000 and $500,000 notes. 
+
+ B. Facts 
+
+ 1. Kolling Overstates 1997 Service Revenue by Causing Gunther to Record Revenue for Contracts that Had Not Started 
+
+ a. Incomplete "trued-up" schedule 
+
+ 9. Customers purchasing Gunther systems typically entered into service contracts with Gunther for service on the systems.  The contracts required the customers to pay for the service, in advance, on either a quarterly or annual basis.  Gunther, in turn, would bill the customer in advance of actually performing the service.  Under Generally Accepted Accounting Principles ("GAAP"), service revenue should be recognized  pro rata , over the contractual term of the arrangement or the expected period during which those specified services will be performed.  Gunther's practice was to record service billings in a deferred service revenue account until the month in which the services were performed, at which point it would recognize revenue. 
+
+ 10. In fiscal year 1996, and through the second quarter of fiscal year 1997, Gunther used a monthly tracking schedule to determine the appropriate amount of service revenue to record on a monthly basis for each service contract.  Gunther would record the amount earned each month on the tracking schedule and, in turn, recognize that amount as revenue. 
+
+ 11. At some point in the third quarter of fiscal year 1997, Gunther discontinued the use of this schedule.  Because Gunther had abandoned the monthly tracking schedule, Kolling devised a "trued-up" schedule to determine the appropriate fiscal year-end balance in the deferred service revenue account in the general ledger.  This "trued-up" schedule was intended to be a list of all the in-process contracts and the amount of revenue that had not yet been earned for that contract. 
+
+ 12. To determine the year-end revenue number, Kolling, or a member of the accounting department that reported to him, took the total amount of deferred revenue on the "trued-up" schedule, and then subtracted that from the amount of deferred revenue reflected on the general ledger at fiscal year-end.  What remained was $952,000, which Kolling, or a member of the accounting department that reported to him, then recorded as revenue.  The amount that was recorded as revenue overstated service revenue in fiscal year 1997 by $515,000, due to errors in the "trued-up" schedule. 
+
+ 13. Service revenue was overstated by over $446,000 because the "trued-up" schedule left off a number of contracts.  Therefore, when the deferred revenue account balance in the general ledger was reduced by subtracting an understated deferred service revenue total from the "trued-up" schedule, revenue was improperly recognized.  This amount had not yet been earned and should have been recognized in fiscal year 1998.  In addition, certain invoices recorded in March 1997 (for fiscal year 1997), but relating to services to be performed in fiscal year 1998, were included in the deferred revenue account balance in the general ledger.  The deferred revenue account and accounts receivable should have been separately reduced by $68,000 for these invoices but they were not and, consequently, since these items were not on the "trued-up" schedule, service revenues were overstated further. 
+
+ b. Service Contracts Relating to Fiscal Year 1998 Improperly Recorded Directly into Revenue Account 
+
+ 14. The manner in which Gunther recorded its service invoices abruptly changed during the last three weeks of fiscal year 1997.  Beginning with service invoices that were recorded on March 11, 1997, eleven of Gunther's March 1997 service invoices were recorded directly to the service revenue account instead of the deferred service revenue account.  These invoices were for services to be performed in fiscal year 1998.  Recording these invoices directly into revenue overstated service revenue in fiscal year 1997 by $309,000. 
+
+ 2. Kolling Causes Gunther to Overstate Net Income by Failing to Record a March 1997 Payable 
+
+ 15. In fiscal year 1997, a third party provider, DataCard, performed most of the maintenance service on Gunther's systems.  Gunther expected DataCard to bill it in advance for servicing the regular monthly maintenance contracts.  The regular maintenance bills from DataCard averaged between $250,000 and $280,000 per month during fiscal year 1997, making them one of Gunther's largest monthly expenses. 
+
+ 16. On March 20, 1997, DataCard generated a $242,000 bill for March 1997 services.  Under GAAP, Gunther should have recorded the liability and corresponding expense in fiscal year 1997, because that is the period to which the services related.  However, the invoice was entered into the accounting system on April 14, 1997, which was in fiscal year 1998.  Because the payable had not been accrued in fiscal year 1997, Gunther understated service cost of sales, which overstated net income in fiscal year 1997, by approximately $242,000. 
+
+ 3. Kolling Causes Gunther to Overstate Net Income in Fiscal Year 1997 by Improperly Reversing an Invoice Owed to DataCard 
+
+ 17. In January 1997, DataCard gave Gunther a $203,000 supplemental invoice.  DataCard gave Kolling all the necessary documentation to support the validity of the invoice in January 1997, and the invoice was entered into the accounting system in January 1997.  Gunther's accounting manager began to reconcile the invoice in January 1997. 
+
+ 18. The DataCard invoice was improperly reversed in the first quarter of fiscal year 1998.  By reversing this valid payable, Gunther understated service cost of sales, which overstated net income in fiscal year 1997 by $203,000. 
+
+ 4. Kolling Causes Gunther to Overstate Fiscal Year 1997 Net Income, Accounts Receivable and Revenue 
+
+ 19. When Gunther sent a contract to a customer to sign, it sent along an invoice for the deposit amount.  Generating the deposit invoice created an accounts receivable and increased service revenue.  Gunther had to reduce accounts receivable and service revenue at the end of each quarter for invoices for which customers had not signed a contract. 
+
+ 20. Accounts receivable and service revenue were not reduced for two deposit invoices generated in March 1997, for which a contract had not been signed by March 31, 1997.  This was contrary to Gunther's percentage of completion revenue recognition policy for systems and contrary to its internal policy of recording accounts receivable upon receipt of a contract.  These improperly included deposit invoices caused accounts receivable on the balance sheet to be overstated as of March 31, 1997 by approximately $323,000 and net income in fiscal year 1997 by the same amount. 
+
+ 21. When systems accounts receivable were recorded, Kolling was supposed to add these systems to the percentage of completion schedule at the end of fiscal year 1997 but he did not.  If he had, an offsetting entry would have been made and Gunther's income statement would not have been overstated, by approximately $323,000, in fiscal year 1997. 
+
+ 5. Kolling Makes Materially False or  Misleading Statements in 1997 to Gunther's Independent Auditors 
+
+ 22. In connection with the fiscal year 1997 audit, Kolling signed a management representation letter to Gunther's independent auditors that was materially false or misleading.  Among other things, Kolling represented that Gunther's financial statements were prepared in conformity with GAAP, and that they fairly presented, in all material respects, the financial condition of the company. 
+
+ 23. When he signed the management representation letter, Kolling knew, or was reckless in not knowing, that Gunther's financial statements for fiscal year 1997 were materially false or misleading because service revenues were overstated, service cost of sales was understated and accounts receivable and net income were overstated. 
+
+ 6. Kolling Makes Materially False or Misleading Statements in the MD&A Section of Gunther's Form 10-KSB for Fiscal Year 1997 
+
+ 24. Gunther's Form 10-KSB for fiscal year 1997 was filed with the Commission on June 30, 1997.  Kolling drafted the MD&A section of that Form 10-KSB.  In connection with preparing the MD&A section, Kolling determined that Gunther had achieved an historically unprecedented 45% gross profit margin for its service business.  Gunther had reported a 30% service gross profit margin in fiscal year 1996, and a 21% service gross profit margin in fiscal year 1995.  In the MD&A, Kolling attributed the increase in Gunther's gross profit margin to an increase in requests for special services. 
+
+ 25. Kolling also reported, in the 1997 Form 10-KSB, a $1.7 million, or 36%, increase in its fiscal year 1997 service revenues compared to fiscal year 1996.  In the MD&A, Kolling attributed the increase to a "larger number of systems in the field and inflationary price increases." 
+
+ 26. Kolling knew, or was reckless in not knowing, that the explanation in the MD&A for the increased gross profit margin and the increased service revenue was materially false or misleading, and that the true reason for the increase, which he did not disclose, was the accounting errors and adjustments that he had made or had failed to correct.   
+
+ 7. Fiscal Year 1998:  Kolling Causes Gunther to Overstate Assets and Net Income In Connection with Machine Subassemblies 
+
+ 27. Gunther began to upgrade its accounting software system in October 1996.  At the beginning of its fiscal year 1998, which began on April 1, 1997, Gunther installed job cost software in the new accounting system.  In addition to other features, the new software allowed Gunther to track job costs for its systems by collecting and summarizing materials, labor, overhead costs and total costs in a separate job cost system.  The upgraded accounting system required Gunther to change the process for accounting for the costs incurred to manufacture subassemblies that became a part of Gunther systems. 
+
+ 28. In fiscal year 1998, most Gunther systems were built by making subassemblies, such as folders and inserters, and then adding the subassemblies to the frame of a custom-ordered Gunther system.  To manufacture a subassembly, Gunther withdrew parts from inventory and then assembled them into a subassembly.  When the subassembly was finished, it was moved from the shop floor into the stock room, thereby increasing inventory and decreasing cost of sales.  Because of the idiosyncrasies of Gunther's updated accounting system, moving the completed subassemblies to inventory overstated assets, called "cost in excess of billings," and understated expenses throughout fiscal year 1998. 
+
+ 29. Gunther's accounting system overstated assets and understated expenses in the general ledger when completed subassemblies were moved into inventory.  Kolling was told that he needed to adjust the general ledger and he also was given at least one memo setting forth the manual entries he needed to make to the general ledger to eliminate the overstated assets and the understated cost of sales in the general ledger.  Kolling, however, failed to make these adjustments. 
+
+ 30. Throughout fiscal year 1998, the general ledger's assets were overstated when compared to the cost in excess of billings on his percentage of completion schedule.  The discrepancy grew to $1.15 million by the end of fiscal year 1998. 
+
+ 31. The job costs for Gunther's systems were stated correctly in Gunther's job cost system.  However, the job costs Kolling recorded on his percentage of completion schedule, which helped Kolling to determine assets and revenue for Gunther's systems for financial reporting purposes, were misstated.  
+
+ 32. Kolling increased the machine job costs on his percentage of completion schedule until the assets in the account "cost in excess of billings" agreed to the overstated amount in the general ledger.  When Kolling increased the job costs, the percentage of completion schedule allowed him to increase revenue and assets, which he did.  Kolling then used the overstated figures on his percentage of completion schedule to report false or misleading financial statement results for the first three quarters of fiscal year 1998. 
+
+ 33. As a result of his misconduct relating to the accounting for subassemblies, Gunther overstated net income by approximately $240,000 in the first fiscal quarter, $207,000 in the second fiscal quarter, and $318,000 in the third fiscal quarter of 1998. 
+
+ 8. Kolling Causes Gunther to Overstate Net Income by Failing to Record Deposits 
+
+ 34. In fiscal year 1998, Kolling failed to record properly, on his percentage of completion schedule, the receipt of thirty cash deposits for systems.  The total of the deposits was almost $1.4 million.  Gunther's accounting process for systems depended on the accuracy and completeness of the percentage of completion schedule Kolling prepared.   
+
+ 35. The dollar value of the deposits Kolling did not record increased over time.  The deposits that Kolling left off the percentage of completion schedule enabled him to report improved financial results in the second, third and fourth fiscal quarters (when compared to the prior year) and to meet the debt covenant in the loan agreement with the Bank of Boston in the third and fourth fiscal quarters of fiscal year 1998. 
+
+ 36. Gunther did not meet the operating profit requirement in its revolving loan agreement in the first quarter of fiscal year 1998.  Kolling obtained a waiver of default from the bank because he misled the bank into believing that the company was actually profitable, and that the shortfall was due to a backlog in shipping systems that customers had already ordered. 
+
+ 37. Kolling failed to record thirty deposits on the fiscal year 1998 percentage of completion schedule.  Kolling's failure to include these deposits on the schedule improperly overstated assets and increased net income by almost $1.4 million.   
+
+ 9. Kolling Makes Materially False or Misleading Statements in 1998 to Gunther's Independent Auditors 
+
+ 38.  In connection with the fiscal year 1998 audit, Kolling signed a management representation letter to Gunther's independent auditors that was materially false or misleading.  Among other things, Kolling represented that Gunther's financial statements were prepared in conformity with GAAP, and that they fairly presented, in all material respects, the financial condition of the company. 
+
+ 39.  When he signed the management representation letter, Kolling knew, or was reckless in not knowing, that Gunther's financial statements for fiscal year 1998 were materially false or misleading because assets were overstated and expenses were understated, due to the subassembly problem and because he had improperly accounted for systems deposits on the percentage of completion schedule. 
+
+ 10. Kolling Sells Shares of Gunther Stock 
+
+ 40. In January 1998, Kolling sold 2,000 shares of Gunther stock. Kolling made a $4,397 profit on the sale of his 2,000 shares. 
+
+ 41. When he sold the stock, Kolling knew, or was reckless in not knowing, that Gunther's financial statements for fiscal year 1997, and those reported in Forms 10-QSB filed for the first and second quarters of fiscal year 1998, were materially false or misleading.  As a result, Kolling received ill-gotten gains of $4,397. 
+
+ C. Kolling's Violations of the Federal Securities Laws 
+
+ 42. During the period from February 1997 through March 1998, Kolling willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by making materially false or misleading statements in connection with the purchase or sale of Gunther's securities.  Specifically, Kolling, as Gunther's Chief Financial Officer, signed and filed Gunther's financial statements on Form 10-KSB in fiscal year 1997, Forms 10-QSB for the first three quarters of fiscal year 1998 and Form 10-KSB for fiscal year 1998 that he knew, or was reckless in not knowing, were materially false or misleading.  In addition, in January 1998, Kolling sold 2,000 shares of Gunther stock at a time when he knew, or was reckless in not knowing, that Gunther's financial statements for fiscal year 1997 were materially false or misleading. 
+
+ 43. As set forth above, Kolling, as Gunther's Chief Financial Officer, was responsible for the accuracy of Gunther's books and records.  However, among other things, Kolling overstated job costs and failed to record certain deposits on Gunther's percentage of completion schedule and, consequently, Kolling knew, was reckless in not knowing, or should have known that he had overstated assets and net income and had understated expenses.  By his conduct while he was Gunther's Chief Financial Officer, Kolling willfully violated Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1.  
+
+ 44. As set forth above, Kolling made materially false or misleading statements to Gunther's independent auditors during the audits for fiscal years 1997 and 1998.  Kolling misrepresented that Gunther's financial statements were prepared in conformity with GAAP, and that they fairly presented, in all material respects, the financial condition of the company.  When he signed the management representation letter in 1997, Kolling knew, or was reckless in not knowing, that Gunther's financial statements for fiscal year 1997 were materially false or misleading because service revenues were overstated, service cost of sales was understated and accounts receivable, systems revenue and net income were overstated.  When he signed the management representation letter in 1998, Kolling knew, or was reckless in not knowing, that Gunther's financial statements for fiscal year 1998 were materially false or misleading because assets were overstated and expenses were understated, due to the subassembly problem and because he had improperly accounted for systems deposits on the percentage of completion schedule.  Accordingly, Kolling willfully violated Exchange Act Rule 13b2-2. 
+
+ 45. As further set forth above, Gunther's books and records did not accurately and fairly reflect the transactions and disposition of its assets and its internal controls had been circumvented.  By reason of this and the foregoing, Kolling caused and willfully aided and abetted Gunther's violations of Section 13(b)(2)(A) and (B) of the Exchange Act. 
+
+ 46. As further set forth above, Kolling knew, was reckless in not knowing, or should have known that assets and net income were overstated, and expenses were understated, in certain of Gunther's annual and quarterly reports filed with the Commission in fiscal years 1997 and 1998.  By reason of this and the foregoing, Kolling caused Gunther to file materially false or misleading annual and periodic reports during the relevant period of time.  As a result, Kolling caused and willfully aided and abetted Gunther's violations of Sections 13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+
+ 47. By virtue of his conduct, Kolling willfully violated, and willfully aided and abetted the violation of, provisions of the federal securities laws and rules thereunder within the meaning of Rule 102(e)(1)(iii) of the Commission's Rules of Practice. 
+
+ D. Disgorgement 
+
+ 48. Kolling has submitted a sworn Statement of Financial Condition dated September 5, 2002 and other evidence and has asserted his inability to pay disgorgement plus prejudgment interest .  
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Kolling and to impose the relief agreed to therein. 
+
+ ACCORDINGLY, IT IS ORDERED that: 
+
+ 1. Kolling cease and desist from committing or causing any violation and any future violation, of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and that he cease-and-desist from causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder;   
+
+ 2. Kolling shall pay disgorgement in the amount of $4,397, plus prejudgment interest, but that payment of such amount is waived based upon Respondent's sworn representations in his Statement of Financial Condition dated September 5, 2002 and other documents submitted to the Commission; 
+
+ 3. The Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to:  (1) reopen this matter to consider whether Respondent provided accurate and complete financial information at the time such representations were made; and (2) seek an order directing payment of disgorgement and pre-judgment interest.  No other issue shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate, or incomplete in any material respect. Respondent may not, by way of defense to any such petition:  (1) contest the findings in this Order; (2) assert that payment of disgorgement and interest should not be ordered; (3) contest the amount of disgorgement and interest to be ordered; or (4) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense.  
+
+ 4. Kolling is denied the privilege of appearing or practicing before the Commission as an accountant; 
+
+ 5. After four (4) years from the date of this order, Kolling may request that the Commission consider his reinstatement by submitting an application (attention:  Office of the Chief Accountant) to resume appearing or practicing before the Commission as:  
+
+ a.  a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission.  Such an application must satisfy the Commission that Kolling's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner as long as he practices before the Commission in this capacity; and/or 
+
+ b.  an independent accountant.  Such an application must satisfy the Commission that:  (1) Kolling, or any firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); (2) Kolling, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and (3) as long as Kolling appears or practices before the Commission as an independent accountant, he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education, and   
+
+ 6. The Commission will consider an application by Respondent to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy.  However, if state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits.  The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Kolling's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.   
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnote 
+
+   1     Paragraph 1 of Rule 102(e) of the Commission's Rules of Practice provides, in pertinent part, that:  "The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter . . . (iii) to have willfully violated, or willfully aided and 
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diff --git a/raw/aaer/2002/AAER-1661.txt b/raw/aaer/2002/AAER-1661.txt
new file mode 100644
index 0000000000000000000000000000000000000000..92fe662350d8aefb721292e930ea138df7588725
--- /dev/null
+++ b/raw/aaer/2002/AAER-1661.txt
@@ -0,0 +1,1436 @@
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+ Division of Enforcement and Office of Chief Accountant 
+Charge Firm With Violations Stemming From 
+Joint Business Relationships With Audit Client 
+ 
+On November 13, 2002, the Commission instituted public administrative proceedings against Ernst & Young LLP ("E&Y") in an auditor independence case arising from E&Y's joint business relationships with one of its audit clients.  The proceedings are substantially similar to proceedings the Commission instituted against E&Y on May 20, 2002 ( see   Rel. No. 34-45964 ) but dismissed without prejudice on October 23, 2002 ( see   Rel. No. 34-46710 ). 
+ 
+As reflected in today's order instituting the proceedings, the Commission's Division of Enforcement (the "Division") and Office of Chief Accountant ("OCA") allege that E&Y violated the auditor independence requirements imposed by the Commission's rules and by generally accepted auditing standards in connection with E&Y's audits of the financial statements of PeopleSoft Inc. from 1994 through 2000, which occurred during the same period as the joint business relationships.  According to the allegations made by the Division and OCA, E&Y violated Rule 2-02(b) of Commission Regulation S-X and caused PeopleSoft to file reports and other documents with the Commission throughout the relevant period that failed to include independently audited financial statements as required.  The Division and OCA are seeking an order, pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act"), that would require E&Y to cease and desist from committing or causing such violations and any future violations and to disgorge the audit-related fees it was paid for the audits in question.  The Division and OCA are also seeking an order sanctioning E&Y for engaging in "improper professional conduct" within the meaning of Commission Rule 102(e) and newly-enacted Exchange Act Section 4C, which was added by Section 602 of the Sarbanes-Oxley Act of 2002. 
+ 
+Among other things, the Division and OCA allege that, while E&Y was serving as PeopleSoft's auditor, E&Y and PeopleSoft jointly developed and marketed a software product called "EY/GEMS for PeopleSoft," which incorporated certain components of PeopleSoft's proprietary source code into software previously developed and marketed by E&Y's tax department.  According to the allegations, E&Y sought to gain a competitive advantage by incorporating PeopleSoft's source code into its product, and agreed to pay PeopleSoft royalties ranging from 15% to 30% from each sale of the resulting product, with a guaranteed minimum royalty of $300,000.  In addition, the Division and OCA allege that, throughout the relevant period, E&Y earned hundreds of millions of dollars in consulting revenues from implementing PeopleSoft software for third parties pursuant to an "Implementation Partners Agreement" it had with PeopleSoft.  In doing so, the Division and OCA allege, E&Y closely coordinated and jointly marketed its implementation services with PeopleSoft, including reciprocal endorsements of each other, links to each other's websites, holding themselves out as "business partners" of one another, and sharing customer information, customer leads, and "target accounts."
+As noted in today's order, this is the second auditor independence case the Commission has commenced against E&Y.  In 1991, the Commission filed a complaint in federal court charging that E&Y, by failing to maintain its independence, caused and aided and abetted violations by two other audit clients of their Exchange Act filing obligations.  That case was settled in 1995 with E&Y consenting to a Final Order directing E&Y to comply with an undertaking to comply with applicable auditor independence standards and guidelines.   See  Litigation Release Nos. 12885 (June 13, 1991) and 14442 (March 15, 1995). 
+ 
+A hearing in the present case will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true, to afford E&Y an opportunity to establish any defenses, and to determine what remedial actions or sanctions, if any, should be imposed against E&Y. 
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diff --git a/raw/aaer/2002/AAER-1662.txt b/raw/aaer/2002/AAER-1662.txt
new file mode 100644
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+++ b/raw/aaer/2002/AAER-1662.txt
@@ -0,0 +1,1382 @@
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+ Litigation Release No. 17835 / November 13, 2002 
+
+ Accounting Auditing Enforcement Release No. 1662 / November 13, 2002 
+
+ SEC Files Emergency Action to Halt Ongoing Fraud by Company Controlled by Criminal Recidivists - SEC v. 800America.com, Inc., et al. (S.D.N.Y. 02 Civ. 9046) 
+
+ The Commission today brought an emergency action in federal court in Manhattan to halt an ongoing fraud by 800 America.com, Inc. ("800America"), an Over-the-Counter Bulletin Board company and purported internet retailer; David Elie Rabi ("Rabi"), chief executive officer, chief financial officer, and a director of 800America; and Tillie Ruth Steeples ("Steeples"), an undisclosed control person of 800America.  The Commission alleges that the defendants falsified financial results for 800America since at least 2000, unlawfully sold unregistered stock through nominee accounts, failed to disclose the criminal histories of Rabi and Steeples, and made other misrepresentations. 
+
+ The Commission has moved for a temporary restraining order, preliminary injunction and other interim relief to preserve the status quo.  Pending the outcome of that motion, on the Commission's application, the court has temporarily restrained the defendants from violating antifraud, registration, and books and records provisions of the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act").  The court's order also provides that, pending the outcome of the preliminary injunction motion:  (a) defendants' assets and certain nominee brokerage accounts are frozen; (b) the defendants are required to submit accountings; (c) a temporary receiver has been appointed over 800America; (d) Rabi and Steeples are temporarily enjoined from acting as officers or directors of public companies and from participating in the offering of penny stocks; (e) the defendants must repatriate assets held abroad; (f) the parties may engage in expedited discovery; (g) the defendants are prohibited from destroying documents and other evidence; and (h) the defendants are prohibited from tampering with witnesses, suborning perjury or otherwise impeding this case.  
+
+ Specifically, the complaint alleges that: 
+
+  To create the image of a vibrant enterprise, the defendants fraudulently reported millions in fictitious earnings, revenues, expenses, and assets. To conceal the true results, they created fictitious periodic bank statements, checks, invoices and a general ledger, which they supplied to 800America's auditor.   
+
+ Rabi and Steeples are selling unregistered 800America stock through nominee accounts in violation of  the registration provisions of the securities laws, and at a substantial profit to themselves.  Rabi and Steeples also misappropriated company assets.   
+
+ 800America issued a press release falsely denying Rabi's criminal past and failed to disclose that Steeples is a control person of the company.  The company's most recent 10-KSB lists as officers and directors several individuals who either have left the company or cannot be located by the company.   As to the three defendants, the complaint alleges that: 
+
+ 1.  800America  is a Nevada corporation, has an executive office in New York, and has operations at 1301 North Mount Juliet Road, Mount Juliet, Tennessee.  800America purports to own and operate several Internet websites that retail various products, particularly clothing, or that provide links to websites of other retailers.   
+
+ 2.  Rabi , age approximately 62, is the Chief Executive Officer, the Chief Financial Officer, a Director, and the majority shareholder of 800America.  Rabi also served as 800America's President for most of the period from July 9, 1999 through January 2002.  On January 3, 1997, Rabi pleaded guilty in McCracken County, Kentucky, to state felony charges of securities fraud, acting as an unregistered broker-dealer, and selling unregistered securities.  Rabi was sentenced to four years imprisonment, which was commuted, based on the four years Rabi had already served in Tennessee state prison fighting extradition to Kentucky on these charges.   
+
+ 3.  Steeples , age 55, is not disclosed as having any affiliation with 800America in 800America's public filings, but is acting as an undisclosed control person of the company.  Among other things, she controls some of 800America's bank accounts, and represents that she is 800America's Secretary, both in her own name and under the alias "Ruth Walley."  On November 14, 1996, in Nashville, Tennessee, Steeples pleaded guilty to delivering cocaine into a prison.  Steeples was sentenced to six years imprisonment for this conduct, and was incarcerated from January 1, 1997 to November 24, 1999. 
+
+ The complaint charges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b), 13(a), and 13(b)(2), 13(b)(5) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, Rules 13b2-1 and 13b2-2 thereunder.  As final relief, the Commission seeks permanent injunctions, disgorgement of all ill-gotten gains plus prejudgment interest; civil penalties; and, against Rabi and Steeples, final penny stock and officer and director bars and a forfeiture of stock under their control.  The litigation is pending.   
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2002/AAER-1664.txt b/raw/aaer/2002/AAER-1664.txt
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index 0000000000000000000000000000000000000000..92bf8035782609b12ca8f45a206e90a7ccad0c0c
--- /dev/null
+++ b/raw/aaer/2002/AAER-1664.txt
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+
+
+ 
+ 
+   
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+     SEC.gov | Adelphia Communications Corporation, John J. Rigas, Timothy J. Rigas, Michael J. Rigas, James P. Rigas, James R. Brown, and Michael C. Mulcahey 
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+              Adelphia Communications Corporation, John J. Rigas, Timothy J. Rigas, Michael J. Rigas, James P. Rigas, James R. Brown, and Michael C. Mulcahey
+           
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+
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+        Adelphia Communications Corporation, John J. Rigas, Timothy J. Rigas, Michael J. Rigas, James P. Rigas, James R. Brown, and Michael C. Mulcahey
+       
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+ Litigation Release No. 17837 / November 14, 2002
+
+  Accounting Auditing Enforcement Release No. 1664 / November 14, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION V. ADELPHIA COMMUNICATIONS CORPORATION, JOHN J. RIGAS, TIMOTHY J. RIGAS, MICHAEL J. RIGAS, JAMES P. RIGAS, JAMES R. BROWN, AND MICHAEL C. MULCAHEY , 02 Civ. 5776 (S.D.N.Y.) (KMW)
+
+  NEW YORK, NEW YORK    The Securities and Exchange Commission announced today that defendant James R. Brown, the former vice-president for Finance at Adelphia Communications Corporation, has consented to the entry of a Partial Judgment of Permanent Injunction and Other Relief against him in  SEC v. Adelphia, et al. , a fraudulent financial reporting case filed by the Commission against Adelphia and six of its senior executives.  According to the Commission's complaint, filed on July 24, 2002, Adelphia, at the direction of the individual defendants, including Brown:  (i) fraudulently excluded billions of dollars in liabilities from its consolidated financial statements; (ii) falsified operations statistics and inflated Adelphia's earnings to meet Wall Street's expectations; and (iii) concealed rampant self-dealing by the family that founded and controlled Adelphia, the Rigas Family.
+
+  The Commission's Complaint alleges that, based on this conduct, Brown violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1, and 13b2-2 under the Exchange Act, and, pursuant to Section 20(a) of the Exchange Act, acted as a controlling person of Adelphia's violations of Sections 13(a) and 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 under the Exchange Act.
+
+     Specifically, the Commission's complaint alleges as follows:
+
+       Between mid-1999 and the last quarter of 2001, Adelphia fraudulently excluded from the Company's annual and quarterly consolidated financial statements portions of its bank debt, while including in those financial statements a footnote disclosure implicitly misrepresenting that such portions had been included on Adelphia's balance sheet.  As a result of this misconduct, Adelphia had a total of approximately $2.3 billion in undisclosed, off-balance sheet bank debt as of December 31, 2001.
+
+       During approximately the same period, Adelphia regularly misrepresented Adelphia's reported performance in three aspects that are crucial to the "metrics" used by Wall Street to evaluate cable companies:  (i) the number of its "basic cable subscribers," (ii) the extent of its cable plant "rebuild," or upgrade, and (iii) its EBITDA, or earnings before interest, taxes, depreciation, and amortization. 
+
+       Since at least 1998, Adelphia used fraudulent misrepresentations and omissions of material fact to conceal rampant self-dealing by the Rigases, including the Rigases using Adelphia funds to:  pay for vacation properties and New York City apartments; develop a golf course mostly owned by the Rigases; and purchase over $772 million of Adelphia shares of common stock and over $563 million of Adelphia notes for the Rigas' own benefit.
+
+       The orchestrators of Adelphia's misconduct were, in addition to Brown, five of Adelphia's senior officers:  its Chairman and CEO, John J. Rigas; Chief Financial Officer, Timothy J. Rigas; Executive Vice Presidents, Michael J. Rigas and James P. Rigas; and Vice President and Assistant Treasurer, Michael C. Mulcahey.  
+
+     Without admitting or denying the allegations in the complaint, Brown has consented to the entry against him of a permanent injunction against violations of Section 17(a) of the Securities Act , Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2, and, as a control person, of Sections 13(a) and 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, and a permanent officer and director bar.  Brown has also agreed to provide the Court with an accounting.  The Commission has submitted Brown's Consent to the Court for approval.  The Commission's claims against Brown for disgorgement of ill-gotten gains, plus prejudgment interest, and a civil penalty remain pending before the Court.  (See prior  Litigation Release No. 17627  for a further description of the allegations contained in the Commission's complaint.)
+  
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+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2002/AAER-1665.txt b/raw/aaer/2002/AAER-1665.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4407ecdbb3f78f77a0db7abc8947f38d78f10e92
--- /dev/null
+++ b/raw/aaer/2002/AAER-1665.txt
@@ -0,0 +1,1383 @@
+
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+              David F. Myers and Buford Yates, Jr.
+           
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+        David F. Myers and Buford Yates, Jr.
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+  Securities and Exchange Commission v. David F. Myers , Civil Action No. 02 CV 7749 (SDNY) (JSR)  
+
+  Securities and Exchange Commission v. Buford Yates, Jr. , Civil Action No. 02 CV 7958 (SDNY) (JSR) 
+
+ 
+The Securities and Exchange Commission announced today that judgments of permanent injunction were entered November 14 in two of its pending civil enforcement actions in the WorldCom matter -- those against David F. Myers, formerly WorldCom's Controller, and Buford Yates Jr., formerly WorldCom's Director of General Accounting.  Both actions are pending in the U.S. District Court for the Southern District of New York before Judge Jed S. Rakoff.   The judgments signed by Judge Rakoff impose the full injunctive relief sought by the Commission, prohibit each defendant from acting as an officer or director of any public company, and provide that monetary relief will be decided by the Court at a later date.  The court retained jurisdiction for all purposes, including the imposition of further equitable relief and sanctions as may be determined following a hearing.  Each defendant consented, without admitting or denying the allegations in the Commission's complaint, to the entry of the judgment against him. 
+ 
+The Commission also announced today that each defendant has agreed to be suspended from practicing before the Commission as an accountant. 
+ 
+The Commission's investigation into matters related to WorldCom's financial fraud is continuing. 
+ 
+In its complaints in the actions pending before Judge Rakoff, the Commission charged Myers and Yates with participating in a massive fraud that inflated WorldCom's earnings at the direction and with the knowledge of WorldCom's senior management.  The Commission sought permanent injunctions, disgorgement of any ill-gotten gains, civil money penalties, and orders barring each defendant from serving as an officer or director of a public company.  (Litigation Release Nos. 17753 and 17771) 
+ 
+The judgment entered against David F. Myers: (1) enjoins him from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting WorldCom's violations of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1 and 13a-13; (2) prohibits him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Exchange Act Section 12 or that is required to file reports pursuant to Exchange Act Section 15(d); and (3) provides that any monetary relief will be decided by the Court at a later date. 
+ 
+The judgment entered against Buford Yates, Jr.: (1) enjoins him from future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting WorldCom's violations of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1 and 13a-13; (2) prohibits him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Exchange Act Section 12 or that is required to file reports pursuant to Exchange Act Section 15(d); and (3) provides that any monetary relief will be decided by the Court at a later date. 
+ 
+In addition, each defendant has agreed to a Commission administrative order, based on the injunction, suspending him from appearing or practicing before the Commission as an accountant, under Rule 102(e) of the Commission's Rules of Practice.  Myers was licensed as a Certified Public Accountant (CPA) from the time he joined WorldCom until December 31, 2001.  Yates was licensed as a CPA from 1988 until January 1, 1999. 
+ 
+The judgments entered by the District Court relate to two of the four civil actions the Commission has filed thus far in connection with the financial fraud at WorldCom.  The Commission filed its initial complaint against WorldCom, Inc. on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for five quarters-all quarters in 2001 and the first quarter of 2002.  (Litigation Release No. 17588.)  That complaint charged WorldCom with violating various antifraud and reporting provisions of the federal securities laws, including Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5, 13a-1, 13a-13 and 12b-20, during those five quarters.  The Commission also sought the appointment of a corporate monitor, and on July 3, Judge Rakoff appointed former SEC Chairman Richard Breeden to that position. 
+ 
+The Commission filed an amended complaint against WorldCom on November 5, adding claims that WorldCom violated the antifraud provision of the Securities Act (Section 17(a)), in connection with several securities offerings during the fraud, and also violated the internal controls and books and records provisions of the Exchange Act (Sections 13(b)(2)(A) and 13(b)(2)(B)).  The amended complaint broadened the Commission's charges to allege that WorldCom misled investors from at least as early as 1999 through the first quarter of 2002, and further stated that the company had acknowledged that during that period, as a result of undisclosed and improper accounting, WorldCom materially overstated the income it reported on its financial statements by approximately $9 billion. 
+ 
+The Commission has also brought a civil action against Betty L. Vinson and Troy M. Normand, former accountants in WorldCom's General Accounting Department ( Litigation Release No. 17783 ). 
+ 
+The Commission acknowledges the assistance and cooperation of the U.S. Attorneys' Offices for the Southern District of New York and Southern District of Mississippi, and the Federal Bureau of Investigation.  Both Myers and Yates have pled guilty to criminal charges prosecuted by the U.S. Attorney's Office for the Southern District of New York. 
+ 
+    SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1666.txt b/raw/aaer/2002/AAER-1666.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9316100ad79f7c350737b2d051907dc8cd0309cb
--- /dev/null
+++ b/raw/aaer/2002/AAER-1666.txt
@@ -0,0 +1,1368 @@
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+ LITIGATION RELEASE NO. 17843 / November 15, 2002   
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1666 / November 15, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION V. LARRY OHMS, Defendant , Civil Action No. 3:02-CV-2361-D (U.S.D.C. N.D. TX)(Dallas Division)
+
+  On November 12, 2002, Judge Sidney A. Fitzwater, United States District Judge for the Northern District of Texas (Dallas Division), permanently enjoined Larry T. Ohms, the former treasurer of Dallas-based United States Lime & Minerals, Inc. (Nasdaq: USLM) ("U.S. Lime" or "the company"), from future violations of the federal securities laws and from serving as an officer or director of a public reporting company.  Ohms consented to the order.  The SEC charged Ohms with financial fraud and other securities law violations related to his embezzlement of nearly $2.2 million from the company during a four-year period.  Ohms, age 40, resides in Carrollton, Texas.  
+
+  According to the Commission's complaint, Ohms held a number of positions at U.S. Lime between January 1998 and December 2001, including corporate controller, secretary, treasurer, and vice president of finance.  The Commission's complaint further alleged that Ohms forged the signatures of other company officers on dozens of checks, and falsified the company's check register to create the appearance that the amounts that he personally received or gave to his creditors went to vendors for U.S. Lime's legitimate business expenses.  Additionally, the complaint alleged that while Ohms initially embezzled relatively small amounts, his thefts escalated to the point that they were too large to conceal, at which point he abruptly resigned.
+
+  Without admitting or denying the allegations of the Commission's complaint, Ohms consented to an order permanently enjoining him from further violating, or aiding and abetting violations of, Sections 10(b), 13(a)(2), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder.  In addition, Ohms consented to an order permanently enjoining him from serving as an officer or director of a public reporting company.  Ohms, on October 21, 2002, entered into a plea agreement admitting to one count of wire fraud and one count of making a false statement to a government agency in connection with the scheme alleged in the Commission's complaint.  He is expected to enter a formal plea of guilty in late November 2002 and upon sentencing, the Court will likely order him to pay $2.2 million in restitution.
+  
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diff --git a/raw/aaer/2002/AAER-1667.txt b/raw/aaer/2002/AAER-1667.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3a1e5f89a218d21754ec37f95c0f093028cc4977
--- /dev/null
+++ b/raw/aaer/2002/AAER-1667.txt
@@ -0,0 +1,1550 @@
+
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+              Michael G. Horsey, CPA, Michael D. Watson, CPA, and Sallie D. Feldman, CPA
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+        Michael G. Horsey, CPA, Michael D. Watson, CPA, and Sallie D. Feldman, CPA
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+Securities Exchange Act of 1934 
+Release No.  46845 / November 18, 2002 
+ 
+Accounting and Auditing Enforcement
+Release No.  1667 / November 18, 2002 
+ 
+Administrative Proceeding 
+File No.  3-10937 
+      In the Matter of 
+  
+MICHAEL G. HORSEY, CPA,  
+MICHAEL D. WATSON, CPA, and  
+SALLIE D. FELDMAN, CPA,  
+  
+Respondents 
+     
+    : : : : : : : : :   
+   ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS      I. 
+ 
+The Securities and Exchange Commission (the "Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Michael G. Horsey ("Horsey"), Michael D. Watson ("Watson") and Sallie D. Feldman ("Feldman"), pursuant to Rule 102(e)(1) of the Commission's Rules of Practice.    1    II. 
+ 
+In anticipation of the institution of these proceedings, Horsey, Watson and Feldman (collectively, the "Respondents") have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions ("Order"), as set forth below.  
+ 
+  III. 
+ 
+On  the  basis  of  this  Order  and Respondents' Offers, the Commission finds that: 
+
+ A. RESPONDENTS 
+  Horsey, age 45, is a certified public accountant who was duly licensed by the commonwealth of Pennsylvania at all relevant times and is a partner with Mitchell & Titus LLP ("M&T"), an accounting firm, in its Philadelphia, Pennsylvania office.  Horsey was the engagement partner for his firm's audits of the financial statements of MERL Holdings Inc.com ("MERL") for its fiscal years ended December 31, 1997 and December 31, 1998.   
+ Watson, age 48, is a certified public accountant who was duly licensed by the states of New York and New Jersey at all relevant times and was a partner with M&T in its New York, New York office.  Watson was the concurring review partner for his firm's audits of the financial statements of MERL for its fiscal years ended December 31, 1997 and December 31, 1998.   
+ Feldman, age 52, is a certified public accountant who was duly licensed by the state of New Jersey at all relevant times and is a manager with M&T in its Philadelphia, Pennsylvania office.  Feldman was the senior manager for her firm's audits of the financial statements of MERL for its fiscal years ended December 31, 1997 and December 31, 1998. 
+  B. RELATED ENTITY AND PERSON 
+  MERL Holdings, Inc.com was at all relevant times a company with its principal place of business in Hopewell, New Jersey.  In its filings with the Commission, MERL reported that it operates in six business segments.  These segments include financial services, insurance, retail operations related to the distribution of private school uniforms and books, the manufacture of private school uniforms, lumber production and information technology consultation.  The company's common stock is not registered with the Commission pursuant to the Securities Exchange Act of 1934 ("Exchange Act"), and was delisted from the OTC Bulletin Board on February 10, 2000.   
+ Ed Johnson, age 52, a resident of Hopewell, New Jersey, is the Chairman and CEO of MERL. 
+  C. FACTS 
+
+ 1.  Summary 
+ 
+The Respondents failed to conduct their audits of MERL's financial statements in accordance with Generally Accepted Auditing Standards ("GAAS"), and issued an audit  report which wrongly stated that MERL's financial statements were prepared in  conformity with Generally Accepted Accounting Principles ("GAAP").    2    MERL's financial statements and this audit  report were included in MERL's Form SB-2 and Form 10-SB Registration Statements,    3   which were filed with the Commission in January and May 2000, respectively.    4   
+
+ 2.  The Respondents' Audit Failures 
+ 
+Respondents' audits of MERL's 1997 and 1998 financial statements failed to comply with GAAS because the Respondents failed to exercise due professional care and maintain an attitude of professional skepticism, failed to obtain sufficient competent evidential matter, and failed to staff the audits with accountants who had adequate technical training and audit proficiency.
+
+  
+a. The Auditors Failed to Recommend Appropriate Adjustments to Correct the Hanold-Related Accounting Violations 
+ 
+On December 30, 1998, MERL acquired the school uniform and bookstore businesses of Hanold School Stores, Inc. ("Hanold").  MERL paid the purchase price using approximately 692,000 shares of its $10 par value preferred stock.  MERL wrongly recorded the value of its acquisition of Hanold at an arbitrary amount tied to the par value of MERL's preferred shares.  Recognizing the company's  accounting error, the auditors attempted to correct this serious mistake by reducing the value of the acquired net assets to "cost" or "fair value."  In arriving at a reduced value, however, the auditors compounded the company's accounting missteps by recklessly performing a cost analysis of the acquired assets (as discussed below) that ignored accounting principles.  Based on this faulty analysis, the auditors incorrectly recommended that a $4.9 million write-off be recorded in order to reduce the value of the net assets.  This erroneous adjustment also caused the company to record on its balance sheet an invalid $500,000 deferred tax asset. 
+ 
+ i.  The Flawed Audit of the Fixed Assets  
+ 
+The fixed assets acquired from Hanold represented approximately 16% of MERL's total assets at December 31, 1998.  In contravention of GAAP, however, these assets were not recorded in MERL's balance sheet at fair value.    5   Instead, MERL recorded these fixed assets on its books at Hanold's original historical cost.  This was patently wrong.  For example, $560,878 of the fixed assets acquired (approximately 54% of the acquired fixed assets) were classified in the purchase agreement as "computer equipment" and recorded in MERL's books at the same cost as Hanold had originally paid for those assets several years previously.  Because computer equipment quickly becomes obsolete, the fair value of the acquired computer equipment would clearly have been substantially less than its original cost to Hanold.  For that reason, the fixed assets were not recorded in accordance with GAAP and resulted in the December 31, 1998 balance sheet being misstated. 
+ 
+Horsey, M&T's engagement partner on the audits, failed to exercise due professional care by knowingly accepting an accounting treatment that contradicted the relevant professional accounting standards set forth in GAAP.  Feldman also understood, based on her professional training and experience, that GAAP required the Hanold fixed assets to be recorded at fair value, but she nonetheless agreed with MERL's decision to value them at non-depreciated cost. 
+ 
+Watson, the concurring partner, learned during the audits that an appraisal had not been obtained for these assets, yet agreed with Horsey's decision to record those assets at their original cost to Hanold -- regardless of the age of the asset.  Based on his knowledge of how the assets were recorded, and his professional training and experience, Watson knew that the company's accounting treatment of the fixed assets did not comply with  GAAP.  Nevertheless, Watson failed to take any action to correct it. 
+ 
+ ii.  The Flawed Audit of an Intangible Asset  
+ 
+The Hanold customer list, recorded at an inflated value of $2,608,125 on MERL's balance sheet, purportedly represented 173,874 customers who had made purchases in the past from Hanold.  The auditors' workpapers, however, do not contain any support to document that names and addresses for these customers actually existed.  Instead, the workpapers merely contain a list of postal zip codes with a number written next to each one, which supposedly represented the number of customer names and addresses within that particular zip code.  Thus, the auditors never saw anything to confirm that an actual customer list existed. 
+ 
+Further, and contrary to GAAP, MERL failed to have the customer list appraised.  Instead, at Chairman and CEO Ed Johnson's direction, MERL simply multiplied the number of purported names on the list (173,874) by an arbitrary $15 multiplier and came up with the value recorded.  The auditors realized that this value had no reliable basis, and decided that an adjustment was necessary.  However, their "solution" did not fix the problem.  Feldman, who had no prior experience in the valuation of this type of intangible asset, attempted to devise, with Johnson's assistance, a valuation methodology based on the list's estimated future cash flow.  However, this methodology was similarly flawed because it depended on several critical - - yet baseless and completely untested - - assumptions all provided by Johnson:  (i) eighty percent (80%) of "active customers" would apply for a MERL-issued credit card; (ii) ninety percent (90%) of the purported customer list addresses were current or "good" addresses; (iii) five percent (5%) of the "non-active customers" who applied would have "good credit;" (iv) there would be a $2.18 processing cost for each Card application; and (v) a third party would be willing to purchase the customer list.  
+ 
+The Respondents did not review or ask for any documentation to support or corroborate the assumptions used in determining the value of the customer list.  Instead, the audit team recklessly relied on Johnson's baseless and untested representations.  Watson, the concurring partner, also knew from his review of the audit workpapers that no testing had been done to determine the reasonableness of the estimates used in valuing the customer list.  Watson nevertheless concurred with the faulty valuation methodology used by Horsey and Feldman. 
+ 
+Since the valuation methodology was not supported by sufficient competent evidential matter, the recorded value of the customer list was inaccurate and violated GAAP.  Based on this flawed methodology, the auditors required MERL to adjust the value of the customer list from $2,608,125 to $1,575,959, a decrease of $1,032,166 from its initial value, but still materially incorrect under GAAP. 
+ 
+b. The Respondents' Audit Failures on the Essex Consolidation 
+ 
+In addition to the Respondents' audit failures relating to the Hanold fixed assets and customer list, the Respondents also failed to perform any audit procedures to test the correctness of MERL's decision to consolidate the financial results of its purported subsidiary, Essex Industries, Inc.  Essex was MERL's only  bona fide  operating entity, accounting for   all   of the revenue reflected in the company's 1997 and 1998 income statements.  In addition, Essex represented all but $30,000 of MERL's assets at the end of 1997 and represented   all   of the assets in 1998 prior to the Hanold acquisition (which occurred on the second to last day of 1998).  MERL should not have consolidated Essex because MERL did not "control" Essex.  In fact, a Virginia State court specifically enjoined MERL and Johnson from exerting any control over Essex.  The audit team recklessly ignored the serious issues of whether MERL controlled Essex.  Feldman consented to the company's accounting treatment of Essex, which Horsey accepted without any analysis, because she believed that the Essex-MERL relationship was sound, simply because Essex personnel appeared to cooperate with the audits. 
+ 
+This conclusion, however, was not plausible in light of the audit team's receipt of a legal letter dated September 3, 1999, which clearly references the Essex litigation, and which Horsey reviewed and initialed.  The auditors then received another legal letter (also initialed as having been reviewed by Horsey) dated December 27, 1999, which read, in part, " MERL Industries is currently in jeopardy of losing Essex ." (emphasis added).  Despite this letter, however, Horsey had no follow-up discussions with the attorney handling the matter or with Essex or MERL management.  In fact, no one on the audit staff had any further conversations regarding the substance of the Essex legal dispute.  Watson, understanding the consequences of the legal dispute, told Horsey that more information about Essex was needed in order to assess the complete state of affairs.  Horsey did not, however, obtain any other clarifying information and Watson never followed up on his request for more information. 
+ 
+Horsey recognized that there was a "significant contingency associated with the [Essex] matter," and addressed this concern by including an "emphasis of a matter" paragraph in the audit report, which highlighted for the reader a particularly important matter in MERL's financial statements.  No further action was taken regarding this critical matter.  Horsey's inaction was a violation of GAAS, which requires that an auditor obtain competent evidential matter concerning uncertainties arising from litigation.  Watson clearly identified the material problem with the Essex consolidation, as evidenced by his instruction to Horsey to obtain additional information, but failed to ensure that the problem was corrected prior to giving his consent to the issuance of the audit report. 
+ 
+The Respondents failed to exercise due professional care and skepticism by not asking for the necessary information required to accurately assess the appropriateness of consolidation, particularly in light of the material impact that the Essex consolidation had on MERL's financial statements.  This fundamental failure, along with the audit failures related to the fixed and intangible assets, resulted in the material misstatement of the financial statements on which the Respondents opined.  The consolidation of Essex's financial results caused MERL's revenues in both 1997 and 1998 to be overstated by 100%. 
+ 
+In addition, in light of the fact that the true value of the assets acquired from Hanold was not determined, it is not possible to quantify the precise dollar amount of the misstatement because MERL did not obtain an appraisal, and M&T did not insist that one be obtained during the audits.  As a result, the financial statements were not prepared in  conformity with GAAP and were misstated. 
+ 
+c.  The Failed Concurring Review 
+ 
+As discussed above, Watson performed the concurring review of the 1997 and 1998 financial statements and also was consulted during the course of the engagement pertaining to several accounting and auditing issues, including issues related to the Hanold transaction and Essex.  Watson also reviewed the audit "Summary Review Memorandum," which highlighted significant areas of the audits.  Watson's concurring review did not raise "any issues or concerns," or cause him to conclude that the company's financial statements were not prepared in conformity with GAAP.  As described in the "concurring review form" prepared by Watson, he concurred with all of the audit team's conclusions and had no disagreements with Horsey.  These conclusions were wrong. 
+ 
+d. The Failure to Render an Accurate Audit Report 
+ 
+The Respondents wrongly stated in the M&T audit report that MERL's 1997 and 1998 financial statements were presented in conformity with GAAP (with the exception of inventory) and that the audits were performed in accordance with GAAS.    6   As discussed above, the company's 1997 and 1998 financial statements were materially false and misleading and the Respondents failed to perform the audits in accordance with GAAS. 
+
+ D. Legal Analysis 
+ 
+Rule 202 of the American Institute of Certified Public Accountants ("AICPA") Code of Professional Standards requires that auditors adhere to GAAS.  Under GAAS, an auditor must exercise due professional care while conducting  an audit and preparing the audit report.  AICPA Statements on Auditing Standards ("AU") §§ 150.02, 230.01.  "The matter of due professional care concerns what the independent auditor does and how well he does it."  AU § 230.04.  In addition, the first general standard of field work requires that an examination be "performed by a person or persons having adequate technical training and proficiency as an auditor." AU § 210.01.  In planning an examination, an auditor should consider, among other things, "conditions that may require extension or modification of audit tests, such as the risk of material error or fraud or the existence of related party transactions."  AU § 311.03.  The third standard of fieldwork requires an auditor to obtain sufficient competent evidential matter to afford a reasonable basis for an  audit report (AU § 326.01); an auditor cannot simply rely on management representations (AU § 333.02), and must maintain an attitude of professional skepticism (AU § 230.07). 
+ 
+As described herein, the Respondents failed to conduct the fiscal 1997 and 1998 audits of MERL's financial statements in accordance with GAAS because they failed to exercise due professional care and maintain an attitude of professional skepticism, failed to obtain sufficient competent evidential matter, and failed to staff the audits with accountants who had adequate technical training and audit proficiency.  As engagement partner, Horsey had the primary responsibility for ensuring that the audits  were conducted in accordance with GAAS.  As engagement manager, Feldman was responsible for performing the audits in accordance with GAAS.  As concurring partner, Watson was responsible for reviewing the work of the audit team to ensure that it  complied with GAAS and that the  audited financial statements were in conformance with GAAP. 
+ 
+Horsey, Watson and Feldman engaged in improper professional conduct within the meaning of Rule 102(e)(1) of the Commission's Rules of Practice by recklessly engaging in conduct that resulted in violations of professional standards. Horsey, Watson and Feldman recklessly failed to follow applicable auditing standards in the areas of fixed and intangible assets and the consolidation of Essex.  As a result, the Respondents' audits of MERL's 1997 and 1998 financial statements were not conducted in accordance with GAAS. 
+
+ IV. 
+ 
+Based on the foregoing, the Commission finds that Horsey, Watson and Feldman each engaged in improper professional conduct within the meaning of Rule 102(e)(1) of the Commission's Rules of Practice.
+
+  V. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in the respective Offers of Horsey, Watson and Feldman. 
+ 
+Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+  Horsey, Watson and Feldman are denied the privilege of appearing or practicing before the Commission as accountants.   
+ After two years (Horsey), ten months (Watson) and six months (Feldman), respectively, from the date of this order, each Respondent may request that the Commission consider his or her reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:   
+  a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that each Respondent's work in his or her practice before the Commission will be reviewed either by the independent audit committee of the public company for which he or she works or in some other acceptable manner, as long as he or she practices before the Commission in this capacity; and/or   
+ an independent accountant.  Such an application must satisfy the Commission that:   
+   (a)  
+ such Respondent, or the firm with which he or she is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");    (b)  
+ such Respondent, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and     (c)  
+ As long as such Respondent appears or practices before the Commission as an independent accountant he or she will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.       The Commission will consider an application by each Respondent to resume appearing or practicing before the Commission provided that his or her state CPA license is current and he or she has resolved all other disciplinary issues with the applicable state boards of accountancy.  However, if state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to such Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+  
+By the Commission. 
+   
+ 
+Jonathan G. Katz  
+Secretary 
+ 
+ 
+ 
+        1   
+ Rule 102(e)(1)(ii) of the Commission's Rules of Practice, 17 C.F.R. 201.102(e)(1)(ii), provides in pertinent part:  "The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for a hearing in the matter .  .  .  to have engaged in  . . . improper professional conduct . . . ."        2   
+ M&T qualified the opinion contained in its audit report with respect to inventory because it was retained subsequent to the year-end inventory and thus was unable to observe the year-end inventory balances or  rely on the company's internal inventory controls.        3   
+ M&T consented to MERL's use of its audit  report in MERL's Form SB-2 filing but not its Form 10-SB filing.        4   
+ Simultaneous with the filing of this Order, the Commission filed a civil injunctive action in the U.S. District Court of New Jersey against MERL and Ed Johnson, seeking to permanently enjoin MERL from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder and seeking to enjoin Johnson from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.  The action further seeks to obtain disgorgement and prejudgment interest from Johnson; obtain civil monetary penalties against Johnson; permanently bar Johnson from serving as an officer or director of any public company; and permanently bar Johnson from participating in any offering of any penny stock.        5   
+ Accounting Principles Board ("APB") Opinion No. 16 requires that acquired assets be recorded at "cost," which is defined as either "the fair value of the consideration given or [ ] the fair value of the property acquired, whichever is the more clearly evident."          6   
+ The Respondents qualified the audit report with respect to inventory because they were retained subsequent to the year-end inventory and thus were unable to observe the year-end inventory balances or  rely on the company's internal inventory controls.    
+ 
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diff --git a/raw/aaer/2002/AAER-1669.txt b/raw/aaer/2002/AAER-1669.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b5375b3ef64d8116e3b5c8f78016aeafae7565dd
--- /dev/null
+++ b/raw/aaer/2002/AAER-1669.txt
@@ -0,0 +1,1374 @@
+
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+   
+     
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+ 
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+     SEC.gov | TenFold Corporation, Gary D. Kennedy, Robert P. Hughes, Stanley G. Hanks, and Wynn K. Clayton 
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+              TenFold Corporation, Gary D. Kennedy, Robert P. Hughes, Stanley G. Hanks, and Wynn K. Clayton
+           
+     
+ 
+
+   
+
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+
+      
+      
+             
+        TenFold Corporation, Gary D. Kennedy, Robert P. Hughes, Stanley G. Hanks, and Wynn K. Clayton
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
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+
+   
+
+             
+                        
+             
+
+ Litigation Release No.  17852 / November 20, 2002
+
+  Accounting and Auditing Enforcement Release No. 1669 / November 20, 2002
+
+   Securities and Exchange Commission v. TenFold Corporation, Gary D. Kennedy, Robert P. Hughes, Stanley G. Hanks, and Wynn K. Clayton , Case No.  02-2284 JDB (D.D.C.)
+
+    The Securities and Exhange Commission (the "Commission") announced today that it filed a civil action in the United States District Court for the District of Columbia against TenFold Corporation ("TenFold"), a software development company based in Draper, Utah, and four of TenFold's former officers or employees.  In its complaint, the Commission alleges that TenFold, Gary D. Kennedy (TenFold's former president and CEO), Robert P. Hughes (TenFold's former CFO), Stanley G. Hanks (TenFold's former controller), and Wynn K. Clayton (the former controller of TenFold's insurance subsidiary) fraudulently misrepresented or failed to disclose important information about TenFold's contracts, operations, and earnings in certain of TenFold's 1999 and 2000 filings with the Commission.  According to the complaint, each of the individual defendants also sold TenFold stock in February 2000, collectively reaping significant unjust profits.  TenFold has consented to the entry of an injunction against it.
+
+  Specifically, the Commission alleges that TenFold, Kennedy, and Hughes fraudulently failed to disclose the nature of two unusual transactions in TenFold's registration statement for its May 1999 initial public offering ("IPO").  For one of these transactions, TenFold allegedly manipulated the terms of a contract to recognize a significant portion of revenue earlier than it otherwise would have.  Because of this acceleration of revenue, TenFold showed a profit rather than a loss in 1998, the year preceding its IPO.  For the second transaction, TenFold agreed to allot an unusually large number of shares in its IPO to a significant customer in return for the customer's agreement to delete contractual language that restricted TenFold's ability to recognize revenue.  As a result, TenFold was again able to accelerate its revenue recognition and show a profit rather than a loss, this time for the first quarter of 1999, the period immediately preceding its IPO.
+
+  The Commission also alleges that TenFold, Kennedy, Hughes, and Hanks fraudulently failed to disclose in TenFold's 1999 annual report and first quarter 2000 quarterly report the ongoing and pervasive problems TenFold was experiencing with completing its large software development contracts.  Among other things, TenFold allegedly misled investors by listing in these filings numerous risks as possible outcomes, rather than disclosing that many of these outcomes were actually occurring at the time of the filing.  The Commission further claims that TenFold, Kennedy, and Hughes made false or misleading statements in a February 2000 telephone conference with analysts when they discussed TenFold's operations and financial results for the fourth quarter of 1999 and the 1999 fiscal year.
+
+  According to the complaint, TenFold, through Kennedy, Hughes, Hanks, and Clayton, also materially overstated TenFold's earnings in press releases and filings related to TenFold's fourth quarter of 1999, 1999 fiscal year, and first quarter of 2000.  These overstatements resulted from TenFold's use of incorrect data to calculate revenue recognized on three large projects.  The Commission alleges that each of the individual defendants knew that this data was wrong and is responsible for the fraudulent financial reporting.  The Commission further alleges that Hughes provided misleading information to TenFold's independent auditor when the firm audited TenFold's 1999 financial statements.
+
+  In addition to fraud charges under Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, the Commission has charged TenFold with violations of Sections 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.  The Commission has charged Kennedy and Hughes with violations or aiding and abetting violations of the same provisions, except that Kennedy is not charged with violations of Section 13(b)(5) of the Exchange Act, and Hughes is charged with violating Rule 13b2-2 under the Exchange Act.  Hanks and Clayton are also charged with violating or aiding and abetting violations of the same provisions alleged to have been violated by TenFold, except that they are not charged with violating Section 17(a) of the Securities Act.  The Commission seeks a final judgment enjoining the individual defendants from future violations of the provisions alleged to have been violated by each, ordering them to disgorge ill-gotten gains, and imposing civil monetary penalties.  The Commission also seeks an order barring Kennedy and Hughes from serving as an officer or director of a public company.
+
+  Simultaneously with the filing of the complaint, TenFold consented to the entry of a permanent injunction against future violations of the provisions it is alleged to have violated, Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder. 
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diff --git a/raw/aaer/2002/AAER-1670.txt b/raw/aaer/2002/AAER-1670.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c0647ef2656ee2352f2397b63745592b494e89d9
--- /dev/null
+++ b/raw/aaer/2002/AAER-1670.txt
@@ -0,0 +1,1495 @@
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+ Securities Exchange Act of 1934 
+Release No. 46870 / November 21, 2002 
+
+ Accounting And Auditing Enforcement 
+Release No. 1670 / November 21, 2002 
+
+ Administrative Proceeding 
+File No. 3-10943 
+
+     In the Matter of 
+
+ James A. Fitzhenry, 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS AND IMPOSING  REMEDIAL SANCTIONS AND CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against James A. Fitzhenry ("Respondent" or "Fitzhenry") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+
+ Respondent 
+
+ 1. James A. Fitzhenry, age 46, resides in Portland, Oregon.  From 1993 to 2001, Fitzhenry was a Senior Vice President, General Counsel and Secretary for FLIR Systems, Inc.  ("FLIR").  Fitzhenry currently serves as FLIR's Senior Vice President for Corporate Operations.  He is licensed to practice law in Oregon and the District of Columbia. 
+
+ Facts 
+
+ 2. FLIR is an Oregon corporation headquartered in Portland, Oregon.  FLIR designs and manufactures thermal imaging and broadcast camera systems that detect infrared radiation.  Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Nasdaq National Market System. 
+
+ 3. At year-end 1998, FLIR improperly recognized $4.1 million in revenue from two purported sales to one of FLIR's independent sales representatives in Colombia, South America based upon non-binding letters of intent.  As part of the 1998 year-end audit of FLIR's financial statements, FLIR's outside auditors, PricewaterhouseCoopers LLP ("PwC"), selected these sales for testing and sent an accounts receivable confirmation, which the sales representative refused to return.  These sales resulted in a 14% overstatement of pre-tax earnings for fiscal year 1998.   
+
+ 4. In February 1999, Fitzhenry attempted to obtain a binding and unconditional agreement from FLIR's independent sales representative to purchase the units stated in the non-binding letters of intent.  Fitzhenry made this attempt at the request of FLIR's President and Chief Executive Officer.  Fitzhenry knew that this request was made in connection with FLIR's 1998 year-end audit.  The sales representative refused to provide an agreement of the type requested by Fitzhenry.  Fitzhenry reported this refusal to FLIR's President and Chief Executive Officer.  
+
+ 5. From Fitzhenry's negotiations with FLIR's independent sales representative, he understood that the $4.1 million in sales were conditional in nature because the sales representative had no obligation to purchase the units. 
+
+ 6. On or about April 12, 1999 and April 20, 1999, Fitzhenry signed two management representation letters to PwC, in connection with FLIR's 1998 year-end audit.  Among other things, both letters confirmed that: (1) risk of ownership for the units had passed to FLIR's independent sales representative; and (2) the independent sales representative had made a fixed commitment to purchase the goods.  Fitzhenry never told PwC about his negotiations with the independent sales representative, nor did he tell PwC that he understood the transactions were "conditional" in nature.  Consequently, Fitzhenry made material misrepresentations and omitted material information in the management representation letters. 
+
+ 7. As a result of the conduct described above, Fitzhenry willfully  2   violated Rule 13b2-2 of the Exchange Act which prohibits an officer or director of an issuer from, directly or indirectly, making or causing to be made a materially false or misleading statement, or omitting to state, or causing another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with (1) any audit or examination of the financial statements of the issuer required to be made or (2) the preparation or filing of any document or report required to be filed with the Commission. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Fitzhenry's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that:  
+
+ A. Fitzhenry is denied the privilege of appearing or practicing before the Commission as an attorney for five years.  Furthermore, before appearing and resuming practice before the Commission, Fitzhenry must submit an affidavit to the Commission's Office of the General Counsel truthfully stating, under penalty of perjury, that he has complied with this Order, that he is not subject to any suspension or disbarment as an attorney by a court of the United States or of any state, territory, district, commonwealth, or possession, and that he has not been convicted of a felony or misdemeanor involving moral turpitude as set forth in Rule 102(e)(2) of the Commission's Rules of Practice.   
+
+ B. Pursuant to Section 21C of the Exchange Act, Fitzhenry shall cease and desist from committing or causing any violations and any future violations of Rule 13b2-2 of the Exchange Act. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1    Rule 102(e)(1)(iii) provides, in relevant part, that: 
+
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it . . . any person who is found . . . to have willfully violated . . . any provision of the Federal securities laws or the rules and regulations thereunder. 
+
+   2    "Willfully" as used in this Order means intentionally committing the act which constitutes the violation,  see Wonsover v. SEC  205 F.3d 408, 414 (D.C.Cir. 2000);  Tager v. SEC , 344 F.2d 5, 8 (2d Cir. 1965).  There is no requirement that the actor also be aware that he is violating one of the Rules or Acts. 
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diff --git a/raw/aaer/2002/AAER-1671.txt b/raw/aaer/2002/AAER-1671.txt
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@@ -0,0 +1,1372 @@
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+  Securities and Exchange Commission v. Phillip E. White , Civil Action No. C 02-5538 JL (N.D. Cal. Filed November 21, 2001) 
+ 
+The Securities and Exchange Commission ("Commission") today filed a civil action in the United States District Court for the Northern District of California against Phillip E. White ("White"), formerly President, Chief Executive Officer, and Chairman of the Board of Directors of Informix Corporation ("Informix" or "Company").    1   In its Complaint, the Commission alleges that White concealed secret side agreements that rendered revenue recognition improper on certain transactions that Informix had included in its financial statements for its fiscal year ended December 31, 1996.  To further his scheme, White made false statements and representations concerning the existence of these secret side agreements to members of Informix's financial staff and to Informix's independent auditors.  White did this to avoid triggering a restatement of Informix's 1996 financial statements.  Informix's 1996 financial statements, and the independent auditors' unqualified report thereon, were included in Informix's 1996 Annual Report, Securities and Exchange Commission Form 10-K ("Form 10-K"), which Informix had filed with the Commission on March 31, 1997.  The same financial statements and unqualified audit report were incorporated by reference in Form S-8 registration statements ("Form S-8"), which Informix filed on July 16, 1997.  (The Forms S-8 registered twelve million shares of Informix stock for sale to employees.)  White signed the Form 10-K and Forms S-8.  According to the Complaint, White violated, or aided and abetted violations of, antifraud, reporting, and record-keeping provisions of the Securities Act of 1933 ("Securities Act") and Securities Exchange Act of 1934 ("Exchange Act"). 
+ 
+According to the Complaint, in early July 1997 (after Informix had filed its Form 10-K) White entered into and concealed a secret side agreement in connection with a software license sales contract with a Japanese company that made revenue recognition on that contract in 1996 improper.  At the same time, White was also concealing a second secret side letter agreement that made revenue recognition improper on a software license sales contract with the European subsidiary of a United States company.  White knew that the discovery of one or both of these side agreements by Informix's independent auditors would lead them to insist that Informix restate its financial statements.  The Complaint further alleges that, while concealing the secret side agreements, White signed a letter on July 11, 1997, to Informix's independent auditors in connection with Informix's filing of the Forms S-8.  In that letter, White falsely represented that no material events concerning Informix's financial results had occurred since their filing on March 31, 1997. 
+ 
+The Complaint alleges that, at the end of July 1997, Informix's financial staff and independent auditors discovered the secret side agreements White was concealing.  Informix's Board of Directors immediately forced White to resign from the Company.  Informix ultimately restated its 1996 financial statements to reflect substantial decreases in its earnings and income caused by, among other things, discovery of the two side agreements White concealed and various other side agreements.  Informix's amended 1996 Form 10-K revealed that, instead of earning net income of $97.8 million as Informix originally reported, Informix suffered a net  loss  of $73.6 million in 1996. 
+ 
+The Commission seeks a Final Judgment permanently enjoining White from violating, or aiding and abetting violations of, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act; Exchange Act Rules 10b-5, 12b-20, 13a-1, 13b2-1, and 13b2-2; and Section 17(a) of the Securities Act; barring White from acting as an officer or director of any public company; and requiring White to pay civil money penalties. 
+ 
+Separately today, the Office of the United States Attorney for the Northern District of California ("USAO") announced that it had indicted White for federal criminal securities, mail, and wire fraud.  Today's civil and criminal actions are the result of investigations by the Commission, the USAO, and the San Francisco office of the Federal Bureau of Investigation. 
+ 
+Previously, the Commission instituted and simultaneously settled an administrative proceeding against Informix.  See  Informix Corp. , Admin. Proc. No. 3-10130; SA  Rel. No. 33-7788; SEA Rel. No. 34-42326; AAE Rel. No. 1215  (Jan. 11, 2000).  The Commission also previously filed a civil complaint, and obtained a default judgment, against Walter K¶nigseder, an Informix Vice President.  See   SEC v. Walter K¶nigseder , Civil Action No. 00-3668 (MJJ) (N.D. Cal. May 17, 2001) (Order),  Lit. Rel. No. 17016, AAE Rel. No. 1398  (May 23, 2001). 
+ 
+ 
+ 
+        1   
+ Informix was a multinational database software and information asset management company whose stock was traded on Nasdaq National Market System.  On July 2, 2001, after selling its database software subsidiary, Informix was renamed Ascential Software Corporation.    
+  SEC Complaint in this matter  
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diff --git a/raw/aaer/2002/AAER-1672.txt b/raw/aaer/2002/AAER-1672.txt
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+              BDO International, Minas Ioannou, and Christakis Ioannou
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+        BDO International, Minas Ioannou, and Christakis Ioannou
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+Securities Exchange Act of 1934 
+Release No.  46880 / November 21, 2002 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1672 / November 21, 2002 
+ 
+Administrative Proceeding 
+File No.  3-10947 
+      In the Matter of 
+  
+BDO International,  
+Minas Ioannou, and 
+Christakis Ioannou; 
+Respondents   
+     
+    : : : : : : : : :   
+   ORDER INSTITUTING ADMINISTRATIVE 
+PROCEEDINGS PURSUANT TO RULE  
+102(e) OF THE COMMISSION'S RULES 
+OF PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS      I. 
+ 
+The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against BDO International, Minas Ioannou, and Christakis Ioannou (collectively "Respondents") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.    1   
+
+ II. 
+ 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the "Offers") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.1  et seq. , and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them, the subject matter of these proceedings, and the findings contained in Section III subsection (3) below, which are admitted, Respondents consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.   
+
+ III. 
+ 
+On the basis of this Order and Respondents' Offers, the Commission finds that:  
+  BDO International was, at all relevant times, a Nicosia, Cyprus accounting firm operating in the form of a partnership.  The firm's primary address is 36 Ayias Elenis Street; Galaxias Commercial Center, 4th Floor, Office 403, CY-1061, Nicosia, Cyprus.  BDO International is the Cyprus member firm of a separate organization with the same name, BDO International, a worldwide network of professional accountancy and consulting firms.   
+ Minas Ioannou was, at all relevant times, Managing Partner of BDO International of Nicosia, Cyprus.  Christakis Ioannou was, at all relevant times, a certified accountant at BDO International of Nicosia, Cyprus.   
+ On October 8, 2002, the Commission filed a complaint against Respondents in  SEC v. ACLN Ltd., et al.  (Civil Action No. 02-CV-7988 S.D.N.Y.).  On August 22, 2002, Respondents consented to the entry of a final judgment against them, permanently enjoining them from committing or aiding and abetting violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1 and 13a-16 thereunder.  On October 10, 2002, the Court entered an injunction by consent permanently enjoining Respondents from committing or aiding and abetting violations of said provisions of the Securities Act and the Exchange Act.     
+ The Commission's complaint alleged, among other things, that Minas and Christakis Ioannou were the engagement partner and engagement manager respectively on BDO International's audits of ACLN Ltd. ("ACLN"), that Minas Ioannou signed BDO International's audit reports with respect to ACLN, and that Minas and Christakis Ioannou had no training in or experience applying U.S. Generally Accepted Accounting Principles ("GAAP") or U.S. Generally Accepted Auditing Standards ("GAAS").  The complaint further alleged that BDO International was not independent from its audit client, ACLN Ltd. ("ACLN"), that ACLN's financial statements audited by BDO International were not prepared in conformity with GAAP, and that BDO International's audits of ACLN were not conducted in accordance with GAAS.  Further, the complaint alleged that BDO International's audit reports were false and misleading with respect to statements in the reports that BDO International was an independent auditor with respect to ACLN, ACLN's financial statements were prepared in conformity with GAAP, and BDO International's audit was conducted in conformance with GAAS.  
+  IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction specified in Respondents' Offers. 
+ 
+Accordingly, IT IS HEREBY ORDERED, that: 
+ 
+BDO International of Nicosia, Cyprus, Minas Ioannou, and Christakis Ioannou are suspended from appearing or practicing before the Commission as accountants.  
+ 
+By the Commission. 
+ 
+ 
+ 
+ 
+Jonathan G. Katz  
+Secretary 
+ 
+ 
+ 
+        1   
+ Rule 102(e)(3)(i) provides, in relevant part, that: 
+  
+The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.    
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diff --git a/raw/aaer/2002/AAER-1673.txt b/raw/aaer/2002/AAER-1673.txt
new file mode 100644
index 0000000000000000000000000000000000000000..22fa0f188abe3dff5804e9044a7a7b3a1459d175
--- /dev/null
+++ b/raw/aaer/2002/AAER-1673.txt
@@ -0,0 +1,1367 @@
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+  Securities and Exchange Commission v. Ilse Cappel , C.A. No. 02 CV 2310 JM (LSP) (S.D. Cal.) 
+ 
+In connection with its investigation into a financial fraud at Peregrine Systems, Inc., a San Diego-based software company, the Securities and Exchange Commission today filed civil fraud charges against Peregrine's former Senior Treasury Manager, Ilse Cappel.  The Commission's complaint alleges that in conjunction with a senior finance officer at the company and others, Cappel, a certified public accountant, fraudulently concealed accounts receivable problems that resulted from the company's improper recording of revenue.  The complaint further alleges that while Cappel possessed material nonpublic information about the fraudulent activities and the company's true financial condition, she illegally sold more than 15,000 shares of Peregrine stock. 
+ 
+According to the complaint, beginning no later than 1999, Peregrine management engaged in a myriad of deceptive sales and accounting practices to create the illusion of growth, including secretly adding material sales contingencies to what appeared on their face to be binding contracts.  As a result, the company accumulated on its balance sheet millions of dollars of aging receivables that Peregrine management knew the company would never collect.  Important indicators of Peregrine's financial health were deteriorating, including days sales outstanding (DSO) - an analytical tool used by financial analysts and investors to track the age of a company's aggregate accounts receivable and to assess their quality and, ultimately, the quality of the company's revenue.  In one portion of the wide-ranging fraud, Cappel engaged with other persons, including a senior finance officer at the company, in a scheme to conceal Peregrine's difficulties in collecting its accounts receivable.  The scheme included, among other things, creating a false $19.58 million invoice and selling it to a bank.  By selling false receivables to banks, Peregrine materially overstated its cash flow and understated its accounts receivable. 
+ 
+The Commission's complaint seeks to permanently enjoin Cappel from violating certain antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), and from violating, or aiding and abetting violations of, certain reporting, books and records, and internal controls provisions (Exchange Act Sections13(a), 13(b)(5), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-1).  The complaint also seeks disgorgement of ill-gotten gains, prejudgement interest, and civil money penalties. 
+ 
+The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation in this matter. 
+ 
+The Commission's investigation of the financial fraud at Peregrine is continuing. 
+ 
+    SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1674.txt b/raw/aaer/2002/AAER-1674.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6cadbb44d949af25829f307efa1c615cb419c46f
--- /dev/null
+++ b/raw/aaer/2002/AAER-1674.txt
@@ -0,0 +1,1376 @@
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+  SEC v. 800America.com, Inc., et al. , (S.D.N.Y. 02 Civ. 9046) (JSM) 
+ 
+On November 21, 2002, Judge John S. Martin of the United States District Court for the Southern District of New York granted the Commission's application for preliminary relief pending the final determination of the Commission's case against 800 America.com, Inc. ("800America"), an Over-the-Counter Bulletin Board company and purported internet retailer; David Elie Rabi ("Rabi"), chief executive officer, chief financial officer, and a director of 800America; and Tillie Ruth Steeples ("Steeples"), an undisclosed control person of 800America.  The Commission alleges that the defendants falsified financial results for 800America since at least 2000, unlawfully sold unregistered stock through nominee accounts, failed to disclose the criminal histories of Rabi and Steeples, and made other misrepresentations. 
+ 
+Specifically, the court's order provides that, pending the final determination of the case:  (a) the defendants are preliminarily enjoined from violating antifraud, registration, books and records, and other provisions of the federal securities laws; (b) defendants' assets and certain nominee brokerage accounts are frozen; (c) the defendants are required to submit accountings; (d) a temporary receiver has been appointed over 800America; (e) Rabi and Steeples are enjoined from acting as officers or directors of public companies and from participating in the offering of penny stocks; (f) the defendants must repatriate assets held abroad; (g) the defendants are prohibited from destroying documents and other evidence; and (h) the defendants are prohibited from tampering with witnesses, suborning perjury or otherwise impeding this case.  
+ 
+The complaint alleges that:
+   To create the image of a vibrant enterprise, the defendants fraudulently reported millions in fictitious earnings, revenues, expenses, and assets. To conceal the true results, they created fictitious periodic bank statements, checks, invoices and a general ledger, which they supplied to 800America's auditor.   
+ Rabi and Steeples sold unregistered 800America stock through nominee accounts in violation of the registration provisions of the securities laws, and at a substantial profit to themselves.  Rabi and Steeples also misappropriated company assets.   
+ 800America issued a press release falsely denying Rabi's criminal past and failed to disclose that Steeples is a control person of the company.  The company's most recent 10-KSB lists as officers and directors several individuals who either have left the company or cannot be located by the company. 
+  
+As to the three defendants, the complaint alleges that: 
+   800America  is a Nevada corporation, has an executive office in New York, and has operations at 1301 North Mount Juliet Road, Mount Juliet, Tennessee.  800America purports to own and operate several Internet websites that retail various products, particularly clothing, or that provide links to websites of other retailers.   
+  Rabi , age approximately 62, was the Chief Executive Officer, the Chief Financial Officer, a Director, and the majority shareholder of 800America.  Rabi also served as 800America's President for most of the period from July 9, 1999 through January 2002.  On January 3, 1997, Rabi pleaded guilty in McCracken County, Kentucky, to state felony charges of securities fraud, acting as an unregistered broker-dealer, and selling unregistered securities.  Rabi was sentenced to four years imprisonment, which was commuted, based on the four years Rabi had already served in Tennessee state prison fighting extradition to Kentucky on these charges.     
+  Steeples , age 55, was not disclosed as having any affiliation with 800America in 800America's public filings, but was acting as an undisclosed control person of the company.  Among other things, she controlled some of 800America's bank accounts, and represented that she was 800America's Secretary, both in her own name and under the alias "Ruth Walley."  On November 14, 1996, in Nashville, Tennessee, Steeples pleaded guilty to delivering cocaine into a prison.  Steeples was sentenced to six years imprisonment for this conduct, and was incarcerated from January 1, 1997 to November 24, 1999. 
+ 
+The complaint charges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, Sections 10(b), 13(a), and 13(b)(2), 13(b)(5) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, Rules 13b2-1 and 13b2-2 thereunder.  As final relief, the Commission seeks permanent injunctions, disgorgement of all ill-gotten gains plus prejudgment interest; civil penalties; and, against Rabi and Steeples, final penny stock and officer and director bars and a forfeiture of stock under their control.  The litigation is pending.
+ 
+See also  Litigation Release No. 17835  (November 13, 2002).
+  
+ 
+    SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2002/AAER-1675.txt b/raw/aaer/2002/AAER-1675.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5a2078883221817785c154cf3c03acb236ac2ec2
--- /dev/null
+++ b/raw/aaer/2002/AAER-1675.txt
@@ -0,0 +1,1479 @@
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+              Anicom, Inc.
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+        Anicom, Inc.
+       
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+Securities Exchange Act of 1934 
+Release No.  46907 / November 26, 2002 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1675 / November 26, 2002 
+ 
+Administrative Proceeding 
+File No.  3-10779 
+      
+In the Matter of 
+  
+     ANICOM, INC.,          
+  
+Respondent   
+     
+    : : : : : : : : :   
+   ORDER MAKING FINDINGS AND REVOKING REGISTRATION OF COMMON STOCK AND SERIES C PREFERRED STOCK PURSUANT TO SECTION 12(j) OF THE SECURITIES EXCHANGE ACT OF 1934      I. 
+ 
+On May 6, 2002, the Securities and Exchange Commission ("Commission") instituted public proceedings against Anicom, Inc. ("Anicom") pursuant to Section 12(j) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78l(j)]. 
+
+ II. 
+ 
+Anicom has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., Anicom, without admitting or denying the findings contained in this Order, except as to the Commission's jurisdiction over it and the subject matter of this proceeding, consents to the entry of this Order Making Findings and Revoking Registration of Common Stock and Series C Preferred Stock Pursuant to Section 12(j) of the Securities Exchange Act of 1934. 
+
+ III. 
+ 
+Based on the foregoing, and Anicom's Offer, the Commission finds that: 
+  Anicom is registered with the Commission pursuant to Section 12(g) of the Exchange Act, and has been registered since January 11, 1995;   
+ Anicom was a national distributor of wire and cable products, and was based in Rosemont, Illinois;   
+ On July 18, 2000, Anicom announced that it would restate its financial statements for 1998, 1999, and the first quarter of 2000, and that it had placed President and Chief Executive Officer Carl Putnam and Chief Financial Officer Donald Welchko on administrative leave;   
+ Anicom filed for bankruptcy under Chapter 11 of the Bankruptcy Code on January 5, 2001;   
+ Anicom failed to file an annual report on Form 10-K for the year ended December 31, 2000;   
+ Anicom has failed to file quarterly reports on Form 10-Q for the quarters ended:  June 30, 2000; September 30, 2000; March 31, 2001; June 30, 2001; and September 30, 2001;   
+ Anicom has discontinued business and liquidated its assets in connection with its petition for bankruptcy filed on January 5, 2001; and   
+ Accordingly, Anicom has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. 
+  IV. 
+ 
+Section 12(j) of the Exchange Act provides as follows: 
+ 
+The Commission is authorized, by order, as it deems necessary or appropriate for the protection of investors to deny, to suspend the effective date of, to suspend for a period not exceeding twelve months, or to revoke the registration of a security, if the Commission finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of this title or the rules and regulations thereunder.  No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked pursuant to the preceding sentence. 
+ 
+In view of the foregoing, it is necessary and appropriate for the protection of investors to impose the sanctions specified in Anicom's Offer. 
+ 
+ACCORDINGLY, IT IS ORDERED that the registration of Anicom's common stock and Series C preferred stock is revoked pursuant to Section 12(j) of the Exchange Act. 
+ 
+For the Commission, by its Secretary, pursuant to delegated authority.
+ 
+ 
+ 
+ 
+ 
+Jonathan G. Katz 
+Secretary 
+ 
+ 
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diff --git a/raw/aaer/2002/AAER-1676.txt b/raw/aaer/2002/AAER-1676.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d730a910c2c894c74ed027a32909500c3363b4ba
--- /dev/null
+++ b/raw/aaer/2002/AAER-1676.txt
@@ -0,0 +1,1660 @@
+
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+              Michael Sullivan, CPA
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+Securities Exchange Act of 1934 
+Release No.  46908 / November 26 2002 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1676 / November 26 2002 
+ 
+Administrative Proceeding 
+File No.  3-10953 
+      
+In the Matter of 
+  
+Michael Sullivan, CPA,  
+  
+Respondent   
+     
+    : : : : : : : : :   
+   ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS      I.  
+ 
+The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Michael Sullivan, CPA ("Respondent" or "Sullivan") pursuant Rule 102(e)(1)(ii) of the Commission's Rules of Practice.    1   
+
+ II.  
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III.  
+ 
+On the basis of this Order and Respondent's Offer, the Commission finds    2   that: 
+
+  A. Respondent 
+ 
+1. Sullivan, age 54, was the engagement partner on the audits and quarterly reviews of the consolidated financial statements of Golden Bear Golf, Inc. ("Golden Bear" or "the Company") for fiscal years 1996 and 1997. Sullivan has been employed by Arthur Andersen, L.L.P. ("Andersen") since 1970 and became a partner in 1984. Sullivan is a certified public accountant. 
+
+  B. Other Relevant Entities 
+ 
+2. Golden Bear is an international golf services company. It was spun off in an August 1996 initial public offering of stock from Golden Bear International, Inc. ("GBI"), a private company. Golden Bear's common stock was, until the Company completed a going private transaction on June 20, 2000, registered with the Commission pursuant to Section 12(g) of the Exhange Act. Golden Bear's common stock traded in the National Market System of the Nasdaq Stock Market, Inc. 
+ 
+3. Paragon Construction International, Inc. ("Paragon") was a wholly owned subsidiary of Golden Bear that provided golf course construction services. Paragon's financial statements were a material component of Golden Bear's consolidated financial statements. 
+
+  C. Facts 
+ 
+4. Golden Bear's initial business plan called for it to focus primarily on acquiring and operating golf centers, though it also intended to engage in a number of other golf-related activities, including golf course construction services.    3   The Company's golf centers, however, incurred significant losses and failed to provide the revenues and profits Golden Bear expected and needed to grow its golf center business. As a result, in 1997 Golden Bear increasingly looked to Paragon for revenues and profits. 
+
+  Golden Bear's Financial Statements Were Not Stated in Conformity With GAAP 
+ 
+5. In 1997 and 1998, Golden Bear recognized revenue in a manner that was not in conformity with generally accepted accounting principles ("GAAP") as a result of improper financial accounting and reporting practices at Paragon.    4   From at least the second quarter of 1997, through the first quarter of 1998, Paragon engaged in a scheme to artificially inflate and accelerate its revenue and gross margin recognition by misrepresenting the true status of its construction contracts. Paragon overstated contract profitability or failed to record expected losses by (i) understating estimated construction costs, (ii) accelerating revenue and income recognition by overstating progress on construction projects, (iii) overstating estimated construction revenues and (iv) recording revenue and gross margin in connection with non-existent project agreements. These artificially inflated and accelerated results were incorporated into Golden Bear's financial statements. 
+ 
+6. Paragon continued these practices until April 1998 when Golden Bear dismissed Paragon management. On May 5, 1998, Golden Bear announced an internal review of Paragon's operations and said it might need to record losses in connection with some Paragon construction projects. On July 28, 1998, Golden Bear announced that it would restate its results for the periods ended December 31, 1997 and March 31, 1998. 
+ 
+7. On October 19, 1998, Golden Bear restated its financial statements for the year ended December 31, 1997 and quarter ended March 31, 1998 (the "Restatements"). Relevant terms of the Restatements are set out below (all amounts in $000): 
+ 
+      
+ 
+Year Ended 12/31/97 
+ 
+3-mo. ended 3/31/98 
+     
+  Original  
+  Restated  
+  Changes  
+  Original  
+  Restated  
+  Changes  
+   Construction revenues 
+ 39,755 
+ 21,894 
+ (17,861) 
+ 16,016 
+ 8,345 
+ (7,671) 
+   Construction costs 
+ 32,107 
+ 34,266 
+ 2,159 
+ 13,626 
+ 12,074 
+ (1,552) 
+   Net operating profit/(loss) 
+ (3,198) 
+ (15,500) 
+ (12,302) 
+ (547) 
+ (5,244) 
+ (4,697) 
+   Income tax benefit/(provision) 
+ 1,372 
+ (288) 
+ (1,660) 
+ 308 
+ (49) 
+ (357) 
+   Gain/(loss) from discontinued ops.    5   
+ 0 
+ (8,429) 
+ (8,429) 
+ 0 
+ (1,649) 
+ (1,649) 
+   Net profit/(loss) 
+ (2,931) 
+ (24,699) 
+ (21,768) 
+ (778) 
+ (7,259) 
+ (6,481) 
+   
+8. As a result of Paragon's improper financial accounting and reporting practices, Golden Bear's financial statements for the periods ended June 30, 1997 through March 31, 1998 were not stated in conformity with GAAP or the requirements of federal securities laws and regulations and materially misrepresented the financial condition and results of operations of Golden Bear. 
+ 
+9. In addition, in 1996, 1997 and 1998, Golden Bear omitted material information from its financial statements and other public filings with the Commission. Golden Bear failed to disclose (i) a change in the way that Paragon recognized its revenue and the fact that the change resulted in a material increase to the Company's reported revenue and gross margin; and (ii) certain material terms of an otherwise disclosed related-party transaction. 
+ 
+10. As a result of Golden Bear's not disclosing the change in the way it recognized revenue and certain material terms of a related-party transaction, Golden Bear's filings with the Commission from the period ended October 31, 1996 through the period ended December 31, 1998 did not conform to disclosure requirements set forth in the regulations of the Commission. 
+
+ a. Paragon Changes The Way It Determined Its Revenue Recognition 
+ 
+11. Paragon measured its income earned on its golf course construction contracts pursuant to the percentage-of-completion method of contract accounting, which permits the proportionate recognition of total revenue, cost and gross margin based on the percentage of work estimated complete under a contract. Through the first quarter of 1997, Paragon developed its percentage-of-completion estimates under the cost method, determining them solely with reference to costs incurred-to-date as a percentage of the project's estimated total costs. 
+ 
+12. In the second quarter of 1997, Paragon changed the way it recognized revenue on construction contracts from the cost method to, what the Company called, the "earned value" method. Under the "earned value" method, Paragon based its percentage-of-completion estimates on management's subjective estimates as to its progress instead of solely on the basis of objective criteria, such as costs incurred.    6   As a result of the change in method for estimating percentage-of-completion, the Company experienced a material increase in revenue and gross margin for each reporting period from the second quarter of 1997 through the first quarter of 1998. 
+ 
+13. Paragon's change of its percentage-of-completion estimation method in the second quarter of 1997 resulted in two conditions that called into question the reasonableness of Paragon's revenue recognition under the "earned value" method. There was a material increase in Paragon's recorded (i) unbilled portion of the revenues, and (ii) revenue and gross margin under the "earned value" method as compared to what it would have recorded under the cost method. 
+
+ b. Sullivan Knew That Paragon Changed the Way it Recognized Revenue and that Paragon's Revenue and Gross Margin As Reported to Sullivan Increased Materially after Paragon Adopted the "Earned Value" Method 
+ 
+14. When the Company proposed to change its method for estimating percentage-of-completion for the second quarter of 1997, Sullivan told the Company that he expected Paragon's results under the "earned value" method, which, for Paragon and the audit team, was new and untested, to not differ materially from its results under the cost method, which was a method Sullivan knew conformed with GAAP. 
+ 
+15. Sullivan monitored Paragon's implementation of the "earned value" method, and how it compared to the cost method by requiring that Golden Bear provide detailed schedules showing Paragon's project-by-project results under both methods for each reporting period from the second quarter of 1997 through the first quarter of 1998. According to these schedules, Paragon recorded materially higher revenue and gross margin under the "earned value" method than it would have reported under the cost method for the same period, precisely the outcome that Sullivan cautioned the Company against.    7   
+ 
+16. By the third quarter of 1997, Paragon had reported approximately $1.4 million more in cumulative gross margin under the "earned value" method than it would have reported under the cost method. This amount was material to Golden Bear's financial statements. 
+ 
+17. In connection with the third quarter of 1997, Paragon claimed in response to quarterly review inquiries by Sullivan, that the gap between the gross margin recognized under the two methods was not as great as the analysis suggested and attributed the difference between the two methods to its failure to accrue all of its construction costs. In effect, Paragon said that since percentage-of-completion estimates under the cost method were determined solely with reference to costs incurred-to-date as a percentage of the project's estimated total costs, its failure to accrue all of its construction costs artificially suppressed the amount of revenue and gross margin it would have been able to recognize under the cost method. 
+ 
+18. Sullivan did not request documentation supporting this explanation or quantifying the effect that accruing the costs would have had on the comparative gross margin. Nor did he or his staff perform procedures to verify the accuracy of management's representations. Sullivan told Paragon management that he expected the gap to close to an immaterial amount by year-end. 
+
+ c. Sullivan Knew The Year-End Revenue Gap Narrowed Because Paragon Recorded After Year-End But Posted As Of Year-End Accrued Uninvoiced Job Costs 
+ 
+19. In actuality, the gap between the revenues generated by the cost method and the "earned value" method was a result of Paragon's scheme to artificially inflate its results. To reduce the gap, Paragon booked $4 million in uninvoiced fictitious costs after year-end but posted them as of year-end. These uninvoiced fictitious costs made it appear that the Company had incurred more costs, and thereby performed more work than had, in fact, been the case. By artificially increasing job costs, Paragon increased the percentage-of-completion estimates generated by the cost method and closed the gap between the revenue and gross margin estimates generated by the cost method and the "earned value" method. At year-end 1997 this manipulation reduced the gap from approximately $1.2 million to $209,000, an amount which was still material. 
+ 
+20. Sullivan knew that Paragon booked costs for which no invoices had been received and which were not reflected in the Company's account's payable system, and that recording these uninvoiced costs would have substantially reduced the gap between the results produced by the two estimation methods. Because of the significance of these cost accruals, the audit team discussed them with Paragon's president, vice president for operations and controller, but the audit team too readily relied on management's oral representations that the uninvoiced job cost accruals were for work which had been performed. While procedures with respect to invoiced and paid costs were performed, Sullivan did not employ any procedures to determine whether the uninvoiced costs had actually been incurred as of year-end. As a result, Sullivan recklessly failed to respond to the risk of a material overstatement of earnings. 
+
+ d. Sullivan Knew that Paragon had a Materially Large and Increasing Unbilled Revenue Balance 
+ 
+21. Another condition caused by the Company's scheme to overstate revenues was a dramatic increase of unbilled net revenues after Paragon changed to the "earned value" method in the second quarter of 1997. Unbilled revenue is revenue which had been recognized but which had not been billed to Paragon's customers. By year-end 1997, the unbilled portion of net revenues increased to $11.5 million or 29% of total reported construction revenue. This increase was a dramatic rise from $3.1 million in the second quarter of 1997, when Paragon made the change, and from $6.6 million in the third quarter. 
+ 
+22. Paragon had represented to the audit team, at the time it adopted the "earned value" method of estimating revenues, that it would apply the same methodology to calculate billings to customers as it applied to revenue recognition. Using the same methodology for estimating revenues and billings should ensure that there was little gap between revenue and billings. Customer acceptance of such bills serves as a check, at least in part, on the accuracy of the revenue recognition process. 
+
+  Sullivan's 1997 Audit Failures 
+ 
+23. Thus, at year-end Sullivan knew of, and failed to follow up on red flags that suggested that the Company was improperly recognizing revenue. He knew that the "earned value" method accelerated revenue recognition by material amounts. He knew that the difference between revenue recognized by the subjective "earned value" method and the objective cost method narrowed only because the Company booked the $4 million in purported costs for which the Company had not been invoiced. He knew that unbilled revenue had unexpectedly and substantially increased to 29% of total reported construction revenue by year-end, another sign that costs were not being incurred at the same rate as revenue was being recognized. Sullivan knew or was reckless in not knowing that Golden Bear's revenue recognition practices at Paragon did not conform to GAAP. 
+
+ a. High-Risk Audit Designation for 1997 Golden Bear Audit 
+ 
+24. Sullivan was sufficiently concerned about, among other things, the "earned value" method's tendency to accelerate revenue recognition that he designated the audit as "high-risk". Among the factors Sullivan noted in developing Andersen's high risk assessment were the subjective nature of the "earned value" method and its demonstrated tendency to accelerate revenue recognition, Paragon's materially large unbilled revenue balance, Golden Bear management's aggressive revenue recognition and financial reporting practices in response to the Company's lack of profitability, and Paragon's cost accounting system's history of providing unreliable job status information. 
+
+ b. Determination Not To Rely on Paragon's Internal Controls 
+ 
+25. Sullivan also decided that Andersen would not rely on Paragon's internal controls in connection with its audit, but would instead undertake a high level of substantive testing. In accordance with generally accepted auditing standards ("GAAS"), the less reliance an auditor places on the entity's internal controls, the higher the level of substantive testing of transactions the auditor is required to perform in obtaining sufficient competent audit evidence to support the auditor's opinion on the financial statements. This higher level of substantive testing should include audit procedures such as contacting independent parties and testing sufficiently large samples. Moreover, Sullivan's high-risk audit designation indicated a need for an even greater level of substantive testing. 
+ 
+26. In determining not to rely on the internal controls relating to Paragon's construction costs, revenues, and percentage-of-completion estimates, Sullivan, in effect, decided that obtaining sufficient competent audit evidence required Andersen to test Paragon's construction costs, revenues, and percentage of completion estimates, on significant numbers of transactions involving Paragon's construction jobs in order to determine whether such estimates and transactions accounted for in Paragon's financial statements were reasonably accurate and in conformity with GAAP. 
+ 
+27. Nevertheless, the audit team under Sullivan's direction and supervision i) failed to include numerous audit procedures required by GAAS, ii) excessively relied on Paragon's internal controls, and iii) excessively relied on management representations about key estimates rather than develop sufficient competent evidential matter supporting these key estimates as required by GAAS. More specifically, the audit team under Sullivan's direction failed to adequately test Paragon's costs, revenues and percentage-of-completion estimates including the failure to (i) adequately test uninvoiced job cost accruals, (ii) adequately test unbilled revenues, (iii) include job site visits and discussions with project managers and other on-site operating personnel in its audit, (iv) adequately test estimated total costs, and (v) adequately test estimated total revenues. 
+
+ c. Failure to Test Paragon's Year-End Uninvoiced Job Cost Accruals 
+ 
+28. As noted above, the apparent difference between Paragon's results under the "earned value" method as compared to the cost method was substantially reduced as a result of Paragon booking after year-end (but posting as of year-end) approximately $4 million in uninvoiced, and in fact, fictitious, accrued construction costs. This was an unusually large accrual. Without the accrual, the difference in gross margin would have been approximately $1 million greater under the "earned value" method as compared to the cost method. 
+ 
+29. Sullivan knew that Paragon's year-end accruals were critical to Andersen's ongoing evaluation of Paragon's implementation of the "earned value" method, yet he failed to test directly any of the year-end uninvoiced job cost accruals. Instead, Sullivan relied excessively on oral representations from Paragon management that such costs had actually been incurred and on other procedures that did not specifically address the risk that the uninvoiced cost accruals were for costs that, in fact, had not been incurred. As a result, Sullivan had no sufficient basis to conclude, based on the untested accruals, that the gap between Paragon's results under the "earned value" method as compared to the cost method had narrowed sufficiently to allay his concerns about Paragon's implementation of the "earned value" method and its improper acceleration of revenue recognition. 
+
+ d. Failure to Test Paragon's Materially Large Unbilled Revenue Amount 
+ 
+30. As noted above, Paragon's net unbilled revenues as of December 31, 1997 totaled $11.5 million. A significant unbilled revenue balance requires adequate testing to determine the reason that the company is not billing for the work it reports as complete and whether unbilled amounts are properly recognized as revenue. In response, Sullivan relied excessively on oral representations from Paragon management as to the reason for unbilled balances on three projects and did not adequately test these, or any other unbilled receivable balances. 
+ 
+31. For example, the unbilled balance on one of the three projects the audit team inquired about, the Golf Club at Mansion Ridge ("Mansion Ridge"), totaled approximately $2 million at December 31, 1997. This amount was material to the Company's year-end financial statements. Paragon told the audit team that Mansion Ridge's owners frequently disputed whether Paragon had actually completed the work for which it was billing. Despite this significant evidence that a third-party with knowledge of the project's status disputed Paragon's estimated percentage-of-completion under the contract, the audit team did not properly further investigate this project or otherwise expand Andersen's scope of testing of Paragon's unbilled revenue balances. 
+ 
+32. Sullivan treated the unbilled revenue amount as a "business issue" when he was reckless in not knowing that it represented significant audit evidence that Paragon's revenue recognition practices did not conform to GAAP. 
+
+ e. Failure to Discuss Job Status with Paragon Project Managers or Include Any Job Site Visits in its Year-End 1997 Audit 
+ 
+33. The American Institute of Certified Public Accountant's ("AICPA")  Audit and Accounting Guide - Construction Contractors  ("Audit Guide") provides authoritative guidance on GAAP and GAAS in connection with construction contracts. The Audit Guide recommends job site visits and discussions with project managers, on-site personnel, and other appropriate individuals, including, if possible, the independent architect, regarding the status of the contract and any significant problems and to assess the "representations of management (for example, representations about the stage of completion and estimated costs to complete)" and the testing of estimated costs to complete. 
+ 
+34. Sullivan knew or was reckless in not knowing that Paragon's project managers directed the daily operations of its projects, including estimating, budgeting, and personnel issues. Sullivan also knew that project managers, some of whom were based at Paragon's headquarters, initially prepared Paragon's percentage-of-completion estimates, which Sullivan had identified as a high-risk area of the audit. 
+ 
+35. Notwithstanding the Audit Guide, Sullivan did not include discussions with project managers or job site visits in any phase of the audit nor did Sullivan document why the audit did not include such discussions or site visits. Sullivan limited audit discussions to Paragon's president, vice-president for operations, and controller. And even though the audit team had visited several Paragon job sites in connection with the 1996 audit, they did not visit any job sites in connection with the 1997 audit. Failing to discuss project status, including percentage-of-completion estimates, with project managers and other on-site operating personnel was, under the circumstances, a reckless departure from GAAS. 
+
+ f. Failure to Adequately Test Paragon's Estimated Total Costs 
+ 
+36. GAAS required that the audit team test significant projects to determine whether Paragon's estimated cost to complete was reasonable and accurate. Notwithstanding the significance of these estimates to Paragon and Golden Bear's financial reporting and Paragon's history of unreliable cost estimates, the audit team failed to adequately test Paragon's construction cost estimates in connection with the year-end audit. Instead, Sullivan was reckless when he relied excessively on Paragon's internal controls and management's representations to support Paragon's cost estimates. 
+
+ g. Failure to Adequately Test Paragon's Estimated Total Revenue Amounts 
+ 
+37. During the year-end audit, the audit team tested Paragon's reported estimated total revenue amounts by attempting to trace them to documented contract and/or change order amounts for thirteen projects. The audit team was unable to document the reported estimated revenue amount in connection with eleven of the thirteen projects tested. In each instance, Paragon's estimated total revenue amount was higher than the amount reflected in the contract documents Paragon provided to Andersen. Paragon management told Sullivan that most of these amounts related to unsigned change orders, but management could not produce any documents supporting these oral representations. 
+ 
+38. In each instance, Sullivan failed to properly follow-up on a single undocumented amount; instead, Sullivan relied solely on Paragon management's oral representations that the estimated revenue amounts accurately reflected the economic status of the jobs. As a result, Sullivan recklessly approved the recognition of revenue in connection with these projects without objective and verifiable evidence supporting the amounts. 
+
+  Golden Bear's Failure to Disclose the Percentage of Completion Accounting Change and Effect of the Change on Paragon's Results Violated GAAP 
+ 
+39. As stated, after Paragon changed to the "earned value" method beginning in the second quarter of 1997, Paragon recorded materially higher revenues and profits under the "earned value" method than for the same periods under the cost method. In fact, the adoption of the "earned value" method moved the Company from a net loss to a net income position in the second quarter of 1997. 
+ 
+40. No financial statement disclosure was made for the change in the accounting methodology in the Company's 1997 interim or annual financial statements. GAAP requires disclosure of the nature and effect of this type of change on the financial statements for accounting changes that have material effects.    8   Sullivan was reckless in not knowing that such nondisclosure violated GAAP. 
+
+  Golden Bear's Failure to Disclose Certain Material Terms of Related Party Transactions Violated GAAP 
+ 
+41. Golden Bear also failed to disclose certain material terms of related party transactions it had with GBI and with GBI's owner personally. Among other things, the Company failed to disclose that in October 1996, GBI guaranteed an amount owed to Paragon by the owner of a specific golf course construction project ("Project A") that Paragon was building. The Company also failed to disclose that at December 31, 1997, Project A's owners defaulted on the debt, leaving a balance of $500,000 due from GBI pursuant to the guarantee. Golden Bear also failed to disclose its July 1998 forgiveness of GBI's $500,000 guarantee in connection with GBI's participation in the Company's settlement of claims relating to a separate project. 
+ 
+42. Without disclosure to the contrary, there is a general presumption that transactions reflected in financial statements have been consummated on an arm's-length basis between independent parties. However, that presumption is not justified when related party transactions exist because the requisite conditions of competitive, free-market dealings may not exist. As a result, GAAP requires the full disclosure of all material terms of related party transactions; this requires the disclosure of all information that may be necessary to insure that it validly represents the underlying events and conditions. 
+ 
+43. Sullivan was reckless in not knowing that Golden Bear had failed to disclose these material terms of the related party transactions and that as a result, the financial statements did not comply with GAAP. 
+
+  D. Findings 
+ 
+44. Based on the foregoing, the Commission finds that, in connection with the audits of the 1996, 1997 and 1998 financial statements of Golden Bear, Michael Sullivan engaged in improper professional conduct for purposes of Rule 102(e)(1)(ii) of the Commission's Rules of Practice. 
+
+ IV.  
+ 
+Accordingly, the Commission hereby accepts Sullivan's Offer and hereby ORDERS, effective immediately, that: 
+  Respondent is denied the privilege of appearing or practicing before the Commission as an accountant.   
+ After one year from the date of this order, Respondent may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:   
+  a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or   
+ an independent accountant. Such an application must satisfy the Commission that:   
+   (a)   Respondent, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");    (b)   Respondent, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and    (c)   As long as Respondent appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.       The Commission will consider an application by Respondent to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy. However, if state licensure is dependent on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+  
+By the Commission. 
+ 
+ 
+ 
+ 
+Jonathan G. Katz  
+Secretary 
+ 
+ 
+ 
+        1   
+ Rule 102(e)(1)(ii) provides, in relevant part, that: 
+  
+The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it by any person who is found to have engaged in improper professional conduct.        2   
+ The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.         3   
+ Golf centers are golf practice facilities that sometimes include miniature golf and golf shops that sell golf clothing and equipment.        4   
+ The Commission has brought two separate actions against three former Paragon officers in connection with the Paragon fraud, and one action against three former Golden Bear officers in connection with Golden Bear's reporting violations. SEC v. John R. Boyd, and Christopher Curbello, Civil Action No. 02-80726CIV, (S.D.Fla., Hurley). In the Matter of David Friend, CPA, Rels. 34-46290, AAER-1603, File No. 3-10856. In the Matter of Richard P Bellinger, Jack P. Bates, and Stephen S. Winslett, Rels. 34- 46291, AAER-1604, File No.3-10857.        5   
+ The golf centers division was treated as a discontinued operation on Golden Bear's restated financial statements.        6   
+ For example, in a case where Paragon management's earned value percentage-of-completion estimate was 50% complete, Paragon would recognize for financial statement purposes 50% of the project's estimated total revenue, cost and gross margin, even if the project had incurred substantially lower than 50% of the project's estimated total costs.        7   
+ This includes higher cumulative profits of approximately $800,000 at June 30, 1997, $1.4 million at September 30, 1997, $209,000 at year-end 1997 and $1 million at March 31, 1998.        8   
+ Regardless of whether the adoption of the "earned value" method was considered a change in accounting principle or a change in accounting estimate, disclosure by the Company in its second quarter 1997 interim financial statements and its 1997 annual financial statements was required to comply with GAAP.     
+  
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diff --git a/raw/aaer/2002/AAER-1677.txt b/raw/aaer/2002/AAER-1677.txt
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+              First Virtual Communications, Inc.
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+Securities Exchange Act of 1934 
+Release No.  46909 / November 26, 2002 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1677 / November 26 2002 
+ 
+Administrative Proceeding 
+File No.  3-10954 
+      In the Matter of 
+  
+FIRST VIRTUAL 
+COMMUNICATIONS, INC. 
+  
+Respondents   
+     
+    : : : : : : : : :   
+   ORDER INSTITUTING  
+CEASE-AND-DESIST PROCEEDINGS, 
+MAKING FINDINGS, AND IMPOSING 
+A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934      I. 
+ 
+The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against First Virtual Communications, Inc. ("FVC" or "Respondent").
+
+  II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, and the findings contained in Section III.1. below, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below. 
+
+ III. 
+ 
+On the basis of this Order and Respondent's Offer, the Commission finds that:  
+
+ Respondent 
+  FVC is a Delaware corporation with its headquarters in Santa Clara, California.  FVC's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and currently trades on Nasdaq's Small Cap Market.  Since 1993, FVC has engineered and manufactured video-conferencing products and has worked closely with distributors to market and sell these products to the ultimate customer. 
+  Background 
+
+  In the fourth quarter of fiscal 1998, in order to convince its largest distributor (the "Distributor") to purchase $3 million of FVC product before the end of the year, FVC granted the Distributor various return rights.  Specifically, FVC granted exchange rights on the $3 million of product to be purchased by year end 1998, return rights on $2.5 million of FVC product that the Distributor had previously purchased from FVC and received back from its own customer, and rotation rights on $1.9 million of excess inventory that FVC had previously sold to the Distributor and that remained in the Distributor's warehouse.   
+ The exchange rights allowed the Distributor to return the product in exchange for another product of the same or greater value that was better suited to the end users' needs.  The return rights allowed the Distributor to return the product in exchange for a credit against the balance owed.  The rotation rights required FVC to work with the Distributor to ensure that the product "was good and saleable."  FVC did not expressly limit the exchange and rotation rights to product of the same kind, quality, and price.  These exchange, return, and rotation rights are collectively referred to as "Return Rights."   
+ Based on FVC's agreement to the Return Rights, the Distributor issued purchase orders totaling $3 million to FVC on December 29, 1998.  FVC shipped $1.5 million of product before the end of December 1998 which FVC recognized as revenue in 1998.    
+ For FVC to recognize revenue at the time of sale when the Distributor has return rights, Statement of Financial Accounting Standards No. 48 requires, among other things, that FVC must be reasonably able to estimate the amount of future returns.  FVC had no reasonable basis for estimating the amount of future returns from the Distributor, because FVC had previously never granted such Return Rights to the Distributor and had granted return rights to only one small customer.  Moreover, FVC's ability to estimate returns was further impaired by the facts that its products were subject to technological obsolescence and changing demand and it had granted the Distributor a relatively long period, up to six months, to return the product.   
+ FVC recorded, and announced in a January 28, 1999 press release, revenue of $12.3 million for the fourth quarter 1998 and $44.4 million for fiscal 1998.  These amounts included the $5.9 million in revenue from the $1.5 million sale with exchange rights, the $2.5 million sale with return rights, and the $1.9 million sale with rotation rights.    1    Based on this revenue, FVC recognized and announced earnings of $1.2 million for fourth quarter 1998 and $1.1 million for fiscal 1998 (excluding interest, miscellaneous income, and a one time charge relating to an acquisition).  FVC's stock price increased 37.5% in the two days after issuance of the press release, while trading volume increased by over 500% from average January 1999 trading volume before the January 28 announcement.   
+ Because FVC had granted the Distributor the Return Rights on the $5.9 million in sales and could not reasonably estimate returns, FVC could not under Generally Accepted Accounting Principles recognize the revenue from these sales.  As a result of improperly recognizing this revenue, FVC overstated its fourth quarter 1998 revenue by 114% and fiscal 1998 revenue by 16%.  Similarly, without the improperly recognized revenue (and associated cost of goods sold), FVC would have recognized a loss of $1.9 million for fourth quarter 1998 and a loss of $2 million for fiscal 1998.   
+ In the first quarter of 1999, FVC authorized four returns from the Distributor totaling over $2.6 million of product.  FVC received two of these returns totaling $1.6 million of product in the first quarter 1999, and the remaining two returns totaling $1.029 million of product in the second quarter 1999.  FVC accounted for these returns by subtracting the value of the return from the balance the Distributor owed FVC.   
+ On March 29, 1999, FVC informed its auditors of the Return Rights it had granted the Distributor.  Shortly thereafter, based on the auditors' advice, FVC reversed the revenue from the $5.9 million in sales with the Return Rights.   
+ As a result of this $5.9 million adjustment and an additional $1.2 million in other revenue reversals, FVC revised its fourth quarter 1998 revenue from $12.3 million to $5.2 million and its fiscal 1998 revenue from $44.4 million to $37.3 million.  FVC also revised its fourth quarter 1998 earnings from a $1.2 million profit to a $3.21 million loss and its fiscal 1998 earnings from a $1.1 million profit to a $3.31 million loss.  FVC announced these revised revenue and earnings figures in an April 6, 1999 press release and its December 31, 1998 Form 10-K filed on April 15, 1999.    
+ On April 7, 1999, the day after the revised revenue and earnings figures were released, FVC's share price fell 60% with a large increase in trading volume. 
+  Legal Analysis 
+
+  As a result of the conduct described above, FVC violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit misstatements or omissions of material fact in connection with the purchase or sale of a security.  FVC committed fraud by issuing the January 28, 1999 press release that materially overstated revenues and earnings figures for fourth quarter and fiscal 1998.    2     
+ Further, as a result of the conduct described above, FVC violated Section 13(b)(2)(A) of the Exchange Act, which requires that every issuer of securities pursuant to Section 12 of the Exchange Act make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the issuer's transactions and disposition of assets.  As discussed above, FVC failed to keep accurate records of product sales and various return rights granted on product sold to FVC's largest distributor. 
+  IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent's Offer. 
+ 
+ACCORDINGLY, IT IS ORDERED that: 
+ 
+Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from committing or causing any violations and any future violations of Sections 10(b) and 13(b)(2)(A) of the Exchange Act and Rule 10b-5 thereunder. 
+ 
+By the Commission. 
+ 
+ 
+ 
+ 
+Jonathan G. Katz  
+Secretary 
+ 
+ 
+ 
+        1   
+ FVC booked the $1.5 million sale in Q4 1998.  For the purposes of the April 1999 revision, FVC also treated the $2.5 million and $1.9 million sales as having been recognized in Q4 1998.        2   
+ The Commission has simultaneously reached an injunctive settlement with the three officers responsible for FVC's violations.    
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diff --git a/raw/aaer/2002/AAER-1678.txt b/raw/aaer/2002/AAER-1678.txt
new file mode 100644
index 0000000000000000000000000000000000000000..27461dd67aa1110d0aa5ac6cd74d7e86b4365de0
--- /dev/null
+++ b/raw/aaer/2002/AAER-1678.txt
@@ -0,0 +1,1386 @@
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+ Litigation Release No. 17866 / November 26, 2002  
+
+ Accounting and Auditing Enforcement Release No. 1678 / November 26, 2002 
+
+ In  SEC v. WorldCom , Court Imposes Full Injunctive Relief, Orders Extensive Reviews of Corporate Governance Systems and Internal Accounting Controls, and Orders Training and Education Program to Minimize Future Violations  
+
+ Appropriateness of Civil Penalties To Be Decided by the Court At a Later Date 
+
+  Securities and Exchange Commission v. WorldCom, Inc., Civil Action No. 02 CV 4963       (JSR)   
+
+ The Securities and Exchange Commission announced that a judgment of permanent injunction was entered today in its pending civil enforcement action against WorldCom, Inc.  This judgment settles part, but not all, of the Commission's action against WorldCom.   
+
+ The judgment, signed by U.S. District Judge Jed S. Rakoff of the Southern District of New York: (1) imposes the full injunctive relief sought by the Commission, (2) orders an extensive review of the company's corporate governance systems, policies, plans, and practices, (3) orders an extensive review of the company's internal accounting control structure and policies, (4) orders that WorldCom provide reasonable training and education to certain officers and employees to minimize the possibility of future violations of the federal securities laws, and (5) provides that civil money penalties, if any, will be decided by the Court at a later date.  The court reaffirmed the role of its appointed Corporate Monitor and retained jurisdiction for all purposes, including the imposition of further equitable relief and sanctions as may be determined following a hearing.  WorldCom consented, without admitting or denying the allegations in the Commission's complaint, to the entry of the judgment.   
+
+ The Commission's investigation into matters related to WorldCom's financial fraud is continuing.   
+
+ The Commission's amended complaint alleges that WorldCom misled investors from at least as early as 1999 through the first quarter of 2002, and further states that the company has acknowledged that during that period, as a result of undisclosed and improper accounting, WorldCom materially overstated the income it reported on its financial statements by approximately $9 billion.   
+
+ The judgment entered today enjoins WorldCom from violating the antifraud provisions of the federal securities laws (specifically, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rule 10b-5), the reporting provisions (Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder), and the books and records and internal controls provisions (Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act).   
+
+ The judgment further orders that the report currently being prepared by WorldCom's Special Investigative Committee be transmitted to the Corporate Monitor, Richard Breeden, upon its completion, and that Mr. Breeden shall then review the adequacy and effectiveness of WorldCom's corporate governance systems, policies, plans, and practices.  This review will include but is not limited to inquiries into (1) whether WorldCom is complying with recognized standards of "best practices" with respect to corporate governance; (2) whether WorldCom has sufficient policies and safeguards in place (a) to ensure that WorldCom's Board of Directors and all committees of WorldCom's Board of Directors (including without limitation the audit committee and the compensation committee) have appropriate powers, structure, composition, and resources and (b) to prevent self-dealing by management; (3) whether WorldCom has an adequate and appropriate code of ethics and business conduct, and related compliance mechanisms; and (4) whether WorldCom has appropriate safeguards in place to prevent further violations of the federal securities laws.  Following his receipt of the report of the Special Investigative Committee, the Corporate Monitor shall submit to WorldCom's Board of Directors, the Court and the Commission a report setting forth his recommendations with respect to the corporate governance issues he has reviewed.  Within 60 days of the receipt of the report of the Corporate Monitor with respect to corporate governance, WorldCom's Board of Directors shall report to the Court and the Commission with respect to the decisions and actions taken as a result of each of the recommendations made by the Corporate Monitor.    
+
+ The judgment further orders that WorldCom shall retain a qualified consultant, acceptable to the Commission, to perform a review of the effectiveness of WorldCom's material internal accounting control structure and policies, including those related to line costs, reserves, and capital expenditures, as well as the effectiveness and propriety of WorldCom's processes, practices and policies for ensuring that the Company's financial data is accurately reported in its public financial statements.  The consultant must, within 30 days, develop a proposal for the review that is acceptable to the Commission.  Any disagreements about the proposal will be resolved by the Corporate Monitor.  Within 120 days after approval of the proposal, the consultant shall complete its review and submit to WorldCom's Board of Directors, the Court and the Commission, a report fully documenting the findings of its review and making specific recommendations.  Within 60 days of the submission of the report, WorldCom's Board of Directors shall report to the Court and Commission with respect to the decisions and actions taken as a result of each of the recommendations made by the consultant. 
+
+ The judgment further orders that WorldCom shall provide reasonable training and education to certain of its officers and employees to minimize the possibility of future violations of the federal securities laws.  Completion of such training shall be mandatory for WorldCom officers and employees involved in its corporate level accounting and financial reporting functions; for those officers and employees involved in financial reporting at WorldCom's major divisions and subsidiaries (including, specifically, those officers and employees responsible for closing the books in their area of responsibility at the end of a quarterly or annual reporting period); and for senior operational officers at WorldCom's corporate, divisional and subsidiary levels.  Such training and education shall include, at a minimum, components covering the following subjects:  the obligations imposed by the federal securities laws; proper internal accounting controls and procedures; recognizing indications of non-GAAP (generally accepted accounting principles) accounting practices or fraud most relevant to WorldCom's business endeavors; and the obligations incumbent upon, and the responses expected of, WorldCom officers and employees upon learning of illegal or potentially illegal acts concerning the company's accounting and financial reporting.  WorldCom shall consult with the Commission in designing its training and education program, and shall submit to the Commission a detailed proposal within 60 days after entry of this judgment, which describes the content and implementation of the training and education program, in a form that is acceptable to the Commission.  WorldCom shall commence providing initial training and education sessions within 60 days thereafter, and shall continue to provide such training and education on an annual basis, for a minimum period of three years after entry of this judgment. 
+
+ The judgment further provides that the amount of the civil penalty, if any, to be paid by WorldCom shall be determined by the Court in light of all the relevant facts and circumstances, following a hearing.  At that hearing, the issues will be limited to determining the appropriateness and amount of any such civil penalty, WorldCom will be precluded from arguing that it did not violate the federal securities laws as alleged in the Commission's amended complaint, and the allegations of the complaint will be accepted as true by the Court.   
+
+ The Commission filed its initial complaint against WorldCom on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for five quarters-all quarters in 2001 and the first quarter of 2002.  ( Litigation Release No. 17588 .)  The Commission filed an amended complaint against WorldCom on November 5.  ( Litigation Release No. 17829 .)  The Commission's second enforcement action in this matter was filed against former WorldCom Controller David F. Myers on September 26.  ( Litigation Release No. 17753 .)  The Commission's third enforcement action was filed against former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7.  ( Litigation Release No. 17771 .)   The Commission's fourth enforcement action was filed against former WorldCom accounting managers Betty L. Vinson and Troy M. Normand on October 10.  ( Litigation Release No. 17783 .)  On November 14, Judge Rakoff entered judgments against Myers and Yates that imposed injunctive relief and officer and director bars and provided that further relief will be decided at a later date.  ( Litigation Release No. 17842 .) 
+
+ The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Offices for the Southern District of New York and the Southern District of Mississippi, and the Federal Bureau of Investigation. 
+
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diff --git a/raw/aaer/2002/AAER-1679.txt b/raw/aaer/2002/AAER-1679.txt
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+              Ralph K. Ungermann, Alan J. McMillan, and James O. Mitchell
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+        Ralph K. Ungermann, Alan J. McMillan, and James O. Mitchell
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+ Litigation Release No. 17869 / December 2, 2002 
+
+ Accounting and Auditing Release No.  1679 / December 2, 2002 
+
+  SEC v. Ralph K. Ungermann, Alan J. McMillan, and James O. Mitchell , U.S. District Court for the Northern District of California, Civil Action No. C 02-05613 RS 
+
+ SEC Charges Current Director of and Former Officers of First Virtual Communications, Inc. with Overstating Revenues and Earnings 
+
+ The Securities and Exchange Commission announced the filing of a complaint on November 26, 2002, against three former senior executives (including the founder and current Chairman of the Board) of First Virtual Communications, Inc. ("FVC") for causing FVC to announce overstated revenues and earnings and then selling FVC shares before issuance of the correct financial information.  The former executives charged today are:  FVC's current Chairman of the Board and former President and CEO, Ralph K. Ungermann; its former CFO, James O. Mitchell; and its former Vice President of Sales, Alan J. McMillan.  Ungermann, Mitchell, and McMillan settled the Commission's action without admitting or denying the allegations in the complaint.  They agreed to repay a total of about $1.3 million in illegal trading profits, interest, and civil money penalties. 
+
+ Since 1993, FVC, a Silicon Valley technology company, headquartered in Santa Clara, California, has engineered and manufactured video-conferencing products and, through independent distributors, marketed and sold these products to the ultimate customer.  FVC's common stock traded on Nasdaq's National Market from April 1998 through August 8, 2002, when it started trading on Nasdaq's small cap market.   
+
+ The Commission's complaint, filed in United States District Court for the Northern District of California, alleges that Ungermann, Mitchell, and McMillan caused FVC to announce overstated revenues and earnings figures in a January 28, 1999 press release.  The complaint alleges that, in order to meet revenue goals for the fourth quarter and year end 1998, FVC entered into an agreement with its largest distributor in which the distributor agreed to buy $3 million of FVC product in exchange for FVC's agreement to grant the distributor various return rights on the $3 million of FVC product and on product FVC had previously sold to the distributor.   
+
+ FVC improperly recognized as revenue approximately $5.9 million in sales that were subject to the return rights, in violation of Generally Accepted Accounting Principles.  The complaint alleges that, as a result of the defendants' actions, in its January 28, 1999 earnings release, FVC overstated its fourth quarter revenue by 114% and annual revenue by 16% and announced annual earnings of $1.1 million instead of a loss of $2 million.  The complaint also alleges that Ungermann, Mitchell, and McMillan failed to disclose this agreement to FVC's auditors, even when specifically asked. 
+
+ The complaint further alleges that, in February 1999, after the earnings release, the defendants sold a total of 330,000 shares of FVC stock, reaping illegal trading profits.  In April 1999, after the auditors learned of the return rights that FVC had granted, FVC filed an annual report on Form 10-K that correctly reported FVC's fourth quarter and annual revenue and earnings.  After the announcement of FVC's correct financial results, FVC's stock price dropped 60%. 
+
+ The defendants are: 
+
+    Ralph K. Ungermann , age 60, of Los Altos Hills, California.  Ungermann founded FVC in 1993.  He was FVC's CEO and President when FVC made the agreement with the distributor.  He currently is FVC's Chairman of the Board.  The complaint alleges that Ungermann caused FVC's overstatement of revenues and earnings figures in the January 28, 1999 press release, did not disclose the return agreement to FVC's auditors, and participated in FVC's falsification of books and records.   The complaint further alleges that Ungermann sold 200,000 FVC shares, realizing illegal trading profits of $384,192 from the announcement of the false revenue and earnings.  Ungermann simultaneously settled the SEC's action without admitting or denying the allegations in the complaint.  Ungermann agreed to the entry of a court order enjoining him from committing future violations of the federal securities laws and ordering him to pay $384,192 in disgorgement (representing ill-gotten gains from his trades), $71,575 in prejudgment interest, and $384,192 as a civil money penalty.   
+
+  James O. Mitchell , age 57, of Cupertino, California. Mitchell was FVC's former CFO.  The complaint alleges that Mitchell caused FVC's overstatement of revenues and earnings figures in the January 28, 1999 press release, did not disclose the return agreement to FVC's auditors, and participated in FVC's falsification of books and records.   The complaint further alleges that Mitchell sold 60,000 FVC shares, realizing illegal trading profits of $102,737 from the announcement of the false revenue and earnings.  Mitchell simultaneously settled the SEC's action without admitting or denying the allegations in the complaint.  Mitchell agreed to the entry of a court order enjoining him from committing future violations and ordering him to pay $102,737 in disgorgement (representing ill-gotten gains from his trades), $19,140 in prejudgment interest, and $102,737 as a civil money penalty.   
+
+  Alan J. McMillan , 47, of Palo Alto, California, FVC's former Vice President of Sales.  The complaint alleges that McMillan caused FVC's overstatement of revenues and earnings figures in the January 28, 1999 press release and did not disclose the return agreement to FVC's auditors.  The complaint further alleges that McMillan sold 70,000 FVC shares, realizing illegal trading profits of $133,848 from the announcement of the false revenue and earnings.  McMillan simultaneously settled the SEC's action without admitting or denying the allegations in the complaint.  McMillan agreed to the entry of a court order enjoining him from committing future violations and ordering him to pay $133,848 in disgorgement (representing ill-gotten gains from his trades), $24,936 in prejudgment interest, and $133,848 as a civil money penalty.   The Commission charged Ungermann, McMillan, and Mitchell with antifraud violations (Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder) and lying to the auditors (Rule 13b2-2 under the Exchange Act).  Further, the Commission charged Ungermann and Mitchell with violating, and aiding and abetting violations of the record keeping provisions of the federal securities laws (Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder).   
+
+ In a related enforcement action, the Commission ordered FVC to cease and desist from violating the antifraud (Section 10(b) of the Exchange Act and Rule 10b-5 thereunder) and record-keeping provisions (Section 13(b)(2)(A) of the Exchange Act) of the federal securities laws.  The Commission's order found that FVC materially overstated its revenues and earnings for the fourth quarter and year end December 1998 in the January 28, 1999 press release by improperly recognizing revenue from sales with various return rights.  FVC, without admitting or denying the Commission's findings, consented to the order to cease and desist.   
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diff --git a/raw/aaer/2002/AAER-1680.txt b/raw/aaer/2002/AAER-1680.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0a76db13d8950ccb0e33f24027cd6e5e1c57dfa5
--- /dev/null
+++ b/raw/aaer/2002/AAER-1680.txt
@@ -0,0 +1,1459 @@
+
+
+ 
+ 
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+     SEC.gov | Bruce B. Edmondson, CPA 
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+              Bruce B. Edmondson, CPA
+           
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+        Bruce B. Edmondson, CPA
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+ Securities Exchange Act of 1934
+ Release No.  46953 / December 6, 2002
+  Accounting and Auditing Enforcement
+ Release No.   1680 / December 6, 2002
+  Administrative Proceeding
+ File No. 3-10961 
+         In the Matter of       
+   BRUCE B. EDMONDSON, CPA  
+   Respondent. 
+     
+    : : : : :   
+   ORDER INSTITUTING PROCEEDINGS  
+   PURSUANT TO RULE 102(e) OF THE  
+   COMMISSION'S RULES OF PRACTICE, 
+   MAKING FINDINGS, AND IMPOSING
+   REMEDIAL SANCTIONS                 I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that an Order Instituting Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions be issued against Bruce B. Edmondson ("Edmondson") pursuant to paragraph (2) of Rule 102(e) of the Commission's Rules of Practice [17 C.F.R. § 201.102(2)] ("Rule 102(e)").  1     II. 
+  In anticipation of the institution of these administrative proceedings, Edmondson has submitted an offer of settlement ("Settlement Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except for the jurisdiction of the Commission over him and over the matters set forth in this order and that a conviction has been entered against him as set forth in Paragraph III.C. below, which are admitted, Edmondson consents to the entry of this Order Instituting Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order").
+   III. 
+   FINDINGS 
+  On the basis of this Order and the Settlement Offer, the Commission finds that: 
+  A.  Edmondson, age 56, is a certified public accountant in the State of California.  2   From October 1989 through early January 1994, Edmondson was employed as chief financial officer and executive vice president of Regal Communications Corp. ("Regal").  Edmondson also was a member of Regal's board of directors and the board's audit committee.   
+  B.  Regal was a New Jersey corporation with principal offices located in Fort Washington, Pennsylvania. At all relevant times, Regal's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and was quoted on the NASDAQ National Market System.   
+  C.  On March 9, 2000, based upon a plea of guilty by Edmondson, the United States District Court for the Eastern District of Pennsylvania entered a judgment against Edmondson convicting him of conspiracy to commit securities fraud and to make false and misleading statements to auditors; aiding and abetting securities fraud; aiding and abetting false statements to auditors; mail fraud; and wire fraud.  United States v. Bruce B. Edmondson , 98-CR-603-2 (RFK) (E.D. Pa.). Edmondson's Guilty Plea Agreement specifically finds that his criminal conviction is based on "participation in a conspiracy from 1991 until about April 19, 1994, in which Edmondson and others reported millions of dollars of bogus revenue and accounts receivable in Regal's financial statements and also diverted Regal stock worth millions of dollars to themselves and entities they controlled without paying to Regal the money due."  Edmondson was sentenced to 36 months in prison and three years of supervised release, and ordered to pay a $10,000 criminal fine and restitution totaling $671,000.
+   IV. 
+   ORDER IMPOSING SANCTION 
+  Based upon the foregoing, the Commission deems it appropriate and in the public interest to accept the Settlement Offer and accordingly, IT IS HEREBY ORDERED, effective immediately, that Edmondson be forthwith suspended from appearing or practicing before the Commission as an accountant. 
+  By the Commission. 
+     
+ Jonathan G. Katz  
+Secretary
+     
+ ________________________
+      1     Rule 102(e)(2) of the Commission's Rules of Practice, 17 C.F.R. § 201.102(e)(2), provides in pertinent part: 
+ . . . [A]ny person who has been convicted of a felony . . . shall be forthwith suspended from appearing or practicing before the Commission.  A . . . conviction within the meaning of this section shall be deemed to have occurred when the . . . convicting agency or tribunal enters its judgment or order . . . 
+ 
+      2     Edmondson's CPA license was cancelled by the California State Board of Accounting for failure to file a renewal for five years after its expiration date.
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diff --git a/raw/aaer/2002/AAER-1681.txt b/raw/aaer/2002/AAER-1681.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b3db2f9fa84464a745ad90482bf066a7f88cf896
--- /dev/null
+++ b/raw/aaer/2002/AAER-1681.txt
@@ -0,0 +1,1465 @@
+
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+   
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+     SEC.gov | Elliot S. Fisher, Esq. 
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+           
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+        Elliot S. Fisher, Esq.
+       
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+ Securities Exchange Act of 1934
+ Release No.  46954 / December 6, 2002
+  Accounting and Auditing Enforcement 
+ Release No.  1681 / December 6, 2002
+  Administrative Proceeding
+ File No. 3-10962 
+
+         In the Matter of    
+   ELLIOT S. FISHER, ESQ.  
+      Respondent.  
+     
+   : : : : :    
+   ORDER OF SUSPENSION PURSUANT
+  TO RULE 102(e)(2) OF THE
+            COMMISSION'S RULES OF PRACTICE      I. 
+
+
+
+  The Securities and Exchange Commission deems it appropriate and in the public interest  that an Order of Suspension be issued against Elliot S. Fisher ("Fisher") pursuant to paragraph (2) of Rule 102(e) of the Commission's Rules of Practice [17 C.F.R. § 201.102(2)] ("Rule 102(e)").  1     II. 
+
+   FINDINGS 
+
+  The Commission finds that: 
+
+    A.  Fisher is an attorney and has been licensed to practice law in the State of New York since March 1970.  
+
+    B.  On March 16, 2001, the United States District Court for the Eastern District of Pennsylvania entered a judgment against Fisher convicting him of conspiracy to commit securities fraud and to make false and misleading statements to auditors.   United States v. Elliot Fisher , 98-CR-63-3 (RFK) (E.D. Pa.).  
+
+    C.  As a result of this conviction, Fisher was sentenced to 6 months in prison and three years of supervised release, and ordered to pay a $10,000 criminal fine and restitution totaling $340,000.
+
+     III. 
+
+   ORDER IMPOSING SANCTIONS 
+
+  Based upon the foregoing, the Commission finds that Fisher has been convicted of a felony within the meaning of Rule 102(e)(2) of the Commission's Rules of Practice.  The Commission deems it appropriate and in the public interest and accordingly, IT IS HEREBY ORDERED, that Fisher be forthwith suspended from appearing or practicing before the Commission as an attorney.
+
+  By the Commission.
+
+      Jonathan G. Katz
+ Secretary
+     
+ ________________________
+      1       Rule 102(e)(2) provides in pertinent part:  "Any ... person who has been convicted of a felony or a misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the Commission. A ...conviction within the meaning of this section shall be deemed to have occurred when the . . . convicting agency or tribunal enters its judgment or order ..."
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diff --git a/raw/aaer/2002/AAER-1682.txt b/raw/aaer/2002/AAER-1682.txt
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+  LITIGATION RELEASE NO. 17880 / December 6, 2002  
+
+   ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1682  
+
+   FORMER OFFICERS AND DIRECTORS OF REGAL COMMUNICATIONS CORP. SETTLE SEC FINANCIAL FRAUD CHARGES  
+
+   SEC SUSPENDS FORMER REGAL CFO AND IN-HOUSE LEGAL COUNSEL FROM PRACTICING BEFORE THE COMMISSION  
+
+   SECURITIES AND EXCHANGE COMMISSION V. ARTHUR L. TOLL, BRUCE B. EDMONDSON, GERALD LEVINSON AND ELLIOT S. FISHER, 98-CV-2325 (HH)   (E.D. Pa.)   
+
+   The Commission announced today that four former officers and directors of Regal Communications Corp. ("Regal"), a Philadelphia area company, agreed without admitting or denying the allegations in the Commision complaint to the entry of final judgments, in  Securities and Exchange Commission  v.  Arthur L. Toll, Bruce B. Edmondson, Gerald Levinson and Elliot S. Fisher , 98-CV-2325 (HH) (E.D. Pa.). The court enjoined all four defendants, barred Toll and Edmondson from serving as officers and directors of public companies and ordered disgorgement.  The Commission filed its complaint on May 4, 1998, and the action was subsequently stayed pending the conclusion of related criminal proceedings,  United States  v.  Arthur L. Toll, et al ., Cr. No. 98-606-01 (E.D. Pa.) (the "Criminal Action")   
+
+   The Commission's Complaint alleged that from March 1992 through December 1993, Arthur L. Toll, Regal's former chief executive officer, chairman of the board of directors, and majority shareholder, Bruce B. Edmondson, Regal's former chief financial officer and member of the board of directors and its audit committee, Gerald Levinson, former member of Regal's board of directors and its audit committee and Elliot S. Fisher, former member of Regal's board of directors and its audit committee, in-house legal counsel, and corporate secretary, each knowingly or recklessly made materially false and misleading statements, and omitted to state material information, in numerous periodic reports and registration statements that they signed and that Regal filed with the Commission.  Regal, now defunct, was a public company based in Fort Washington, Pennsylvania, where it engaged in telephone "900" services and television infomercial marketing.  During the time that these reports and registration statements were publicly available, Regal's stock traded over the NASDAQ.  In addition, Regal used the false reports and registration statements in connection with a July 1993 $35 million debenture offering, the March 1993 acquisition of two companies from celebrity Joan Rivers, and the September 1993 acquisition of Inphomation, Inc., an infomercial production and marketing company responsible for "Dionne Warwick's Psychic Friends' Network."   
+
+   The Complaint alleged that the Defendants engaged in a massive financial fraud.  Edmondson caused Regal to record fictitious business revenues and receivables.  Edmondson and Toll supported these fictitious items with fictitious or misleading sales documents and bank records. To lend credibility to the false information and to deceive Regal's independent auditors, Edmondson and Toll paid off many of the fake receivables with Regal's own money, including funds that they obtained through concealed sales of Regal's stock and warrants.  They circulated over $23 million from Regal's checking accounts into the accounts of companies privately-owned by them. They then caused the private companies to funnel a substantial portion of the money back to Regal in amounts equal to the amounts of the fictitious revenues and receivables.  The Defendants' fraud inflated Regal's revenues and receivables, causing Regal's recorded income and assets to be materially overstated in reports and registration statements filed with the Commission from July 9, 1992 through August 10, 1993.  As a result of the fraud, the Defendants received ill-gotten gains (mostly profits from selling Regal stock) totaling over $2.2 million.   
+
+   On November 1, 2002, the Court barred Toll and Edmondson from serving as officers or directors of any public company.  In addition, the Court permanently enjoined all four defendants from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder.  The Court also ordered Toll, Edmondson and Fisher to disgorge their ill-gotten gains: $811,706.50 from Toll, $1,265,613.48 from Edmondson, and $131,000.00 from Fisher.  Edmondson's disgorgement was deemed partially satisfied based on his payment of restitution in the Criminal Action and the remainder was waived based on his financial condition. Similarly, Toll's and Fisher's disgorgement were satisfied by their restitution obligations.    
+
+   The Commission also announced two related administrative proceedings.  In Administrative Proceeding File No. 3-10961,  Securities Exchange Rel. No.46953 , AAE Rel. No.1680, the Commission issued an order forthwith suspending Edmondson from appearing or practicing before the Commission as an accountant.  Edmondson consented to the Order, which the Commission issued pursuant to Rule 102(e)(2) of its Rules of Practice, without admitting or denying its findings. Throughout his employment at Regal, Edmondson was licensed as a CPA.  Similarly, in Administrative Proceeding File No. 3-10962,  Securities Exchange Rel. No. 46954 , AAE Rel. No. 1681, the Commission forthwith suspended Fisher from appearing or practicing as an attorney before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice.  Edmondson and Fisher's criminal convictions provided the basis for suspension under Rule 102(e)(2).      
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diff --git a/raw/aaer/2002/AAER-1683.txt b/raw/aaer/2002/AAER-1683.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e496208ce8e5c3dec70f896018c41d223e0107e0
--- /dev/null
+++ b/raw/aaer/2002/AAER-1683.txt
@@ -0,0 +1,1379 @@
+
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+     SEC.gov | Betty L. Vinson and Troy M. Normand 
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+              Betty L. Vinson and Troy M. Normand
+           
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+        Betty L. Vinson and Troy M. Normand
+       
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+
+  Litigation Release No.   17883 / December 6, 2002 
+
+  Accounting and Auditing Enforcement Release No.  1683 / December 6, 2002 
+
+    Vinson and Normand, Two Former WorldCom Accounting Managers, Are Permanently Enjoined from Committing Securities Fraud and Other Violations  
+
+    Securities and Exchange Commission v. Betty L. Vinson and Troy M. Normand, Civil Action No. 02 CV 8083 (JSR)    
+
+   The Securities and Exchange Commission announced today that judgments of permanent injunction were entered on November 26 in its pending civil enforcement action in the WorldCom matter against Betty L. Vinson and Troy M. Normand, former accountants in the General Accounting Department of WorldCom, Inc.  This action is pending in the U.S. District Court for the Southern District of New York before Judge Jed S. Rakoff.   The judgments signed by Judge Rakoff impose the full injunctive relief sought by the Commission and provide that monetary relief will be decided by the Court at a later date.  Each defendant consented, without admitting or denying the allegations in the Commission's complaint, to the entry of the judgment against her or him.  Based on the permanent injunction imposed by the Court against Vinson, the Commission today suspended her from appearing or practicing before the Commission as an accountant under Rule 102(e) of the Commission's Rules of Practice.  (  In the Matter of Betty L. Vinson, CPA  , Rel. 33-8158; AAE No. 1686; File No. 3-10963.)  
+
+   The Commission's investigation into matters related to WorldCom's financial fraud is continuing.  
+
+   In its complaint in the action against Vinson and Normand pending before Judge Rakoff, the Commission charged Vinson and Normand with participating in a massive fraud that inflated WorldCom's earnings at the direction and with the knowledge of WorldCom's senior management.  The Commission sought permanent injunctions, disgorgement of any ill-gotten gains, and civil money penalties.  ( Litigation Release No. 17783 .)  
+
+   The judgments entered against Vinson and Normand, among other things: (1) enjoin them from violating the antifraud, books and records, and internal controls provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder), and from aiding and abetting violations of the periodic reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a) and 13(b)(2)(A) & (B) and Rules 12b-20, 13a-1 and 13a-13 thereunder); (2) provide that any monetary relief will be decided by the Court at a hearing to be held upon motion of the Commission or the instance of the Court; and (3) provide that the Court retains jurisdiction of the action for all purposes, including the imposition of additional equitable remedies or sanctions, if any, as determined following a hearing.    
+
+   These judgments relate to the fourth of four civil actions the Commission has filed thus far in connection with the financial fraud at WorldCom.  The first action was filed against WorldCom, Inc. on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for 2001 and the first quarter of 2002.  ( Litigation Release No. 17588 .)  The Commission filed an amended complaint against WorldCom on November 5.  ( Litigation Release No. 17829 .)  On November 26, the court entered a judgment against WorldCom, by consent, imposing the full injunctive relief sought by the Commission; ordering an extensive review of the company's corporate governance systems, policies, plans, and practices; ordering a review of WorldCom's internal accounting control structure and policies; ordering that WorldCom provide reasonable training and education to certain officers and employees to minimize the possibility of future violations of the federal securities laws; and providing that civil money penalties, if any, will be decided by the Court at a later date.  
+
+   The Commission's second enforcement action was filed against former WorldCom Controller David F. Myers on September 26.  ( Litigation Release No. 17753 .)  The Commission's third enforcement action was filed against Vinson and Normand's supervisor, former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7.  ( Litigation Release No. 17771 .)   On November 14, Judge Rakoff entered judgments against Myers and Yates that imposed injunctive relief and officer and director bars and provided that any further relief will be decided at a later date.  ( Litigation Release No. 17842 .)  Based on the injunctions, Myers and Yates were suspended today from appearing or practicing before the Commission as accountants under Rule 102(e) of the Commission's Rules of Practice.  (  In the Matter of David F. Myers  , Rel.33-8157, AAE Rel. 1685, File No.3-10965; and   In the Matter of Buford Yates, Jr.  , Rel. 33-8156, AAE Rel. 1684, File No. 3-10964.)  
+
+   The Commission acknowledges the assistance and cooperation of the U.S. Attorneys' Offices for the Southern District of New York and Southern District of Mississippi, and the Federal Bureau of Investigation.  Both Vinson and Normand have pled guilty to criminal charges prosecuted by the U.S. Attorney's Office for the Southern District of New York.  
+  
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diff --git a/raw/aaer/2002/AAER-1684.txt b/raw/aaer/2002/AAER-1684.txt
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--- /dev/null
+++ b/raw/aaer/2002/AAER-1684.txt
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+ SECURITIES ACT OF 1933
+ Release No.  8156 / December 6, 2002
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46962 / December 6, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1684 / December 6, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10964
+
+         In the Matter of 
+   BUFORD YATES, JR.,   
+     Respondent.     
+     
+  : : : : :   
+   ORDER INSTITUTING ADMINISTRATIVE 
+PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF
+PRACTICE, MAKING FINDINGS, AND
+IMPOSING REMEDIAL SANCTIONS      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Buford Yates, Jr. ("Yates") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1     II. 
+
+    In anticipation of the institution of these proceedings, Yates 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, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. §201.1  et seq. , and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.3. below, which are admitted, Yates consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.  
+
+   III. 
+
+    On the basis of this Order and Yates' Offer, the Commission finds that: 
+
+    1. Yates, age 46, was a certified public accountant licensed to practice in the State of Mississippi from approximately 1988 until January 1, 1999, when he failed to renew his license.  From in or about 1997 until terminated by WorldCom, Inc. ("WorldCom") on August 28, 2002, Yates served as WorldCom's Director of General Accounting.
+
+    2. WorldCom was at all relevant times a Georgia corporation with principal offices in Clinton, Mississippi.  It provided a broad range of communications services to both U.S. and non-U.S. based businesses and consumers.  At all relevant times, WorldCom's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the Nasdaq National Market System.
+
+    3. On November 14, 2002, a judgment was entered against Yates, by consent, permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, in a civil action in the United States District Court for the Southern District of New York, entitled  Securities and Exchange Commission v. Buford Yates, Jr. , Civil Action Number 02 CV 7958 (JSR).  Yates was also barred from serving as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.  The determination of the amount of civil penalties, if any, and/or disgorgement, if any, to be paid by Yates in that civil action will be made at a later date.  2    4. The Commission's complaint alleged, among other things, the following: at the direction of WorldCom senior management, Yates and other WorldCom employees caused WorldCom to overstate materially its earnings in contravention of generally accepted accounting principles ("GAAP") for at least seven successive fiscal quarters, from as early as October 2000 through April 2002.  In the third and fourth quarters of 2000, at the direction of WorldCom senior management, Yates and others improperly decreased reserves and line costs by corresponding amounts to overstate pre-tax earnings by $828 million and at least $407 million in the respective quarters.  Then, from the first quarter 2001 through the first quarter 2002, at the direction of WorldCom senior management, Yates and others improperly capitalized line costs to overstate pre-tax earnings by approximately $3.8 billion.  Yates knew, or was reckless in not knowing, that these entries were made without supporting documentation, were not in conformity with GAAP, were not disclosed to the investing public, and were designed to allow WorldCom to appear to meet Wall Street analysts' quarterly earnings estimates.
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Yates' Offer.
+
+    Accordingly, IT IS HEREBY ORDERED, effective immediately, that Yates is suspended from appearing or practicing before the Commission as an accountant.  
+
+    By the Commission.
+     Jonathan G. Katz
+               Secretary
+    
+ ________________________
+      1      Rule 102(e)(3)(i) provides, in relevant part, that:
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.
+       2       On October 7, 2002, in an action filed in the United States District Court for the Southern District of New York, Yates pleaded guilty to one count of conspiracy to commit securities fraud, in violation of 18 USC §371, and one count of securities fraud, in violation of 15 USC §78j(b), and 17 CFR 240.10b-5.
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diff --git a/raw/aaer/2002/AAER-1686.txt b/raw/aaer/2002/AAER-1686.txt
new file mode 100644
index 0000000000000000000000000000000000000000..904fa59e71c34c4e9f006c267eb8d599161d6f4e
--- /dev/null
+++ b/raw/aaer/2002/AAER-1686.txt
@@ -0,0 +1,1471 @@
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+              Betty L. Vinson, CPA
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+        Betty L. Vinson, CPA
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+ SECURITIES ACT OF 1933
+ Release No.  8158 / December 6, 2002
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No.  46964 / December 6, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1686 / December 6, 2002
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10963
+
+         In the Matter of   
+   BETTY L. VINSON, CPA,   
+     Respondent.   
+     
+    ORDER INSTITUTING ADMINISTRATIVE
+PROCEEDINGS PURSUANT TO RULE  102(e) OF THE COMMISSION'S RULES OF
+  PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Betty L. Vinson ("Vinson") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1     II. 
+
+    In anticipation of the institution of these proceedings, Vinson 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, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. §201.1  et seq. , and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings, and the findings contained in Section III.3. below, which are admitted, Vinson consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.  
+
+   III. 
+
+    On the basis of this Order and Vinson's Offer, the Commission finds that: 
+
+    1. Vinson, age 47, is and has at all relevant times been a certified public accountant licensed to practice in the State of Mississippi.  Vinson was employed throughout the relevant period in WorldCom, Inc.'s ("WorldCom's") General Accounting department and was promoted in January 2002 to Director of Management Reporting.  She was terminated by the company on August 28, 2002.  
+
+    2. WorldCom was at all relevant times a Georgia corporation with principal offices in Clinton, Mississippi.  It provided a broad range of communications services to both U.S. and non-U.S. based businesses and consumers.  At all relevant times, WorldCom's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the Nasdaq National Market System.
+
+    3. On November 26, 2002, a judgment was entered against Vinson, by consent, permanently enjoining her from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, in a civil action in the United States District Court for the Southern District of New York, entitled  Securities and Exchange Commission v. Betty L. Vinson and Troy M. Normand , Civil Action Number 02 CV 8083 (JSR).  The determination of the amount of civil penalties, if any, and/or disgorgement, if any, to be paid by Vinson in that civil action will be made at a later date.  2    4. The Commission's complaint alleged, among other things, the following: at the direction of WorldCom senior management, Vinson and other WorldCom employees caused WorldCom to overstate materially its earnings in contravention of generally accepted accounting principles ("GAAP") for at least seven successive fiscal quarters, from as early as October 2000 through April 2002.  In the third and fourth quarters of 2000, at the direction of WorldCom senior management, Vinson and others improperly decreased reserves and line costs by corresponding amounts to overstate pre-tax earnings by $828 million and at least $407 million in the respective quarters.  Then, from the first quarter 2001 through the first quarter 2002, at the direction of WorldCom senior management, Vinson and others improperly capitalized line costs to overstate pre-tax earnings by approximately $3.8 billion.  Vinson knew, or was reckless in not knowing, that these entries were made without supporting documentation, were not in conformity with GAAP, were not disclosed to the investing public, and were designed to allow WorldCom to appear to meet Wall Street analysts' quarterly earnings estimates.
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Vinson's Offer.
+
+    Accordingly, IT IS HEREBY ORDERED, effective immediately, that Vinson is suspended from appearing or practicing before the Commission as an accountant.  
+
+    By the Commission.
+
+                    Jonathan G. Katz
+               Secretary
+     
+ _____________________________
+      1     Rule 102(e)(3)(i) provides, in relevant part, that:
+
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.
+ 
+      2      On October 10, 2002, in an action filed in the United States District Court for the Southern District of New York, Vinson pleaded guilty to one count of conspiracy to commit securities fraud, in violation of 18 USC §371, and one count of securities fraud, in violation of 15 USC §78j(b), and 17 CFR 240.10b-5.
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diff --git a/raw/aaer/2002/AAER-1687.txt b/raw/aaer/2002/AAER-1687.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7164b0cfec9c44e9b0160fb4de76cf408094efea
--- /dev/null
+++ b/raw/aaer/2002/AAER-1687.txt
@@ -0,0 +1,1528 @@
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 46979 / December 10, 2002
+  
+ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1687 / December 10, 2002 
+ 
+ADMINISTRATIVE PROCEEDING
+ File No. 3-10969
+  
+       In the Matter of  
+   SYNCOR INTERNATIONAL 
+CORPORATION, 
+    Respondent. 
+  
+   
+    
+: : : : : : : : :   
+  
+  ORDER INSTITUTING PROCEEDINGS  
+PURSUANT TO SECTION 21C OF THE  
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING   
+A CEASE-AND-DESIST ORDER
+       I.  
+ 
+The Commission deems it appropriate to institute public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") against Syncor International Corporation ("Syncor"), and such proceedings are hereby instituted. 
+
+  II.  
+ 
+In anticipation of the institution of these proceedings, Syncor has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept.  1    As set forth in the Offer, Syncor admits the jurisdiction of the Commission over it and over the subject matter of this proceeding.  Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and prior to a hearing and without admitting or denying the findings contained herein (except as to jurisdiction, as set forth above), Syncor consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order").  The Commission has determined that it is appropriate to accept the Offer from Syncor, and accordingly is issuing this Order.  2   
+
+  III.  
+ 
+The Commission finds that:  3   
+ 
+ A. Respondent  
+ 
+Respondent Syncor is a Delaware corporation with its headquarters in Woodland Hills, California.  Syncor is a provider of radiopharmaceutical products and services both in the United States and, through various direct and indirect subsidiaries, in 18 foreign countries.  Syncor's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is listed on the NASDAQ National Market. 
+ 
+ B. Facts  
+ 
+From at least the mid-1980s through at least September 2002, several of Syncor's foreign subsidiaries made at least $600,000 in illicit payments to doctors employed by hospitals controlled by foreign authorities.  As described below, these illicit payments were made with the purpose and effect of influencing the doctors' decisions so that Syncor could obtain or retain business with them and the hospitals that employed them.  Moreover, the payments were made with the knowledge and approval of senior officers of the relevant Syncor subsidiaries, and in some cases with the knowledge and approval of Syncor's founder and chairman of the board. 
+ 
+By making these payments through its subsidiaries, Syncor violated the anti-bribery provisions of the Foreign Corrupt Practices Act of 1977, as amended (the "FCPA").  Moreover, by improperly recording these payments - and similar payments made to foreign persons not affiliated with government-owned facilities - Syncor violated the books-and-records provisions of the FCPA.  Finally, by failing to devise or maintain an effective system of internal controls to prevent or detect these violations of the FCPA, Syncor violated the internal accounting controls provisions of the FCPA. 
+ 
+ 1. Taiwan   
+ 
+Syncor has been doing business in Taiwan since 1985 through a subsidiary called Syncor Taiwan, Inc.  Syncor Taiwan was and still is Syncor's largest overseas operation in terms of revenue.  Among other things, Syncor Taiwan sells radiopharmaceutical products to both private and public hospitals in Taiwan, and owns and operates medical imaging centers in that country.  Throughout the relevant period, the financial results of Syncor Taiwan were a component of the consolidated financial statements included in Syncor's filings with the Commission. 
+ 
+Throughout the time it has been in business, Syncor Taiwan has paid improper commissions to doctors who controlled the purchasing decisions for the nuclear medicine departments of certain hospitals, including some hospitals owned by Taiwan authorities, for the purpose of obtaining or retaining business with those hospitals.  These improper commissions (typically between 10% and 20% of sales) totaled at least $400,000 from the inception of Syncor Taiwan through September 2002.  During this period, the payment of these commissions was known to and approved by Syncor's founder and chairman, among others at both Syncor and Syncor Taiwan.  In most cases, the commissions were paid in cash and hand-delivered to doctors by the brother of Syncor's chairman, who was the general manager of Syncor Taiwan during most of the relevant period until he was promoted in 1998 to manage all of Syncor's Asian operations.  These commissions - along with similar commissions Syncor Taiwan paid to doctors at private hospitals in Taiwan - were improperly recorded as promotional and advertising expenses in the books and records of Syncor Taiwan. 
+ 
+Beginning in 1998, Syncor Taiwan also paid improper fees to certain doctors at hospitals owned by Taiwan authorities for referrals of patients to medical imaging centers owned and operated by Syncor Taiwan.  These referral fees typically were based on a percentage (between 3% and 5%) of the service fees payable to each medical imaging center from the patients referred, and typically took the form of a cash payment that was hand-delivered to the referring doctor by a bookkeeper at the center after funds had been wire-transferred to the center for that purpose.  During the relevant period, these improper referral fees to doctors at hospitals owned by Taiwan authorities totaled at least $113,000.  The payment of these referral fees was known to and approved by Syncor's founder and chairman of the board, among others at both Syncor and Syncor Taiwan.  Like the commissions described above, these referral fees - along with similar referral fees paid to doctors at private hospitals in Taiwan - were improperly recorded as promotional and advertising expenses in the books and records of Syncor Taiwan. 
+ 
+ 2. Mexico  
+ 
+Syncor has been doing business in Mexico since 1995 through a subsidiary called Syncor de Mexico.  In 1998, Syncor de Mexico acquired another Mexican radiopharmaceutical company whose customers were primarily public hospitals, and the two companies formally merged during 2001.  During the relevant period, the principal business of Syncor de Mexico was the sale of radiopharmaceutical products and related medical equipment, and its financial results were a component of the consolidated financial statements included in Syncor's filings with the Commission. 
+ 
+During 2001 and 2002, Syncor de Mexico and its representatives made approximately $23,000 in improper monetary payments to at least four doctors at government-owned hospitals in Mexico, all for the purpose of obtaining or retaining business with those doctors and the hospitals that employed them.  These payments took several different forms, including a personal loan to one doctor that was never repaid, and purported reimbursements of personal expenses claimed by several of the doctors.  In at least two cases, moreover, Syncor de Mexico entered into "over-invoicing" arrangements with doctors.  Pursuant to these arrangements, Syncor de Mexico would inflate an invoice and bill the doctor's hospital for a more expensive product than Syncor actually delivered.  After the hospital paid the amount reflected on the inflated invoice, Syncor de Mexico would pay to the doctor the difference between the actual price and the inflated price, less Syncor de Mexico's tax liability on the sale.  4   
+ 
+All of the foregoing types of payments were known to and approved by the general manager and others at Syncor de Mexico.  Many of the payments were hand-delivered to the doctors by Syncor de Mexico sales representatives after the funds were wired to the sales representatives' bank accounts.  Some of the payments were improperly recorded as business expenses in the books and records of Syncor de Mexico. 
+ 
+In addition to the above-described payments, Syncor de Mexico had a general practice of providing "support" - locally referred to as "apoyo" - to doctors with whom it did business, including many employed at government-owned hospitals.  These support payments, generally between 1.5% and 3% of sales, mostly came in the form of sponsorships for the doctors' attendance at educational seminars, including payments for registration fees, travel, lodging, and meals.  They also included gifts of computer equipment, software, office furniture, and medical supplies to doctors and their hospitals; sponsorships of social functions and fundraisers at the hospitals; funds provided to cover the cost of temporary employees at the hospitals; and payments made for outside testing when a particular hospital's laboratory equipment was not functioning properly.  During the years 2000 through 2002, Syncor de Mexico made a total of at least $200,000 in support payments, which were arbitrarily distributed among several of Syncor de Mexico's business expense accounts in a manner designed to minimize their detection and disallowance by Mexican tax authorities. This improper characterization of the payments caused inaccuracies in the books and records of Syncor de Mexico. 
+ 
+ 3. Belgium, Luxembourg, and France  
+ 
+Syncor has been doing business in Belgium, Luxembourg, and France since September 2001 through four subsidiaries collectively operated as the Medcon Group.  The primary business of the Medcon Group is the sale and export of radiological film to hospitals, doctors, and distributors, although it also sells a limited quantity of medical equipment.  Customers of the Medcon Group include both government-owned and private hospitals.  During the relevant period, the financial results of the Medcon Group were a component of the consolidated financial statements included in Syncor's filings with the Commission. 
+ 
+During 2001 and 2002, the Medcon Group made several different types of illicit payments to doctors employed by hospitals owned by foreign governments for the purpose of retaining business with these doctors and their hospitals.  First, the Medcon Group gave some doctors generous gifts worth more than $750 each in the form of money directly transferred to doctors' bank accounts, computers, digital cameras, expensive wines, wristwatches, and leisure travel.  In addition, pursuant to agreements with certain doctors, the Medcon Group occasionally sent inflated or fictitious invoices to medical practices and then rebated to the doctors approximately 80 % of the practices' payments, with the funds then being used to finance personal travel and other gifts for the doctors.  During 2001 and 2002, such illicit payments and gifts to doctors at government-owned hospitals have totaled at least $45,000, and were known to and approved by the two principal executives of Medcon who manage the affairs of the business for Syncor. 
+ 
+The Medcon Group also improperly recorded many of these payments and gifts in its books and records.  It likewise improperly recorded other gifts it gave, and commissions it paid, to various private parties to obtain competitive advantages, including:  (i) a gift of a laptop computer given to an employee of one of its major suppliers to induce that supplier to overbid on a Belgian government contract that was consequently awarded to the Medcon Group; (ii) commissions of 5% to 10% paid to distributors of the Medcon Group's products in France, Germany, and Italy; (iii) a payment of approximately $33,000 to a distributor in Greece to induce him not to compete with the Medcon Group in Belgium and Luxembourg; (iv) commissions paid to employees of the Medcon Group's suppliers to preserve goodwill and to receive preferential access to products; and (v) commissions of approximately 80% paid to the principal of one distributor of the Medcon Group's products to induce him to purchase nearly-expired x-ray film that would otherwise have to be written off.  The Medcon Group inaccurately recorded many of the above-described gifts and payments as capital or business expenses, apparently for the purpose of minimizing the risk of detection and disallowance by tax authorities.  Moreover, the Medcon Group improperly recorded many of these payments and gifts in the books and records of Syncor's Luxembourg subsidiary rather than those of its Belgium subsidiary, where they properly belonged, apparently to take advantage of more favorable tax treatment and more relaxed oversight in Luxembourg. 
+ 
+ C. Legal Analysis  
+ 
+The FCPA, enacted in 1977, added Exchange Act Section 30A to prohibit public companies from, among other things, making improper payments to foreign officials for the purpose of influencing their decisions in order to obtain or retain business.  15 U.S.C. § 78dd-1.  The FCPA also added Exchange Act Section 13(b)(2)(A) to require public companies to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer, and added Exchange Act Section 13(b)(2)(B) to require such companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; and (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets.  15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B). 
+ 
+ 
+ 
+As detailed above, Syncor, through several of its foreign subsidiaries, made numerous illicit payments to doctors at hospitals that were owned by foreign authorities, with the purpose and effect of influencing their decisions in order to obtain or retain business.  Throughout the relevant period, the doctors at these hospitals were foreign officials within the meaning of the FCPA, and the hospitals were instrumentalities of foreign governments within the meaning of the FCPA.  Syncor therefore violated the anti-bribery provisions of Exchange Act Section 30A.  Moreover, in connection with these payments - and in connection with other payments and gifts made by the same Syncor subsidiaries to private parties in foreign countries - Syncor 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 others made by several of its foreign subsidiaries, and the improper recording of these payments in the subsidiaries' books and records, Syncor failed to devise and maintain an effective system of internal controls to prevent or detect these violations of the FCPA, as required by Exchange Act Section 13(b)(2)(B). 
+  IV.  
+ 
+Based on the foregoing, the Commission finds that Syncor violated Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B), and 30A. 
+  V.  
+ 
+Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Syncor: 
+ 
+(i) cease and desist from committing or causing any violations and any future violations of Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B), and 30A; and 
+ 
+(ii) comply with the undertaking set forth in its Offer, whereby Syncor agrees that within 20 days after the date of this Order, Syncor's Board of Directors shall retain a qualified independent consultant (the "Consultant"), not unacceptable to the staff of the Commission, to review Syncor's internal controls, record-keeping, and financial reporting policies and procedures as they relate to Syncor's compliance with the anti-bribery provisions of the FCPA.  Within 130 days after appointment, the Consultant shall complete its review and submit a report documenting its findings and making recommendations (the "Report") to Syncor's Board of Directors, a copy of which shall be transmitted contemporaneously to the staff of the Commission.  Within 90 days after receiving the Report, Syncor's Board of Directors shall advise the staff of the Commission, in writing, of all decisions and determinations it has made as a result of the Report.  In the event that Syncor is acquired by another company and becomes a wholly-owned subsidiary of the acquiring company before it has fully complied with all of the terms of this paragraph, Syncor's obligations under this paragraph shall remain in effect only as to Syncor as a wholly-owned subsidiary and only as to Syncor's Board of Directors as constituted following the acquisition.  In the event that Syncor is acquired by another company and ceases to be a wholly-owned subsidiary of such acquiring company before Syncor has fully complied with all of the terms of this paragraph, the acquiring company shall assume Syncor's obligations under this paragraph. 
+ 
+By the Commission. 
+ 
+Jonathan G. Katz
+ Secretary 
+ 
+
+  Footnotes 
+ 
+  1    In determining to accept Syncor's Offer, the Commission considered the full cooperation that Syncor has provided to the Commission staff during its investigation of the conduct described herein, and that Syncor has agreed in its Offer to continue to provide.  The Commission also considered the fact that Syncor - after being alerted to the relevant conduct by another company that was conducting due diligence relating to a previously announced merger with Syncor - promptly brought this matter to the attention of the Commission's staff and the U.S. Department of Justice. 
+ 
+  2    In addition, the Commission has contemporaneously filed a complaint in the United States District Court for the District of Columbia charging Syncor with violating the Foreign Corrupt Practices Act and seeking a civil penalty.  Without admitting or denying the Commission's allegations, Syncor has consented to the entry of a final judgment by the Court that would require Syncor to pay a $500,000 civil penalty.   See SEC v. Syncor International Corp. , No. 1:02CV02421 (D.D.C),  Lit. Rel. No. 17887  (Dec. 10, 2002). 
+ 
+  3    The findings herein are not binding on anyone other than Syncor. 
+ 
+  4    This type of "over-invoicing" arrangement was possible, in part, because many radiopharmaceutical products are delivered directly to doctors rather than to a hospital warehouse or general receiving area.  As a result, the doctor is frequently the only person cognizant of what has actually been shipped. 
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diff --git a/raw/aaer/2002/AAER-1688.txt b/raw/aaer/2002/AAER-1688.txt
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+  Securities and Exchange Commission v. Syncor International Corporation , Case No. 1:02CV02421 (U.S.D.C., D.D.C) 
+ 
+On December 10, 2002, the Commission filed two settled enforcement proceedings charging Syncor International Corporation, a radiopharmaceutical company based in Woodland Hills, California, with violating the Foreign Corrupt Practices Act (FCPA).  First, the Commission filed a lawsuit in the United States District Court for the District of Columbia charging Syncor with violating the FCPA and seeking a civil penalty.  Second, the Commission issued an administrative order finding that Syncor violated the anti-bribery, books-and-records, and internal-controls provisions of the FCPA, ordering Syncor to cease and desist from such violations, and requiring Syncor to retain an independent consultant to review and make recommendations concerning the company's FCPA compliance policies and procedures.  Without admitting or denying the Commission's charges, Syncor consented to the entry of a final judgment in the federal lawsuit requiring it to pay a $500,000 civil penalty and consented to the Commission's issuance of its administrative order. 
+ 
+In both its federal court complaint and its administrative order, the Commission charged that, from at least the mid-1980s through at least September 2002, Syncor's foreign subsidiaries in Taiwan, Mexico, Belgium, Luxembourg, and France made a total of at least $600,000 in illicit payments to doctors employed by hospitals controlled by foreign authorities.  According to the Commission, these illicit payments were made with the purpose and effect of influencing the doctors' decisions so that Syncor could obtain or retain business with them and the hospitals that employed them.  The Commission charged, moreover, that the payments were made with the knowledge and approval of senior officers of the relevant Syncor subsidiaries, and in some cases with the knowledge and approval of Syncor's founder and chairman of the board. 
+ 
+According to the Commission, by making these payments through its subsidiaries, Syncor violated the anti-bribery provisions of the FCPA (Section 30A of the Securities Exchange Act of 1934).  The Commission further charged that, by improperly recording these payments - and similar payments made to foreign persons not affiliated with government-owned facilities - Syncor violated the books-and-records provisions of the FCPA (Section 13(b)(2)(A) of the Securities Exchange Act of 1934).  Finally, the Commission charged that, by failing to devise or maintain an effective system of internal controls to prevent or detect these violations of the FCPA, Syncor violated the internal accounting controls provisions of the FCPA (Section 13(b)(2)(B) of the Securities Exchange Act of 1934). 
+ 
+In determining to accept Syncor's settlement offer, the Commission considered the full cooperation that Syncor provided to the Commission staff during its investigation.  The Commission also considered the fact that Syncor - after being alerted to the relevant conduct by another company that was conducting due diligence relating to a previously announced merger with Syncor - promptly brought this matter to the attention of the Commission's staff and the U.S. Department of Justice. 
+ 
+In a related proceeding, the United States Department of Justice filed criminal FCPA charges against Syncor Taiwan, Inc., a subsidiary of Syncor.  (U.S. v. Syncor Taiwan, Inc. No. 02-CR-1244-ALL (C.D. Cal.)).  In that proceeding, Syncor Taiwan has agreed to plead guilty to one count of violating the anti-bribery provisions of the FCPA and to pay a $2 million fine. 
+ 
+The Commission acknowledges the assistance of the Department of Justice in its investigation, which is continuing. 
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diff --git a/raw/aaer/2002/AAER-1689.txt b/raw/aaer/2002/AAER-1689.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2af798c81bbac7550fd2b079dcee06cd0297e3c0
--- /dev/null
+++ b/raw/aaer/2002/AAER-1689.txt
@@ -0,0 +1,1584 @@
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+              Susan Moore
+           
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+        Susan Moore
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+                        
+              Securities Exchange Act of 1934
+ Release No.  46988 / December 12, 2002
+  Accounting and Auditing Enforcement
+ Release No.  1689 / December 12, 2002
+  Administrative Proceeding
+ File No.  3-10970
+
+         In the Matter of  
+   SUSAN MOORE,   
+       Respondent.   
+     
+    : : : : :   
+    ORDER INSTITUTING PROCEEDINGS 
+              PURSUANT TO SECTION 21C OF THE 
+   SECURITIES EXCHANGE ACT OF 1934, 
+              MAKING FINDINGS AND IMPOSING A 
+   CEASE-AND-DESIST ORDER     I.
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Susan Moore caused violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder.  1    II.
+
+    In anticipation of the institution of these administrative proceedings, Moore has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that she admits the jurisdiction of the Commission over her and over the subject matter of these proceedings, Moore consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").
+
+  III.
+
+   FACTS 
+
+    On the basis of this Order and the Respondent's Offer of Settlement, the Commission finds that:  2    A.  Respondent  
+
+    Susan Moore, age 41, joined Safety-Kleen Corp. ("Safety-Kleen") as Financial Reporting Manager in February 1998.  In October 1999, she was promoted to Vice President of Accounting.  Moore remained with the company during an investigation by a special committee of Safety-Kleen's Board of Directors and was terminated in October 2001.  Moore is a certified public accountant licensed in South Carolina.
+
+  B.  Related Entity 
+
+    Safety-Kleen is a Delaware corporation with headquarters in Columbia, South Carolina.  It is one of the nation's leading providers of industrial waste collection and disposal services.  Safety-Kleen's common stock is registered pursuant to Section 12(b) of the Exchange Act and was listed for trading on the New York Stock Exchange until it was delisted on June 12, 2000.  On June 9, 2000, Safety-Kleen and 73 of its wholly-owned domestic subsidiaries filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
+
+  C.  Summary 
+
+    From at least November 1998 through March 2000, several of Safety-Kleen's former senior executives engaged in a massive accounting fraud by materially overstating the company's revenue and earnings in periodic reports filed with the Commission and in press releases issued by the company.  They carried out the scheme primarily by making inappropriate quarterly accounting adjustments for the purpose of meeting Wall Street earnings expectations.
+
+  On March 6, 2000, after Safety-Kleen's Board of Directors had received information concerning possible accounting irregularities, the company announced that it had initiated an internal investigation of its previously reported financial results and certain of its accounting policies.  The company also announced that its Chief Executive Officer and Chief Financial Officer had been placed on administrative leave pending the outcome of the internal investigation.  On July 9, 2001, Safety-Kleen filed restated financial statements for fiscal years 1997, 1998 and 1999.  The company's restatement reduced net income over the three-year period by $534 million.  Approximately $312 million, or 58%, of the restated net income was in fiscal 1999.  Also on July 9, 2001, the company filed financial statements for fiscal 2000 reflecting a net loss of $833 million.
+
+  As Safety-Kleen's Financial Reporting Manager, Moore received financial data at the end of each quarter, and then prepared the company's financial statements for filing with the Commission.  As directed by her superiors, she participated in the preparation of financial statements that, in the exercise of reasonable care, she should have known   were not in conformity with generally accepted accounting principles ("GAAP").  This conduct caused Safety-Kleen to violate Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder.
+
+  D.  The Fraudulent Accounting Scheme 
+
+  Each month, as financial data was reported to Safety-Kleen's headquarters from its field offices, there were several preliminary closings of the company's general ledger.  This process usually took up to ten days following month end.  At the end of each quarter, Safety-Kleen's Chief Financial Officer (Paul R. Humphreys), Controller (William D. Ridings) and Vice President of Accounting (Thomas W. Ritter, Jr.) met to discuss the results of operations.  Typically, Humphreys told Ridings and Ritter what the targeted earnings amount was, and then they jointly discussed potential accounting adjustments to help them achieve the target.  Moore did not participate in those meetings.  Although the company had always made legitimate quarterly adjusting entries in preparing its financial statements, the magnitude and nature of the adjustments changed dramatically during fiscal 1999.  As time went on, the discrepancy between the company's projected results and the actual results increased, and several improper adjustments were made each quarter to reach the earnings targets.  Humphreys, Ridings and Ritter each recorded, or directed others to record, accounting adjustments that were not in conformity with GAAP.  Moore was one of several Safety-Kleen employees who received instructions to make some of those adjustments.  
+
+  As the table below reflects, Safety-Kleen's quarterly earnings were significantly increased as a result of accounting adjustments.
+  
+     
+ 
+ EARNINGS BEFORE ADJUSTMENTS
+ (IN MILLIONS)
+ 
+ EARNINGS AS REPORTED AFTER ADJUSTMENTS
+ (IN MILLIONS)
+ 
+ TOTAL
+ ADJUSTMENTS
+ (IN MILLIONS)
+ 
+ %
+    1 st  Quarter
+ FY 1999
+ 
+ $90.9
+ 
+ $127.5
+ 
+ $36.6
+ 
+ 40.3
+    2 nd  Quarter
+ FY 1999
+ 
+ $76.7
+ 
+ $107.6
+ 
+ $30.9
+ 
+ 40.3
+    3 rd  Quarter
+ FY 1999
+ 
+ $47.9
+ 
+ $123.4
+ 
+ $75.5
+ 
+ 157.6
+    4 th  Quarter
+ FY 1999
+ 
+ $57.3
+ 
+ $110.4
+ 
+ $53.1
+ 
+ 92.7
+    FY 2000
+ 
+ $47.0
+ 
+ $116.8
+ 
+ $69.8
+ 
+ 148.5
+    Total
+ 
+ $319.8
+ 
+ $585.7
+ 
+ $265.9
+ 
+ 83.1
+    E.  Moore's Role in Safety-Kleen's Violations 
+
+    As Safety-Kleen's Financial Reporting Manager, Moore shared responsibility for preparing the company's financial statements.  She worked closely with the other financial managers in the company to compile Safety-Kleen's financial statements and public filings.  Beginning in fiscal 1999, Moore, in the exercise of reasonable care, should have known that many of the company's accounting adjustments were not in conformity with GAAP.  Nevertheless, she failed to correct the improper accounting and continued to improperly record certain other adjustments when directed to do so.  For example, at the close of the third quarter of fiscal 1999, Humphreys instructed Moore to make a worksheet adjustment to improperly defer $5.2 million of expenses that had been incurred during that quarter.  Moore made this adjustment the day before a Board of Directors meeting and gave the updated financial statements to Humphreys.  Moore was never provided with any documentation to support the adjustment.  In addition to inflating Safety-Kleen's earnings for the quarter by a net of approximately $3.25 million, this adjustment had a material impact on the company's earnings-per-share, increasing it from $.27 to $.30.
+
+  Moore was also responsible for improperly recording $6.3 million of revenue at the end of fiscal 1999.  At Humphreys' direction, Moore made the adjustment without any supporting documentation.  Moore, in the exercise of reasonable care, should have known that other employees had already booked this revenue.  Moore made several other non-GAAP adjustments to Safety-Kleen's financial statements in other reporting periods at the direction of Humphreys that, in the exercise of reasonable care, she should have known were improper.  
+
+  By following Humphreys' instructions, Moore assisted Safety-Kleen in preparing financial statements that were not consistent with GAAP, in maintaining false and misleading books and records, and in failing to maintain a system of internal accounting controls sufficient to prevent the recording of improper accounting adjustments.  
+
+  IV.
+
+   LEGAL DISCUSSION 
+
+  A.  Safety-Kleen Violated the Reporting Provisions of the Exchange Act 
+
+  Section 13(a) of the Exchange Act requires that issuers with securities registered pursuant to Section 12 of the Exchange Act file such information and documents as the Commission shall prescribe by its rules and regulations.  Rules 13a-1 and 13a-13 thereunder require issuers to file annual and quarterly reports, respectively.  Rule 12b-20 thereunder requires that these periodic reports contain such further information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading.  The filing of a periodic report containing materially false or misleading information constitutes a violation of these provisions.   SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979);  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).  As a result of the conduct described above, Safety-Kleen violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder.
+
+  B. Safety-Kleen Violated the Recordkeeping and Internal Controls
+
+     Provisions of the Exchange Act 
+
+  Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.  Safety-Kleen violated Section 13(b)(2)(A) of the Exchange Act by maintaining books and records which, among other things, falsely understated the company's expenses and liabilities and falsely overstated the company's revenue, assets and earnings.  
+
+  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP.  Safety-Kleen violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that accounting adjustments were recorded in conformity with GAAP.
+
+  C.  Moore Was a Cause of Safety-Kleen's Violations 
+
+  Section 21C of the Exchange Act provides that the Commission may order any person who is or was a cause of a violation of any provision of the Exchange Act to cease and desist from causing such violation.  Moore was a cause of Safety-Kleen's reporting, books and records and internal controls violations, when she made accounting adjustments that were not consistent with GAAP.
+
+  V.
+
+  Based upon the foregoing, the Commission finds that Susan Moore caused violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder.  
+
+  ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Susan Moore cease and desist from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules  13a-1, 13a-13 and 12b-20 thereunder.
+
+  By the Commission.
+
+                  Jonathan G. Katz
+
+             Secretary
+     
+ ___________________________
+      1      This matter is related to  SEC v. Safety-Kleen Corp., Kenneth W. Winger, Paul R. Humphreys, William D. Ridings and Thomas W. Ritter, Jr. , Civil Action No. 02-CV-9791 (CSH) (S.D.N.Y.) (December 12, 2002). 
+
+      2      The findings herein are made pursuant to Moore's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
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diff --git a/raw/aaer/2002/AAER-1692.txt b/raw/aaer/2002/AAER-1692.txt
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index 0000000000000000000000000000000000000000..c08aec74cfd18d285549e9240c9f5e685260adef
--- /dev/null
+++ b/raw/aaer/2002/AAER-1692.txt
@@ -0,0 +1,1549 @@
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+              Ira A. Gerard and Karen S. Harris
+           
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+      
+      
+             
+        Ira A. Gerard and Karen S. Harris
+       
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+ SECURITIES ACT OF 1933
+ Release No.  8163 / December 16, 2002
+
+
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No.   47001 / December 16, 2002
+
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1692 / December 16, 2002
+
+
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10974
+
+
+  
+       In the Matter of  
+    Ira A. Gerard  and Karen S. Harris,		  
+       Respondent.   
+     
+    : : : : : : : :   
+    ORDER INSTITUTING
+CEASE-AND-DESIST
+PROCEEDINGS, MAKING
+FINDINGS, AND
+IMPOSING CEASE-
+AND-DESIST ORDER  
+       I.  
+   
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Respondents Ira A. Gerard ("Gerard") and Karen S. Harris ("Harris").
+
+   
+   II.  
+
+
+  In anticipation of the institution of these cease-and-desist proceedings, Gerard and Harris have submitted Offers of Settlement ("Offers") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, Gerard and Harris consent to the entry of this Order InstitutingCease-and-Desist Proceedings, Making Findings and Imposing Cease-and-Desist Order ("Order") as set forth below.
+
+   III. 
+
+  On the basis of this Order and the Offers, the Commission finds that:
+
+   A.   RESPONDENTS  
+
+    Gerard  , 53, of Ridgefield, Connecticut, was CFO and Vice President of Finance for Mercator Software, Inc. ("Mercator") from October 1995 until August 1, 2000.  In the first quarter of 2000, Mercator's CEO began an active search for a replacement CFO. 1   As of August 1, 2000, Gerard stepped down as CFO and Mercator named him Vice President of Finance.  On August 20, 2000, Gerard was terminated by the company in connection with the company's announcement on August 21 of the restatement of financial results for the first and second quarters of 2000.  Gerard has never been licensed as a Certified Public Accountant and is currently self-employed.      
+    Harris  , 41, of Riverside, Connecticut, was controller at Mercator from December 1997 until August 20, 2000, when she was relieved of her duties in connection with the company's announcement of the restatement of financial results for the first and second quarters of 2000. Harris resigned from Mercator in February 2001 and is not currently licensed as a Certified Public Accountant.
+   B.   OTHER RELEVANT ENTITY  
+    Mercator   is a Delaware corporation with its principal place of business in Wilton, Connecticut.  Mercator was incorporated in Connecticut in 1985 as TSI International Software, Inc. and reincorporated in Delaware in September 1993.  The company changed its name to Mercator, effective April 3, 2000.  At all relevant times, Mercator's securities were traded on the NASDAQ National Market and registered with the Commission pursuant to Section 12(g) of the Exchange Act, and the company was required to file reports with the Commission pursuant to Section 13(a) of the Exchange Act.
+
+   C.   SUMMARY  
+
+  This matter involves material understatements of expenses in Mercator's publicly released financial statements for the first and second quarters of 2000. 2   During those quarters, Mercator failed to record certain expenses in the quarter during which they were incurred, resulting in understated losses for both quarters.  This practice understated the extent of Mercator's losses and resulted in Mercator's misstating its net losses in financial statements filed in its Form 10-Q for the first quarter and in its earnings release at the conclusion of the second quarter. 3   Gerard and Harris each knew, or were reckless in not knowing, that certain expenses were not reported.  Those certain expenses were excluded in an attempt to meet Wall Street analysts' earnings expectations for the two quarters.  On August 21, 2000, Mercator announced that it had understated expenses for the first quarter by $1.3 million and for the second quarter by $1.1 million.  As a result of the understated expenses, first quarter net loss, operating loss and loss per share were each understated by 14% and second quarter net loss, operating loss and loss per share were each understated by 10%.  
+  As described below, Gerard violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and he caused Mercator's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20 and 13a-13 thereunder.  Harris violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and she caused Mercator's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.   
+
+    
+   D.   FACTS  
+
+  Mercator specializes in software which allows businesses to integrate different types of systems and applications.  In 1999, Mercator's annual revenues were $99 million.  Starting in late 1998 through the end of 1999, Mercator made three substantial acquisitions which placed a strain on its operational resources and its internal controls.  Although Mercator's business grew substantially as a result of the acquisitions, its accounting staff was not correspondingly expanded at the time of the acquisitions. 
+  From the time Mercator began publicly trading in 1997 until the end of 1999, the company met analysts' earnings expectations for every fiscal quarter.  During the first and second quarters of 2000, Gerard placed substantial pressure on Harris to continue to meet analysts'earnings expectations in reported financial results.  As a result of that pressure, Harris intentionally failed to record certain operating expenses which were material to both quarters. Gerard was informed of, or was reckless in not knowing of, the underreporting in both quarters.  
+  In addition to Gerard and Harris being aware of the underreporting of certain expenses, Mercator also failed to report expenses material to both quarters because its internal controls relating to expense reporting were inadequate.  Both Gerard and Harris had responsibility for implementing adequate internal controls.  In particular, Mercator had inadequate procedures in place to ensure accurate and timely communication between the accounting department and other areas of the company, with the result that certain expenses were not internally reported to the accounting department until after the financial statements for the period had already been publicly released.         
+   1.   Failure To Properly Record Expenses in the First Quarter   
+  In its Form 10-Q filed on May 15, 2000, Mercator understated actual first quarter expenses by approximately $1.3 million.  Gerard signed the Form 10-Q on behalf of Mercator. At the time the Form 10-Q was filed, Gerard and Harris both knew, or were reckless in not knowing, that at least $750,000 in first quarter expenses had not been included in the financial statements for the first quarter.  The balance of the unreported expenses (approximately $550,000) was excluded largely as a result of either inadvertence or failure of internal controls relating to expense reporting. 4   
+  The unreported $750,000 in first quarter expenses was comprised of three categories: (1) legal expenses; (2) bonus expenses; and (3) expenses related to a shareholder value study completed in the first quarter.  The understatement of legal and bonus expenses began because Mercator had inadequate procedures in place for ensuring that its accounting department was informed of such expenses in a timely manner.  By the time the Form 10-Q was filed, however, both Gerard and Harris knew, or were reckless in not knowing, that legal expenses and bonus expenses were not being adequately tracked by Mercator's internal expense reporting systems. Both also knew, or were reckless in not knowing, that Mercator had incurred substantial legal and bonus expenses during the first quarter that were not included in the first quarter financial statements.  In addition to being aware of the unrecorded legal and bonus expenses, both Gerard and Harris knew that a substantial non-recurring expense relating to a shareholder value study had been incurred in the first quarter and that the expense had not been recorded in the first quarter financial statements.  Gerard and Harris did not include the $750,000 in expenses in financial statements filed with the Form 10-Q.  Neither notified Mercator's outside auditors that substantial expenses had been excluded from the financial statements.  The numbers reported in the Form 10-Q allowed the company to meet analysts' expectations.  If all first quarter expenseshad been reported, Mercator would not have met analysts' earnings expectations.  As a result of the total $1.3 million in excluded expenses, Mercator's first quarter net loss, operating loss and loss per share were each understated by 14%.   
+   2.   Failure to Properly Record Expenses in the Second Quarter  
+  On July 20, 2000, Mercator announced financial results for the second quarter which understated expenses by approximately $1.1 million.  Gerard and Harris intentionally excluded approximately $850,000 of those expenses.  An additional $850,000 of second quarter expenses was excluded largely as a result of Mercator's inadequate internal expense reporting controls and through inadvertence. 5 
+  Harris realized by June 2000 that revenue figures for the second quarter would not be high enough for the company to meet published analysts' earnings expectations.  During  the second quarter, Harris expressed concerns to Gerard that expenses were likely to be higher than anticipated and second quarter revenue figures were turning out to be lower than anticipated. When Harris closed the accounts payable system after the end of the second quarter, she kept track of invoices for second quarter expenses that had not been entered into the accounts payable system.  As second quarter expenses came in to the accounting department, Harris added them to her list but did not include them in the financial statements she was preparing for the second quarter because she was concerned that, if she did, the company would not meet earnings expectations.  In early July 2000, Harris informed Gerard about her decision not to record certain expenses in the second quarter.  Gerard approved Harris' decision, telling her not to worry about it and that there was an expense cushion in the budget in the fourth quarter that would cover those expenses.  In addition to excluding the expenses described above, Gerard and Harris excluded certain second quarter bonus expenses from the financial statements. The total second quarter expenses which Gerard and Harris decided to exclude was $850,000.  Neither notified Mercator's outside auditors that substantial expenses had been excluded from the financial statements.  
+  Notwithstanding the exclusion of second quarter expenses from the financial statements, Mercator did not meet analysts' earnings expectations for the second quarter.  Mercator issued an earnings warning after the close of the market on July 14, 2000 indicating that it expected pro-forma earnings per share to be $.04, which was $.04 lower than expectations. 6   The preliminary figures that Mercator released on July 14, 2000 were misleading because they did not include the $850,000 in expenses that Gerard and Harris had excluded, nor did they include the additional$850,000 in expenses that were excluded due to inadvertence and poor internal controls.  On July 20, 2000, Mercator issued a press release and financial statements that still did not include those second quarter expenses.  As a result of the excluded expenses, second quarter net loss, operating loss and loss per share were each understated by 10%. 7  
+          
+   3.   Mercator's Response to the Reports of Accounting Impropriety  
+  In late 1999, Mercator's Chief Executive Officer (the "CEO") removed certain non-financial responsibilities from Gerard.  In the first quarter of 2000, the CEO began an active search for a replacement CFO.  On August 1, 2000, Gerard was replaced by a new Chief Financial Officer (the "new CFO").    
+  On the morning of July 20, 2000, prior to Mercator's second quarter earnings release, Harris met informally with the new CFO.  At that meeting Harris informed the new CFO that she had concerns about the recording of expenses in both the first and the second quarter financial statements.  When the new CFO started work on August 1, 2000, he began investigating Harris' claim that the company's first and second quarter expenses were understated.  By August 9, 2000, the new CFO's investigation revealed that substantial expenses had not been recorded in the first and second quarters.  On August 10, 2000, the new CFO contacted Mercator's in-house counsel about the accounting issues and instructed him to contact outside counsel and the audit committee.  The new CFO also tendered his own immediate resignation.
+    On August 10, 2000, the company began an internal investigation.  On August 14, 2000, Mercator placed Gerard (who had previously been replaced on August 1, 2000) on administrative leave and terminated his employment on August 20, 2000.  Also on August 20, 2000, Mercator relieved Harris of her duties and of all responsibility for accounting decisions.  On August 21, 2000, Mercator announced that the previously released financial statements for the first and second quarters were inaccurate and that it had hired its outside auditors to conduct a special review of its systems and controls and to make recommendations for improvements.  The company filed an amended Form 10-Q for the first quarter and a Form 10-Q for the second quarter reflecting restated results.  The restatement revealed that the first quarter net loss, operating loss and loss per share were each understated by 14%.  For the second quarter, net loss, operating loss and loss per share were each understated by 10%.     
+
+   E.   VIOLATIONS  
+
+   1.  Gerard and Harris violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder.  
+	
+  Section 17(a) of the Securities Act prohibits fraud in the offer or sale of securities, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraud "in connection with the purchase or sale" of securities.  In particular, Rule 10b-5 prohibits any person from engaging in "any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person."  Misstatements and omissions of material fact in a registration statement may violate Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5.   SEC v. Benson , 657 F. Supp. 1122, 1130-1131 (S.D.N.Y. 1987). Violations of Section 10(b) and Rule 10b-5 occur when an issuer makes material misstatements in periodic reports filed with the Commission and trading thereafter occurs in the issuer's securities. 8    Basic, Inc. v. Levinson , 485 U.S. 224, 231 (1988).    Liability is appropriately imposed against individuals involved in the fraud even where the issuer itself is not held directly liable for the fraud.   See   Charles W. Wallin , Exchange Act Rel. No. 37127 (April 19, 1996), 1996 SEC LEXIS 1137 (settled proceeding) (treasurer and CFO of accounting operations violated Section 10(b) by engaging in various fraudulent accounting practices at company, even though company itself was not charged with violations of Section 10(b)).   
+  Gerard and Harris violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by intentionally failing to record expenses on Mercator's publicly released financial statements for the first and second quarters of 2000 in an attempt to meet Wall Street analysts' earnings expectations for those quarters.  Gerard also violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by signing the false and misleading Form 10-Q for the first quarter which was filed with the Commission.
+	
+   2.  Gerard and Harris Caused Mercator's Violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 Thereunder  
+	
+  Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of registered securities to file quarterly reports with the Commission.  It is implicit in this requirement that the information provided be accurate.  See   United States v. Bilzerian , 926 F.2d 1285, 1298 (2d Cir.),  cert.   denied , 502 U.S. 813 (1991);  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).  Regulation S-X requires that financial statements filed with the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with generally accepted accounting principles ("GAAP") or such statements will be presumed to be misleading or inaccurate.  In addition, Exchange Act Rule 12b-20 requires that these periodicreports contain all information necessary to ensure that statements made in them are not materially misleading.  The issuer reporting provisions are violated when false and misleading reports are filed.   SEC v.  Falstaff Brewing Corp. , 629 F.2d 62, 67 (D.C. Cir.  1980).  No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 12b-20 or 13a-13.   See   SEC v. McNulty,  137 F.3d 732, 740-41 (2d Cir. 1998);  SEC v. Savoy Industries, Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978);   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978);  In re Curtis L. Dally , Exchange Act Rel. No. 39144 (September 29, 1997), 1997 SEC LEXIS 2026. 
+  Mercator filed a Form 10-Q for the quarter ended March 31, 2000 that materially misstated the company's operating results.  Mercator's net loss, operating loss and loss per share were each understated by 14%.  Accordingly, Mercator violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  Gerard and Harris caused Mercator's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder by preparing the misleading financial statements that were included in the Form 10-Q that was filed with the Commission.  
+	
+   3.  Gerard and Harris Caused Mercator's Violation of Section 13(b)(2) of the Exchange Act  
+	
+  Section 13(b)(2) of the Exchange Act states, in pertinent part, that every reporting company must:  (A) make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer; and (B) devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP.  These provisions require an issuer to employ and supervise reliable personnel, to maintain reasonable assurances that transactions are executed as authorized, to properly record transactions on an issuer's books and, at reasonable intervals, to compare accounting records with physical assets.   SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 750 (N.D. Ga. 1983).  Sections 13(b)(2)(A) and 13(b)(2)(B) do not require a showing of scienter.   Id.  at 751.
+  Mercator violated Section 13(b)(2)(A) of the Exchange Act by failing to maintain accurate records concerning its expenses.  It failed to record quarterly expenses in the quarters in which they were incurred, as required by GAAP.  Gerard and Harris caused Mercator's violation of Section 13(b)(2)(A) by intentionally failing to record expenses in the time period in which they were incurred.  In addition, Mercator violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP.  Gerard and Harris caused the company's violation of Section 13(b)(2)(B) by failing to ensure that proper reviews and checks were in place to ensure that expenses were recorded in the financial reporting period during which they were incurred.  In particular, during the first and second quarters of 2000 both knew that Mercator had inadequate procedures in place to ensure accurate and timely communication between the accountingdepartment and other areas of the company, with the result that certain expenses were not internally reported to the accounting department until after the financial statements for the period had already been publicly released; neither implemented a system of controls, however, that would correct the problem.   
+   4. Gerard and Harris Violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 and Gerard Also Violated Rule 13b2-2 
+	
+  Section 13(b)(5) prohibits any person from knowingly circumventing or knowingly failing to implement a system of internal accounting controls, or knowingly falsifying any book, record or account described in Section 13(b)(2).  By its terms, Section 13(b)(5) requires that a person act with scienter.  This section enables the Commission to address conduct that undermines the integrity of the books and records and internal controls of an issuer.  Rule 13b2-1 prohibits any person from directly or indirectly falsifying or causing the falsification of any books, records, or accounts subject to Section 13(b)(2)(A).   Rule 13b2-2 prohibits an officer or director of a public company from making or causing to be made a materially false or misleading statement or to omit or cause a person to omit certain material facts to an accountant in connection with an audit, examination of financial statements, or the preparation or filing of documents with the Commission.  
+  Gerard and Harris committed or caused violations of Section 13(b)(5) and Rule 13b2-1 by failing to implement a system of internal accounting controls to accurately track Mercator's expenses and by falsifying Mercator's financial statements by understating expenses in the first and second quarters.  Gerard, who was an officer of Mercator, violated Rule 13b2-2 because he failed to disclose to Mercator's outside auditors that expenses were materially understated in those quarters.
+
+    
+
+   IV.  
+  In view of the foregoing, the Commission deems it appropriate to accept the Offers submitted by Gerard and Harris and to impose the cease-and-desist order agreed to in the Offers.
+  Accordingly,   IT IS HEREBY ORDERED , pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that: (i) Gerard cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and that Gerard cease and desist from causing any violation and any future violation of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; and (ii) Harris cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and that Harris cease and desist from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.
+  By the Commission.
+
+
+  Jonathan G. Katz
+ Secretary
+						
+					
+				
+			
+		
+    Footnotes   
+
+  1    During the first and second quarters of 2000, Gerard was undergoing treatment for a serious illness.
+   2    Mercator's first quarter ended on March 31, 2000.  Its second quarter ended on June 30, 2000.
+   3    Simultaneously with the institution of these proceedings, the Commission is instituting settled cease and desist proceedings against Mercator for violations of the federal securities laws.
+   4     Mercator also filed a Form S-3 registration statement on May 15 which became effective on June 1.  The registration statement incorporated by reference Mercator's filings with the Commission, including the misleading Form 10-Q for the first quarter.
+   5     The total $1.7 million understatement was offset by approximately $550,000 in credits to the second quarter (for first quarter expenses that had been improperly recorded in the second quarter), resulting in the net restatement amount of approximately $1.1 million.
+   6    In its releases, Mercator disclosed that the pro forma figures were calculated excluding amortization of intangibles.
+   7    Mercator's reported pro-forma numbers were also substantially inaccurate; on a pro forma basis, the understatement resulted in earnings per share being overstated by 100%, operating income being overstated by 168%, and net income being overstated by 139%.      
+   8     Financial statements incorporated in Commission filings must comply with Regulation S-X, which in turn requires conformity with GAAP.
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+ SECURITIES EXCHANGE ACT OF 1934
+ RELEASE NO. 47004 / December 16, 2002
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO.  1693 / December 16, 2002
+  ADMINISTRATIVE PROCEEDING
+ FILE NO.  3-10976
+
+  The United States Securities and Exchange Commission announced today that it has instituted administrative proceedings against Hamilton Bancorp, Inc. ("Hamilton") to suspend or revoke the registration of its securities for failing to file annual and quarterly reports.  Hamilton was the former holding company for Hamilton Bank, N.A., which is currently in receivership with the Federal Deposit Insurance Corporation.  According to the Order Instituting Public Proceedings, the Division of Enforcement alleges that Hamilton has failed to file its annual report for December 31, 2001 and quarterly reports since March 31, 2002, as required by Section 13(a) of the Securities Exchange Act of 1934 and the rules thereunder.  A hearing will be held before an administrative law judge to determine whether the staff's allegations are true and, if so, to determine whether it is necessary or appropriate for the protection of investors to suspend or revoke the registration of Hamilton's securities.    
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diff --git a/raw/aaer/2002/AAER-1694.txt b/raw/aaer/2002/AAER-1694.txt
new file mode 100644
index 0000000000000000000000000000000000000000..607782f613dc80841f3c30b0d0cf42cdc9187c44
--- /dev/null
+++ b/raw/aaer/2002/AAER-1694.txt
@@ -0,0 +1,1367 @@
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+              Ira A. Gerard and Karen S. Harris
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+        Ira A. Gerard and Karen S. Harris
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+ Litigation Release No.  17898 / December 17, 2002
+  Accounting and Auditing Enforcement Release No.  1694 / December 17, 2002
+  SEC Files Action Against Former CFO and Former Controller of Mercator Software Inc. in Financial Fraud Case
+   Securities and Exchange Commission v. Ira A. Gerard and Karen S. Harris  (United States District Court for the District of Massachusetts C.A. No.   02-12421 (NG))    
+  The Securities and Exchange Commission ("Commission") announced today that it filed a civil action in a financial fraud case involving Mercator Software, Inc. ("Mercator"), a Wilton, Connecticut-based software company.  The Commission's complaint alleges that Ira A. Gerard ("Gerard") of Ridgefield, Connecticut, the former Chief Financial Officer of Mercator Software, Inc., and Karen S. Harris ("Harris"), of Riverside, Connecticut, Mercator's former Controller, engaged in improper accounting practices in the first two quarters of 2000 by intentionally failing to record known expenses in an attempt to meet analysts' earnings expectations during those two quarters.  The Complaint alleges that because of Gerard and Harris' conduct, Mercator materially understated its expenses in publicly released financial statements for the first two quarters of 2000.  Gerard agreed, without admitting or denying the Commission's allegations, to pay a civil penalty of $35,000.  Harris agreed, without admitting or denying the Commission's allegations, to pay a civil penalty of $25,000.
+
+  The Commission also instituted and simultaneously settled administrative cease-and-desist proceedings against Mercator, Gerard, and Harris.  The Commission found that Gerard and Harris violated the antifraud provisions and caused Mercator's violations of the periodic reporting, record-keeping and internal controls provisions of the federal securities laws.  Without admitting or denying the Commission's findings, Gerard and Harris consented to an order requiring them to cease and desist from committing or causing any violation and any future violation of those federal securities laws, including Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder.  Without admitting or denying the Commission's findings, Mercator consented to an order requiring it to cease and desist from committing or causing any violation, and any future violation, of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  In assessing the appropriate remedy, the Commission took into account remedial acts promptly undertaken by Mercator and its extensive cooperation with the Commission's investigation.   
+
+  Contact:   Kate Poverman, Assistant District Administrator, (617) 424-5936 
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diff --git a/raw/aaer/2002/AAER-1695.txt b/raw/aaer/2002/AAER-1695.txt
new file mode 100644
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@@ -0,0 +1,1376 @@
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+              U.S. Technologies Inc. and C. Gregory Earls
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+        U.S. Technologies Inc. and C. Gregory Earls
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+ Litigation Release No.  17904 / December 19, 2002
+
+  Accounting and Auditing Enforcement Release No. 1695 / December 19, 2002
+
+   SECURITIES AND EXCHANGE COMMISSION v. U.S. TECHNOLOGIES, INC. and C. GREGORY EARLS , No. 1:02CV02495 (Robertson, J.) (D.D.C., filed December 19, 2002)
+
+  SEC FILES SECURITIES FRAUD CHARGES AGAINST
+ U.S TECHNOLOGIES, INC. AND C. GREGORY EARLS 
+
+  On December 19, 2002, the Commission filed a lawsuit in federal court charging U.S. Technologies, Inc. ("UST"), along with its chairman and chief executive officer, C. Gregory Earls, with securities fraud and other violations.  The Commission is asking the Court to enjoin both defendants from violating the federal securities laws, to order Earls to disgorge his ill-gotten gains and pay a civil penalty, and to bar Earls from serving as an officer or director of any public company.   
+
+  The Commission's complaint alleges that from June 1998 through August 2002, Earls misappropriated approximately $13.8 million from investors who believed they were giving Earls money to purchase preferred stock and warrants from UST.  According to the complaint, Earls carried out this scam through a limited liability company he created called USV Partners LLC.  The complaint charges that Earls falsely told investors in USV Partners that the entity was created solely to purchase and hold UST stock and warrants, and that he would not take any management fees.  According to the complaint, Earls lured more than one hundred investors into giving him more than $20 million to purchase UST stock and warrants through USV Partners.  Although UST badly needed the capital infusion, according to the complaint, Earls bought only a small portion of the stock he promised investors.  He then allegedly misappropriated $13.8 million of their money by paying himself $4.7 million in management fees and $9.1 million that he falsely classified as "Legal and Accounting" expenses.  As alleged in the complaint, neither UST nor Earls has ever publicly disclosed Earls' diversion of these investor funds. 
+
+  The complaint further charges that Earls and UST made numerous materially misleading statements and omissions to cover up Earls' misdeeds.  For example, the complaint alleges that while touting Earls' supposed business experience and acumen, Earls and UST failed to disclose that he had previously been accused of misappropriating investor funds in connection with several other companies.  Earls and UST are also charged with failing to reveal the material weaknesses noted by its independent auditor concerning its internal accounting controls.   Most recently, according to the complaint, Earls and UST failed to disclose that half of its board of directors resigned in or about April 2002.
+
+  The Commission's complaint charges UST with violating Section 17(a) of the Securities Act of 1933 (the "Securities Act"), Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13.  It charges Earls with violating Securities Act Section 17(a), Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5 and 13b2-1.  The complaint also charges Earls with aiding and abetting UST's violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(b), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13.
+
+    In a related criminal proceeding, Earls was charged with securities fraud, mail fraud, and wire fraud.  United States v. C. Gregory Earls , No. 02-MAG-531 (S.D.N.Y.)  That case is being prosecuted by the United States Attorney's Office for the Southern District of New York.  The Commission thanks the U.S. Attorney's Office, the Department of Justice, and the United States Postal Inspection Service for their assistance in the Commission's investigation of this matter, which is continuing.
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diff --git a/raw/aaer/2002/AAER-1696.txt b/raw/aaer/2002/AAER-1696.txt
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+              Robert A. Putnam
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+        Robert A. Putnam
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+ Securities Act of 1933 
+Release No. 8172 / December 23, 2002 
+
+ Securities Exchange Act Of 1934 
+Release No.  47083 / December 23, 2002 
+
+ Accounting and Auditing Enforcement 
+Release No.   1696 / December 23, 2002 
+
+ Adminstrative Proceeding 
+File No.  3-10998 
+
+ SEC Charges Former Arthur Andersen Partner Robert A. Putnam with Fraud and Improper Professional Conduct in Connection with Audit Work for HBO & Company and ebix.com, Inc. 
+
+ The United States Securities and Exchange Commission announced today that it has instituted public administrative proceedings against Robert A. Putnam, a former Arthur Andersen LLP partner and a certified public accountant, in connection with audit work he performed for two separate public companies, HBO & Company ("HBOC") and ebix.com, inc. ("Ebix").  The Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 ("Order") alleges that Putnam committed or caused violations of the antifraud provisions of the federal securities laws while acting as HBOC's outside audit engagement partner.  Further, the Order alleges that Putnam engaged in improper professional conduct within the meaning of Commission Rule of Practice 102(e) during his work for HBOC and while the engagement partner on the Ebix audit.   
+
+  HBOC .  Putnam was the audit engagement partner for HBOC during the time that senior management were directing a massive financial reporting fraud scheme.  The HBOC fraud began in 1997 and continued after its January 1999 merger with San Francisco-based McKesson Corporation, which resulted in the formation of McKesson HBOC Corporation ("McKesson HBOC").  When the fraud was first disclosed in April 1999, McKesson HBOC shares tumbled from approximately $65 to $34, a decline that slashed the company's market value by more than $9 billion.  Previously, the Commission has brought fraud and other charges against nine former HBOC and McKesson HBOC officers and employees for their roles in the fraud.   
+
+ According to the Commission's Order, Putnam approved Arthur Andersen's issuance of six false quarterly review reports during 1997 and 1998 and a false 1997 audit report on HBOC's financial statements.  These reports were incorporated in HBOC's public filings.  Putnam knew, or was reckless in not knowing, that HBOC's accounting practices did not conform to Generally Accepted Accounting Principles, and that Andersen did not conduct its quarterly reviews and audit in compliance with Generally Accepted Auditing Standards.  For instance, the Order alleges that Putnam knew that during the first quarter of 1997, HBOC's reported pretax income was overstated by 9.4 percent, in part because of contingences in HBOC software contracts that should have prohibited revenue recognition.  In subsequent periods, Putnam also knew that HBOC was reporting financial results that were significantly inflated, in part because of revenue contingencies found in side letters and HBOC's deliberate misuse of reserve accounts.  Although Putnam knew that HBOC management was using improper accounting to boost results, the Order alleges that he failed to stop the practices and did not bring them to the attention of HBOC's audit committee.    
+
+  Ebix .  The Ebix matter concerns Putnam's conduct as the audit engagement partner for Andersen's audit of Ebix for the nine-month period ended December 31, 1998 ("1998 transition period").  Ebix is a software developer and marketer.  In connection with the confirmations sent to Ebix's customers during his audit work for the company, Putnam became aware that various customers claimed that they were entitled to refunds of deposits on software and would not pay certain outstanding invoices because they claimed the software Ebix had delivered did not function properly.  Despite the negative confirmations, Putnam conducted no further investigation of the revenue and accepted management's representation that the software functioned properly and the revenue was collectible.  Ebix subsequently restated its financials statements for the 1998 transition period, reducing its software revenue by $3.4 million of a total of over $19 million in revenue the company recognized for the period.  The Order alleges that Putnam's conduct in connection with the audit constituted improper professional conduct. 
+
+ A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Putnam an opportunity to dispute these allegations, and to determine whether Putnam should be ordered to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and whether Putnam should be censured, or denied the privilege or appearing or practicing before the Commission based upon improper professional conduct and willful violations, or aiding and abetting violations, of the federal securities laws. 
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diff --git a/raw/aaer/2010/AAER-3095.txt b/raw/aaer/2010/AAER-3095.txt
new file mode 100644
index 0000000000000000000000000000000000000000..906878553103ecfa1ccee29f13a97e63100ea4c0
--- /dev/null
+++ b/raw/aaer/2010/AAER-3095.txt
@@ -0,0 +1,156 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 61300 / January 6, 2010 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3095 / January 6, 2010 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-13736 
+In the Matter of 
+Osvaldo Pitters, 
+Respondent. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS AND 
+IMPOSING TEMPORARY SUSPENSION 
+PURSUANT TO RULE 102(e)(3) OF THE 
+COMMISSION’S RULES OF PRACTICE   
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted pursuant to 
+Rule 102(e)(3)(i) of the Commission’s Rules of Practice
+1 against Osvaldo Pitters (“Respondent” or 
+“Pitters”). 
+1 Rule 102(e)(3)(i) provides, in pertinent part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+II. 
+The Commission finds that:    
+A. RESPONDENT 
+1. Pitters, 51, resides in Plantation, Florida.  From May 2004 to October 2005, 
+Pitters served as the Chief Financial Officer (“CFO”) of VoIP, Inc., a Texas corporation that 
+provided voice-over-Internet telecommunication services to retail and wholesale customers.  
+During the time period Pitters was VoIP’s CFO, VoIP’s common stock was registered with the 
+Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”), 
+and its securities were quoted on the Over-The-Counter Bulletin Board under the symbol VOII.  In 
+February 2008, VoIP closed its offices in Altamonte Springs, Florida, and ceased the majority of 
+its operations. On July 14, 2009, an Administrative Law Judge revoked the registration of VoIP’s 
+securities pursuant to Section 12(j) of the Exchange Act.  Pitters has never been a certified public 
+accountant.  As VoIP’s CFO, he oversaw VoIP’s day-to-day financial operations, prepared VoIP’s 
+financial statements, filed VoIP’s annual and quarterly reports with the Commission, and certified 
+the accuracy of those reports. 
+B. ENTRY OF THE INJUNCTION
+ 2. On November 9, 2009, a final judgment was entered by default against 
+Pitters, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 
+1933, and Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13a-14, 
+13b2-1, and 13b2-2, and from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A), 
+and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13, in the 
+civil action entitled Securities and Exchange Commission v. Osvaldo Pitters, et al, Case No. 09-
+20957-CIV, in the United States District Court for the Southern District of Florida.  The final 
+judgment also barred Pitters from serving as an officer or director of a public company. 
+3. The Commission’s complaint alleged that from November 2004 through 
+May 2005, Pitters and others recorded almost $1.4 million in fictitious revenues from purported 
+computer hardware sales and management services on VoIP’s financial statements because VoIP’s 
+revenues were falling short of company projections.  By recording the false revenues, Pitters 
+inflated the revenue VoIP publicly reported by more than 40 percent for the third quarter and year 
+end 2004 and the first quarter of 2005.  As a result, VoIP’s financial statements were not prepared 
+and presented in accord with generally accepted accounting principles (“GAAP”). 
+III. 
+Based upon the foregoing, the Commission finds that a court of competent jurisdiction 
+has permanently enjoined Pitters from violating the Federal securities laws within the meaning of 
+Rule 102(e)(3)(i)(A) of the Commission’s Rules of Practice.  In view of these findings, the 
+Commission deems it appropriate and in the public interest that Pitters be temporarily suspended 
+from appearing or practicing before the Commission.   
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+      
+ 
+IT IS HEREBY ORDERED that Pitters be, and hereby is, temporarily suspended from 
+appearing or practicing before the Commission.  This Order shall be effective upon service on the 
+Respondent.   
+IT IS FURTHER ORDERED that Pitters may within thirty days after service of this Order 
+file a petition with the Commission to lift the temporary suspension.  If the Commission within 
+thirty days after service of the Order receives no petition, the suspension shall become permanent 
+pursuant to Rule 102(e)(3)(ii).   
+If a petition is received within thirty days after service of this Order, the Commission shall, 
+within thirty days after the filing of the petition, either lift the temporary suspension, or set the 
+matter down for hearing at a time and place to be designated by the Commission, or both.  If a 
+hearing is ordered, following the hearing, the Commission may lift the suspension, censure the 
+petitioner, or disqualify the petitioner from appearing or practicing before the Commission for a 
+period of time, or permanently, pursuant to Rule 102(e)(3)(iii).   
+This Order shall be served upon Pitters personally or by certified mail at his last known 
+address. 
+ By the Commission. 
+       E l i z a b e t h M . M u r p h y
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
diff --git a/raw/aaer/2010/AAER-3096.pdf b/raw/aaer/2010/AAER-3096.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..2062cc95184efdd8578bdb55da44c705e75dc430
Binary files /dev/null and b/raw/aaer/2010/AAER-3096.pdf differ
diff --git a/raw/aaer/2010/AAER-3098.txt b/raw/aaer/2010/AAER-3098.txt
new file mode 100644
index 0000000000000000000000000000000000000000..43c0051293d213f4f260f30a5495f7ee9010b0cb
--- /dev/null
+++ b/raw/aaer/2010/AAER-3098.txt
@@ -0,0 +1,270 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+  
+  
+ 
+                                                
+ 
+     
+ 
+   
+   
+  
+  
+  
+ 
+ 
+ 
+  
+      
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 61306 / January 7, 2010 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3098 / January 7, 2010 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-13739 
+In the Matter of 
+JOHN W. JACOBSEN, CPA, 
+Respondent. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, MAKING 
+FINDINGS, AND IMPOSING REMEDIAL 
+SANCTIONS 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against John W. Jacobsen, CPA 
+(“Respondent”) pursuant to Section 4C
+1 of the Securities Exchange Act of 1934 (“Exchange Act”) 
+and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the 
+requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in 
+unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the 
+violation of, any provision of the securities laws or the rules and regulations thereunder. 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+                                                 
+    
+ 
+ 
+   
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Public Administrative 
+Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), 
+as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+RESPONDENT 
+John W. Jacobsen is a certified public accountant licensed by the state of Montana.  During 
+the period at issue here, he was a partner in Eide Bailly LLP, an accounting firm registered with the 
+Public Company Accounting Oversight Board (the “PCAOB”).   
+FACTS 
+1. Jerry D. Cash, the former Chief Executive Officer and chairman of Quest Resource 
+Corporation (“Quest Resource”) and the general partner of Quest Energy Partners, L.P. (“Quest 
+Energy” and, together with Quest Resource, “Quest”), with the aid of David E. Grose, Quest’s 
+former Chief Financial Officer, misappropriated millions from Quest through insider loans that 
+were also undisclosed related party transactions.  Between 2005 and August, 2008, Cash 
+embezzled $10 million from Quest by transferring funds between Quest-related entities and 
+companies he owned and controlled.  As a result of Cash’s and Grose’s activities, Quest failed to 
+disclose, or inadequately disclosed, the related party transactions in periodic filings, registration 
+statements, and proxy statements.
+4 
+2. Respondent acted as the audit partner on Eide Bailly’s review of Quest Resource 
+and Quest Energy’s respective financial statements for the quarter ended June 30, 2008, which 
+were included in the companies’ second quarter 2008 Forms 10-Q, filed August 11, 2008 and 
+August 12, 2008, respectively.   
+3. While performing these professional services, Respondent learned that Quest had 
+engaged in a circular series of funds transfers to and from Rockport Energy LLC, a company Cash 
+3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+4 See SEC v. Jerry D. Cash, et al., Lit. Rel. No. 21087 (June 17, 2009) 
+2
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+controlled, totaling $10 million by the second quarter of 2008.  As a result of these transfers, which 
+were described to Respondent as “loans,” $10 million was outstanding at the time of Eide Bailly’s 
+review of Quest’s second quarter 2008 financial statements. 
+4. In the course of providing these professional services, Respondent failed to 
+undertake adequate procedures to determine whether the transfers to Rockport were properly 
+recorded in Quest’s financial statements for that period and properly disclosed in Quest’s second 
+quarter 2008 Forms 10-Q.  Among other things, Respondent failed to undertake adequate 
+procedures to ascertain the terms and other details of the transactions; to determine whether the 
+transactions were authorized by Quest’s board of directors; or whether Quest had properly 
+accounted for the transactions, including whether it had established appropriate reserves against 
+Rockport’s inability to repay the amounts. 
+5. Respondent also failed to adequately consider whether the transfers to Rockport 
+may constitute fraud or an illegal act.  See PCAOB Standards and Related Rules, AU §§ 316 and 
+722.32. Furthermore, Respondent failed to adequately consider whether the transfers to Rockport 
+violated Section 13(k) of the Securities Exchange Act of 1934, which prohibits any issuer to make, 
+directly or indirectly, “personal loans” to any executive officer.   
+Violations 
+Section 4C of the Exchange Act and Rule 102(e)(1)(ii) provide that the Commission may 
+temporarily or permanently deny an accountant the privilege of appearing or practicing before it if 
+it finds, after notice and opportunity for hearing, that the accountant engaged in “improper 
+professional conduct.” In relevant part, Section 4C(b) and Rule 102(e)(1)(iv) define ‘improper 
+professional conduct’ to include either of the following two types of negligent conduct:  
+(1) A single instance of highly unreasonable conduct that results in a violation of applicable 
+professional standards in circumstances in which an accountant, or a person associated with 
+a registered public accounting firm, knows, or should know, that heightened scrutiny is 
+warranted, or 
+(2) Repeated instances of unreasonable conduct, each resulting in a violation of applicable 
+professional standards, that indicate a lack of competence to practice before the 
+Commission. 
+Findings 
+Based on the foregoing, the Commission finds that Respondent engaged in improper 
+professional conduct pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice. 
+3
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+      
+        
+ 
+      
+  
+      
+           
+ 
+ 
+ 
+ 
+ 
+  
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Respondent is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+B. After three years from the date of this Order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (Attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of a public company’s financial statements that are filed with the Commission.  Such an 
+application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+2. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+(a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the PCAOB in accordance with the Sarbanes-Oxley Act of 2002, 
+and such registration continues to be effective; 
+(b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the PCAOB and that inspection did not identify any 
+criticisms of or potential defects in Respondent’s or the firm’s quality control system that would 
+indicate that Respondent will not receive appropriate supervision;
+ (c) Respondent has resolved all disciplinary issues with the PCAOB, 
+and has complied with all terms and conditions of any sanctions imposed by the PCAOB (other 
+than reinstatement by the Commission); and 
+(d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, including, but not limited to, 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards. 
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his state CPA license is 
+current and he has resolved all other disciplinary issues with the applicable state boards of 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+accountancy. However, if state licensure is dependent on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ By the Commission. 
+       E l i z a b e t h M . M u r p h y
+       S e c r e t a r y 
+5
+ 
\ No newline at end of file
diff --git a/raw/aaer/2010/AAER-3099.txt b/raw/aaer/2010/AAER-3099.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8a78c5020ac8b0a8054075b6488da97c7b59a27a
--- /dev/null
+++ b/raw/aaer/2010/AAER-3099.txt
@@ -0,0 +1,270 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+  
+  
+ 
+                                                
+ 
+     
+ 
+   
+   
+  
+  
+  
+ 
+ 
+ 
+  
+      
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 61307 / January 7, 2010 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3099 / January 7, 2010 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-13740 
+In the Matter of 
+ DAVID C. MAYFIELD, CPA,  
+Respondent. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, MAKING 
+FINDINGS, AND IMPOSING REMEDIAL 
+SANCTIONS 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against David C. Mayfield, CPA 
+(“Respondent”) pursuant to Section 4C
+1 of the Securities Exchange Act of 1934 (“Exchange Act”) 
+and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 2 
+1 Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the 
+requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in 
+unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the 
+violation of, any provision of the securities laws or the rules and regulations thereunder. 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+                                                 
+    
+ 
+ 
+   
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Public Administrative 
+Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), 
+as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+RESPONDENT 
+David C. Mayfield is a certified public accountant licensed by the state of Oklahoma.  
+During the period at issue here, he was a partner in Eide Bailly LLP, an accounting firm registered 
+with the Public Company Accounting Oversight Board (the “PCAOB”).   
+FACTS 
+1. Jerry D. Cash, the former Chief Executive Officer and chairman of Quest Resource 
+Corporation (“Quest Resource”) and the general partner of Quest Energy Partners, L.P. (“Quest 
+Energy” and, together with Quest Resource, “Quest”), with the aid of David E. Grose, Quest’s 
+former Chief Financial Officer, misappropriated millions from Quest through insider loans that 
+were also undisclosed related party transactions.  Between 2005 and August, 2008, Cash 
+embezzled $10 million from Quest by transferring funds between Quest-related entities and 
+companies he owned and controlled.  As a result of Cash’s and Grose’s activities, Quest failed to 
+disclose, or inadequately disclosed, the related party transactions in periodic filings, registration 
+statements, and proxy statements.
+4 
+2. Respondent acted as the senior manager on Eide Bailly’s review of Quest Resource 
+and Quest Energy’s respective financial statements for the quarter ended June 30, 2008, which 
+were included in the companies’ second quarter 2008 Forms 10-Q, filed August 11, 2008 and 
+August 12, 2008, respectively.   
+3. While performing these professional services, Respondent learned that Quest had 
+engaged in a circular series of funds transfers to and from Rockport Energy LLC, a company Cash 
+3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+4 See SEC v. Jerry D. Cash, et al., Lit. Rel. No. 21087 (June 17, 2009) 
+2
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+controlled, totaling $10 million by the second quarter of 2008.  As a result of these transfers, which 
+were described to Respondent as “loans,” $10 million was outstanding at the time of Eide Bailly’s 
+review of Quest’s second quarter 2008 financial statements. 
+4. In the course of providing these professional services, Respondent failed to 
+undertake adequate procedures to determine whether the transfers to Rockport were properly 
+recorded in Quest’s financial statements for that period and properly disclosed in Quest’s second 
+quarter 2008 Forms 10-Q.  Among other things, Respondent failed to undertake adequate 
+procedures to ascertain the terms and other details of the transactions; to determine whether the 
+transactions were authorized by Quest’s board of directors; or whether Quest had properly 
+accounted for the transactions, including whether it had established appropriate reserves against 
+Rockport’s inability to repay the amounts. 
+5. Respondent also failed to adequately consider whether the transfers to Rockport 
+may constitute fraud or an illegal act.  See PCAOB Standards and Related Rules, AU §§ 316 and 
+722.32. Furthermore, Respondent failed to adequately consider whether the transfers to Rockport 
+violated Section 13(k) of the Securities Exchange Act of 1934, which prohibits any issuer to make, 
+directly or indirectly, “personal loans” to any executive officer. 
+Violations 
+Section 4C of the Exchange Act and Rule 102(e)(1)(ii) provide that the Commission may 
+temporarily or permanently deny an accountant the privilege of appearing or practicing before it if 
+it finds, after notice and opportunity for hearing, that the accountant engaged in “improper 
+professional conduct.” In relevant part, Section 4C(b) and Rule 102(e)(1)(iv) define ‘improper 
+professional conduct’ to include either of the following two types of negligent conduct:  
+(1) A single instance of highly unreasonable conduct that results in a violation of applicable 
+professional standards in circumstances in which an accountant, or a person associated with 
+a registered public accounting firm, knows, or should know, that heightened scrutiny is 
+warranted, or 
+(2) Repeated instances of unreasonable conduct, each resulting in a violation of applicable 
+professional standards, that indicate a lack of competence to practice before the 
+Commission. 
+Findings 
+Based on the foregoing, the Commission finds that Respondent engaged in improper 
+professional conduct pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice. 
+3
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+      
+        
+ 
+      
+  
+      
+           
+ 
+ 
+ 
+ 
+ 
+  
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Respondent is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+B. After three years from the date of this Order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (Attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of a public company’s financial statements that are filed with the Commission.  Such an 
+application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+2. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+(a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the PCAOB in accordance with the Sarbanes-Oxley Act of 2002, 
+and such registration continues to be effective; 
+(b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the PCAOB and that inspection did not identify any 
+criticisms of or potential defects in Respondent’s or the firm’s quality control system that would 
+indicate that Respondent will not receive appropriate supervision;
+ (c) Respondent has resolved all disciplinary issues with the PCAOB, 
+and has complied with all terms and conditions of any sanctions imposed by the PCAOB (other 
+than reinstatement by the Commission); and 
+(d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, including, but not limited to, 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards. 
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his state CPA license is 
+current and he has resolved all other disciplinary issues with the applicable state boards of 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+accountancy. However, if state licensure is dependent on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ By the Commission. 
+       E l i z a b e t h M . M u r p h y
+       S e c r e t a r y 
+5
+ 
\ No newline at end of file
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+              U.S. Securities and Exchange Commission  Litigation Release No. 21388 / January 21, 2010  Accounting and Auditing Enforcement Release No. 3109 / January 21, 2010   SEC v. Assurant, Inc. , Civil Action No. 10-Civ.-0484 (MGC) (SDNY)  SEC Charges Assurant, Inc. With Improper Reinsurance Accounting  Company Agrees To Permanent Injunction And Civil Penalty  On January 21, 2010, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Assurant, Inc., a publicly-traded insurance company, with violating corporate reporting, books and records and internal controls provisions of the Securities Exchange Act of 1934 ("Exchange Act"). Assurant has offered to settle the charges by consenting, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining Assurant from violating these Exchange Act provisions and imposing a civil penalty in the amount of $3.5 million.  The Commission's complaint alleges that Assurant improperly accounted for a $10 million recovery it obtained under a reinsurance policy in the aftermath of the 2004 Florida hurricane season. The complaint alleges that Assurant booked the $10 million payment as a bona fide reinsurance recovery when, in fact, the payment was, and should have been booked as, the return of a deposit under Generally Accepted Accounting Principles ("GAAP"). As a result, Assurant materially overstated the net income that it reported for the quarter ended September 30, 2004 to the public and in Commission filings.  The Commission's complaint specifically alleges as follows: Assurant failed to properly account for $10 million that one of its business segments (Assurant Solutions) obtained from American Re-Insurance Company ("Am Re"), a private reinsurer, in the third quarter of 2004 under a reinsurance policy that originated in 1992 and was renewed annually through 2004. The arrangement between Assurant (through its subsidiaries that comprise Assurant Solutions) and Am Re consisted of the formal reinsurance treaty documents ( i.e.  the written policy contract) and an oral side-agreement, which the parties referred to as their "handshake" agreement.  Although the terms of the written treaty transferred the risk of certain losses from Assurant Solutions to Am Re under certain conditions, the terms of the so-called "handshake" agreement negated the transfer of risk. Pursuant to this handshake agreement, Assurant Solutions agreed that if the total amount of claims paid by Am Re exceeded the total amount of premiums paid by Assurant Solutions over the life of the treaty, Assurant Solutions would reimburse Am Re for the difference. In return, Am Re agreed that if the total amount of premiums paid by Assurant Solutions exceeded the total amount of claims paid by Am Re, Am Re would return the difference to Assurant Solutions.  Assurant accounted for the Am Re treaty improperly by using principles of reinsurance accounting instead of deposit accounting. Under reinsurance accounting, the reinsured is permitted to offset relevant losses in the amount of the probable recovery under a reinsurance agreement, which reduces the impact of those losses on the reinsured's income statement. Under deposit accounting, the payment by the reinsurer is treated as the return of a loan or deposit and cannot be used to offset losses on the income statement. Because the "handshake" agreement between Assurant and Am Re, and in particular its pay-back provision, negated risk transfer, GAAP required the use of deposit accounting and not reinsurance accounting for the premiums paid and any recoveries made under this particular treaty.  After the 2004 Florida hurricane season, Assurant booked a $10 million claim payment made by Am Re as a reinsurance recovery rather than the return of a deposit, thereby reducing the adverse impact of the hurricane losses incurred by Assurant Solutions on Assurant's reported financial results. By improperly booking the $10 million payment using reinsurance accounting instead of deposit accounting, Assurant overstated its net income for the quarter ended September 30, 2004 by $6.41 million, or 9.4%. Assurant misstated its financial results for the third quarter of 2004 to the public in two Forms 8-K, filed on November 4 and December 22, 2004, and in a Form 10-Q filed on November 12, 2004.  Assurant is charged in the SEC's complaint with violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13. In offering to settle these charges, Assurant has consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining it from violating the foregoing Exchange Act provisions and imposing a civil penalty in the amount of $3.5 million. The determination of this penalty amount took into account, among other things, the company's failure fully to comply with Commission subpoenas on a timely basis. The proposed settlement is subject to court approval. 								
+								 
+									             See Also:        SEC Complaint                   							  
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diff --git a/raw/aaer/2010/AAER-3115.txt b/raw/aaer/2010/AAER-3115.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bf2fe5d9cea9a4c05880da0af551b0960c663197
--- /dev/null
+++ b/raw/aaer/2010/AAER-3115.txt
@@ -0,0 +1,1370 @@
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+ 
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+ 
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+     SEC.gov | Daniel Bonventre 
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+             
+                        
+              U.S. SECURITIES AND EXCHANGE COMMISSION  LITIGATION RELEASE NO. 21424 / February 25, 2010  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 3115 / February 25, 2010   SECURITIES AND EXCHANGE COMMISSION v. DANIEL BONVENTRE  (S.D.N.Y. Civ. 10 CV 1576)  SEC CHARGES MADOFF'S DIRECTOR OF OPERATIONS WITH FALSIFYING ACCOUNTING RECORDS AND SIPHONING INVESTOR FUNDS  The Securities and Exchange Commission today charged one of convicted Ponzi schemer Bernard Madoff's key operatives with falsifying accounting records to enable the multi-billion dollar fraud and illegally enrich himself, Madoff, and Madoff's family and employees.  According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, Daniel Bonventre disguised Madoff's fraud and the financial losses at Madoff's firm by misusing and improperly recording investor money to create the false appearance of legitimate income.  As Madoff's Director of Operations, Bonventre ran the back office at Bernard L. Madoff Investment Securities LLC (BMIS) and oversaw the firm's accounting and securities clearing functions for at least 30 years.  The SEC alleges that Bonventre knew that billions of dollars in investor funds were not being used to purchase securities on behalf of investors.  The SEC further alleges that Bonventre made at least $1.9 million in illicit personal profits from the scheme through fake, backdated "trades" in his own investor account at BMIS.  According to the SEC's complaint, Bonventre was responsible for the firm's general ledger and financial statements that were materially misstated because they did not reflect the manner in which investor funds were maintained and used.  Bonventure ensured that BMIS financial reports did not reflect the firm's massive liabilities to investors or the corresponding assets received from investors.  To hide the fact that BMIS normally operated at a significant loss, the firm used more than $750 million in investor funds to artificially improve reported revenue and income.  The SEC alleges that Bonventre also helped Madoff, his lieutenant Frank DiPascali, Jr., and others orchestrate lies to investors and regulators when investment advisory operations at BMIS came under review.  With Bonventre's assistance, they made serial misrepresentations to external reviewers by manufacturing reams of false reports and data.  The SEC further alleges that Bonventre personally siphoned $1.9 million from the scheme by directing that profits from fake, backdated trades be put into his own investor account at BMIS.  One of these trades was backdated by 12 years.  Bonventure instructed another fake, backdated trade in a handwritten note to a BMIS employee that read:  "Hi ¢€¦ As per our phone conversation, I need a long term capital gain of $449000.-- on an investment of $129000- for a sale proceed of $578000.--  I'll be back in NY on March 30th but if you need to speak to me before then, call me¢€¦.  Thanks[,] Dan."    This is the SEC's seventh enforcement action in the Madoff fraud since the scheme collapsed in December 2008. The Commission previously charged  Madoff and BMIS ,  DiPascali , and  auditors David G. Friehling and Friehling & Horowitz CPAs, P.C. , who have all pleaded guilty to criminal charges related to their conduct. The SEC also charged  certain feeder funds  with committing securities fraud, and charged  two computer programmers  at Madoff's firm for their roles in covering up the scheme.  The SEC's complaint specifically alleges that Bonventre violated Section 17(a) of the Securities Act of 1933; violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder; and aided and abetted violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-2 thereunder, Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 17a-3, and 17a-5 thereunder, and Section 204 of the Advisers Act and Rule 204-2 thereunder.  Among other things, the SEC's complaint seeks financial penalties and a court order requiring Bonventre to disgorge his ill-gotten gains.  The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation, with which the Commission has coordinated its investigation. The SEC's investigation is continuing.  For more information see prior litigation release nos.  20834 ,  20889 ,  20959 ,  21095 ,  21096 ,  21174 , &  21292 . 								
+								 
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 61607A / March 1, 2010 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3116A / March 1, 2010 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-13797 
+In the Matter of 
+GERARD A. M. OPRINS, 
+CPA,
+ 
+and 
+WENDY McNEELEY, CPA,
+ 
+Respondents. 
+CORRECTED ORDER INSTITUTING 
+PUBLIC ADMINISTRATIVE  
+ PROCEEDINGS PURSUANT TO 
+SECTION 4C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 AND RULE 
+102(e) OF THE COMMISSION’S  RULES 
+OF PRACTICE 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against Gerard A. M. Oprins, CPA 
+(“Oprins”) and Wendy McNeeley, CPA (“McNeeley”) (collectively “Respondents”) pursuant to 
+Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice to determine whether Respondents engaged in improper 
+professional conduct.
+2 
+1 Section 4C provides, in relevant part, that: “The Commission may censure any person, or deny, temporarily or 
+permanently, to any person the privilege of appearing or practicing before the Commission in any way, if that person 
+is found . . . (1) not to possess the requisite qualifications to represent others . . . (2) to be lacking in character or 
+integrity, or to have engaged in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or the rules and regulations 
+thereunder.” 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that:  “The Commission may . . . deny, temporarily or permanently, 
+the privilege of appearing or practicing before it . . . to any person who is found . . . to have engaged in unethical or 
+improper professional conduct.” 
+ 
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+II. 
+After an investigation, the Division of Enforcement and the Office of the Chief Accountant 
+allege that: 
+Summary 
+1. These proceedings arise out of the Respondents’ improper professional conduct 
+during Ernst & Young LLP’s (“Ernst & Young”) independent audits of the 2004 financial 
+statements for AA Capital Partners, Inc. (“AA Capital”), an investment adviser registered with the 
+Commission, and the AA Capital Equity Fund (“Equity Fund”), one of AA Capital’s affiliated 
+private equity funds. During the audits, Oprins, the engagement partner, and McNeeley, the 
+manager, learned that AA Capital’s president, director and co-owner, John Orecchio (“Orecchio”), 
+purportedly had borrowed $1.92 million in funds belonging to AA Capital’s clients between May 
+and December 2004 to pay a personal tax liability arising from his ownership interest in AA 
+Capital’s private equity funds.  In fact, Orecchio had invented the story about the so-called “tax 
+loan” to conceal his ongoing misappropriation of client assets for his personal use.  Despite 
+learning about the “tax loan” during the audits, Oprins and McNeeley failed to review the 
+transaction in accordance with Generally Accepted Auditing Standards (“GAAS”).  Instead of 
+properly evaluating the “tax loan” as a related party transaction, Oprins and McNeeley relied solely 
+upon dubious and unsubstantiated information obtained from AA Capital’s chief financial officer, 
+Mary Beth Stevens (“Stevens”).  As a result, Oprins and McNeeley caused Ernst & Young to issue 
+unqualified audit reports for AA Capital’s and the Equity Fund’s 2004 financial statements even 
+though Orecchio’s purported “tax loan” was not adequately disclosed in conformity with General 
+Accepted Accounting Principles (“GAAP”) and Ernst & Young’s audits were not conducted in 
+accordance with GAAS.  Accordingly, Oprins’ and McNeeley’s conduct constituted improper 
+professional conduct within the meaning of Rules 102(e)(1)(ii) and (iv). 
+Respondents 
+2. Gerard A. M. Oprins, CPA, age 50, is a resident of Glen Ellyn, Illinois.  Oprins 
+has been licensed as a CPA in Illinois since August 1995.  Oprins was first employed in Ernst & 
+Young’s audit department in 1982 and became a partner in Ernst &Young’s Financial Services 
+practice group in 1995. Oprins’ employment with Ernst & Young ended in April of 2009. 
+3. Wendy McNeeley , CPA, age 33, is a resident of Tinley Park, Illinois.  McNeeley 
+passed the CPA examination in Illinois in November 1998 and obtained her CPA license in March 
+2007. McNeeley was employed as an audit manager in the financial services group of Ernst & 
+Young from September 2004 until July 2006.  McNeeley currently works for another auditing firm 
+with offices in Chicago, Illinois.   
+Other Relevant Parties
+ 4. AA Capital Partners, Inc. is a Delaware corporation headquartered in Chicago, 
+Illinois. Since 2002, AA Capital has been registered with the Commission as an investment 
+2
+ 
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+                                                 
+    
+adviser. Between 2003 and 2005, AA Capital solicited and obtained investment management 
+agreements with six union clients, five of which were union pension funds.  By mid-2004, AA 
+Capital managed approximately $141 million on behalf of these clients and invested the clients’ 
+money in four affiliated private equity funds.  Of these four private equity funds, the Equity Fund 
+was by far the largest with over $131 million in assets during 2004.  On September 8, 2006, the 
+Commission filed an emergency action against AA Capital and Orecchio, SEC v. AA Capital 
+Partners, Inc. and John A. Orecchio, Case No. 06-C-4859 (N.D. Ill.), seeking temporary, 
+preliminary and permanent injunctive relief against them based on AA Capital’s violations and 
+Orecchio’s aiding and abetting of violations of Sections 206(1) and 206(2) of the Investment 
+Advisers Act of 1940 (“Advisers Act”).  On September 12, 2006, the U.S. District Court for the 
+Northern District of Illinois appointed W. Scott Porterfield of the law firm Barack Ferrazzano 
+Kirschbaum & Nagelberg LLP as the receiver over AA Capital. 
+5. John Orecchio, age 41, is a resident of Arlington Heights, Illinois.  Orecchio co-
+founded AA Capital in February 2002 and acted as its president and managing director from at 
+least April 2002 until August 30, 2006 when his employment was terminated.  Orecchio is a 
+defendant in SEC v. AA Capital Partners, Inc. and John A. Orecchio. Orecchio also has been 
+charged with one count of wire fraud and one count of embezzling funds owned by an employee 
+pension benefit plan in a criminal information filed in the U.S. District Court for the Northern 
+District of Illinois captioned United States v. John A. Orecchio. 
+6. Mary Beth Stevens, age 39, is a resident of Lincoln, Illinois.  Stevens joined AA 
+Capital as an accountant after it began operating in 2002.  Shortly thereafter, Stevens became AA 
+Capital’s chief financial officer.  In 2004, Stevens also became AA Capital’s chief compliance 
+officer.  She continued in these roles until her employment was terminated in September 2006.  
+Stevens has been named as a respondent in the Matter of Mary Beth Stevens, (Admin. Proc. File 
+No. 3-13553). 
+7. Ernst & Young LLP is the United States arm of a global network of professional 
+services firms that provide assurance, tax, transaction and advisory services throughout the world.  
+Auditors from Ernst & Young’s office in Chicago, Illinois conducted audits of AA Capital’s and 
+its affiliated private equity funds’ financial statements for AA Capital’s fiscal years 2002, 2003, 
+2004 and 2005.3  Ernst & Young also provided tax services to AA Capital and its affiliated private 
+equity funds during the same time period.  
+Orecchio’s Misappropriation of Client Funds 
+8. Shortly after he co-founded AA Capital in 2002, Orecchio began spending 
+lavishly on travel and entertainment to build up AA Capital’s advisory business, regularly 
+entertaining clients in Detroit, Michigan and Las Vegas, Nevada.  In August 2003, Orecchio 
+began a relationship with a woman who performed at a Detroit strip club.  Between 2003 and 
+2006, Orecchio spent substantial amounts of money on his mistress and her family. 
+3 Ernst & Young did not complete its audits of AA Capital’s or the affiliated private equity funds’ 2005 financial 
+statements. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9. Starting in 2004, Orecchio began siphoning money from AA Capital’s client trust 
+accounts to fund his lavish lifestyle.  Between 2004 and September 2006, Orecchio 
+misappropriated more than $23 million in client funds, including at least $5.7 million under the 
+guise of a purported “tax loan.” 
+10. In May 2004, Orecchio told Stevens that he owed a significant amount of money 
+to the Internal Revenue Service based on his ownership interest in one of AA Capital’s affiliated 
+private equity funds and a failure by Ernst & Young to timely file certain tax returns.  Orecchio 
+told Stevens that he needed to borrow money to pay his taxes.  At Orecchio’s direction, Stevens 
+withdrew $602,150 from AA Capital’s client trust accounts and then wired the money to 
+Orecchio’s personal bank account. 
+11. Between May and December 2004, Stevens made three additional disbursements 
+to Orecchio to pay his purported tax liability.  During 2004, Orecchio received a total of four 
+separate disbursements under the guise of the “tax loan” totaling approximately $1.92 million.  
+All of the disbursements consisted of funds withdrawn from AA Capital’s client trust accounts.  
+On three of the four occasions, Stevens withdrew the requested funds from the client trust 
+accounts, deposited them into AA Capital’s main bank account and then wired them to 
+Orecchio’s personal bank account.  On the fourth occasion, Stevens transferred the funds from 
+the client trust accounts through the Equity Fund’s bank account to Orecchio’s personal bank 
+account. 
+12. Orecchio’s claims that he needed a “tax loan” for $1.92 million and that he had 
+made payments of $1.92 million in estimated taxes to the Internal Revenue Service were false.  
+In reality, Orecchio only owed approximately $25,000 to the Internal Revenue Service based on 
+his ownership interest in the private equity fund and the failure to timely file the tax returns.  
+Instead of using the funds to make payments to the Internal Revenue Service, Orecchio used the 
+money to maintain a lavish lifestyle for himself and his mistress. 
+13. Orecchio continued to request funds from Stevens from time to time to pay his 
+purported tax liability until October 2005.  Stevens ultimately made at least 20 separate 
+disbursements to Orecchio or other payees designated by Orecchio for a total “tax loan” of over 
+$5.7 million. 
+14. Orecchio never signed any loan documentation for his purported “tax loan” and 
+never agreed to repay the “tax loan” with interest. 
+Ernst & Young’s Audits of the 2004 Financial Statements 
+15. In March 2005, AA Capital engaged Ernst & Young to conduct independent audits 
+of AA Capital’s and its affiliated private equity funds’ 2003 and 2004 financial statements.  As part 
+of the engagement, AA Capital requested that Ernst & Young complete the audits and issue its 
+audit reports on the financial statements by June 30, 2005, so that AA Capital could provide the 
+4
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+   
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+ 
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+  
+ 
+ 
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+ 
+ 
+                                                
+ 
+  
+ 
+Equity Fund’s financial statement reports to its clients in time for the clients to prepare their tax 
+returns.4 
+16. Ernst & Young’s audit team conducted their onsite work for the audits of the 2004 
+financial statements in May and June 2005.  The seven-member audit team included McNeeley, as 
+the audit manager, Oprins, as the engagement partner, an independent review partner, two senior 
+auditors and two staff members.  McNeeley, as the audit manager, was responsible for planning the 
+audits, leading the onsite work and reviewing any work performed by the junior members of the 
+audit team.  Oprins, as the engagement partner, was responsible for the overall supervision of the 
+audits. 
+17. While conducting the onsite work for the audits, the audit team reviewed an 
+accounts receivable spreadsheet prepared by Stevens that included disbursements made by AA 
+Capital and its private equity funds during 2004.  During their review, the audit team noticed that 
+the accounts receivable spreadsheet listed four sizeable disbursements to Orecchio described as 
+“John – tax payment.”  McNeeley and an audit team member then discussed these disbursements 
+with Stevens.  The notes of this conversation in the audit workpapers state:  
+Per conversation with Mary Beth Stevens, CFO, all of the Funds held under AA 
+Capital, Inc. had not finalized their audits, tax filings, and therefore John Orecchio 
+(managing member) did not have a final tax return draft that included taxable 
+income w/set figures.  Therefore he had to estimate his tax liability & made a 
+payment to the IRS for 1,921,050. . . . The 1,921,050 is essentially a loan to John 
+Orecchio.  Mary Beth Stevens expects to receive payment from either Mr. Orecchio 
+or the IRS after taxes are finalized. 
+As noted in the audit workpapers, the audit team observed that the Equity Fund had 
+established a receivable due from AA Capital for the amount of Orecchio’s "tax loan" and 
+that AA Capital had established both a reciprocal payable due to the Equity Fund and a 
+receivable due from Orecchio for the $1.92 million "tax loan.” 
+18. Stevens further told McNeeley that she believed that Orecchio’s “tax loan” 
+would be repaid within calendar year 2005, but did not produce any documentation that 
+supported her belief. 
+19. Oprins was made aware of the purported “tax loan” and the explanation 
+provided to the audit team by Stevens during his review of the audit workpapers.   
+20. After learning about Orecchio’s purported “tax loan,” Oprins and McNeeley failed 
+properly to evaluate the transaction or require other audit team members to do so.  The audit team 
+did not obtain any documentation reflecting Orecchio’s tax liability or the terms of the “tax loan.”  
+They did not discuss the “tax loan” with Orecchio.  They did not take steps to confirm Stevens’ 
+statements that Orecchio “made a payment to the IRS for $1,921,050” or that the “tax loan” would 
+4 AA Capital’s investment management agreements with its clients and the Equity Fund’s limited partnership 
+agreement required AA Capital to provide audited financial statements to its clients each year. 
+5
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+  
+be repaid by Orecchio or the IRS during 2005.  They did not take steps to assess the collectability 
+of the “tax loan.” They also failed to discuss Orecchio’s tax liability with their colleagues in Ernst 
+& Young’s tax department who prepared the tax filings for AA Capital and its affiliated private 
+equity funds. 
+21. Oprins and McNeeley also failed to scrutinize Orecchio’s “tax loan,” or require 
+other audit team members to do so, in light of several red flags that the audit team encountered 
+related to Orecchio’s spending habits.  Included among these red flags were other payments to 
+Orecchio listed in the accounts receivable spreadsheet.  At least 26 of these other payments, 
+totaling over $1.44 million, were allegedly made to reimburse Orecchio for fees and expenses.  
+Many of these payments were in large, round dollar amounts and included notations such as 
+“Amex-John” or “John” without any additional detail.   
+22. In June 2005, after the audit team finished its field work for the audits of AA 
+Capital’s and the Equity Fund’s 2004 financial statements, Ernst & Young issued unqualified audit 
+opinions on the financial statements.  Oprins authorized the issuance of these reports, each of 
+which falsely stated that the 2004 financial statements issued by AA Capital and the Equity Fund 
+were presented in conformity with GAAP and that Ernst & Young had conducted its audits of 
+those financial statements in accordance with GAAS. 
+23. Oprins and McNeeley allowed Ernst & Young to issue an unqualified audit opinion 
+for the Equity Fund’s 2004 financial statements even though the financial statements did not 
+properly identify Orecchio’s “tax loan” as a related party transaction with Orecchio, and did not 
+disclose the parties to the transaction, the nature of the transaction or its terms as required by 
+GAAP. Instead, the Equity Fund’s financial statements falsely presented the “tax loan” as a 
+balance sheet asset described as “[a]ccounts receivable from AA Capital” in the amount of 
+$1,921,150 and did not make any reference to Orecchio.  Although the “tax loan” constituted a 
+related party transaction, the notes to the Equity Fund’s financial statements did not include a note 
+describing any related party transactions and did not discuss the “tax loan.”  The Equity Fund’s 
+2004 financial statements also did not disclose the possible risk that the “tax loan” would not be 
+repaid in whole or in part. 
+24. Similarly, Oprins and McNeeley allowed Ernst & Young to issue an unqualified 
+audit opinion for AA Capital’s 2004 financial statements even though the financial statements did 
+not properly identify Orecchio’s “tax loan” as a related party transaction with Orecchio and did not 
+disclose the parties to the transaction, the nature of the transaction or its terms as required by 
+GAAP.
+5  Instead, AA Capital’s balance sheet combined the “tax loan” with several other assets 
+described as “[a]ccounts receivable from affiliates” in the amount of $2,251,107. Although AA 
+Capital’s financial statements included a note concerning related party transactions, this note only 
+further described $264,176 in other expenses and did not include any information about Orecchio’s 
+“tax loan.” 
+5 Although AA Capital’s 2004 financial statements were prepared on a tax basis rather than a GAAP basis, GAAS 
+requires auditors to apply essentially the same auditing criteria to non-GAAP-based financial statements. 
+6
+ 
+ 
+ 
+ 
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+ 
+ 
+ 
+ 
+   
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Oprins’ and McNeeley’s Improper Professional Conduct 
+25. The “applicable professional standards” for accountants practicing before the 
+Commission include, but are not limited to, GAAP and GAAS.  
+26. As the engagement partner and engagement manager, Oprins and McNeeley were 
+responsible for ensuring that Ernst & Young’s audits of AA Capital’s and the Equity Fund’s 2004 
+financial statements were conducted in accordance with GAAS.  Oprins and McNeeley failed to 
+conduct themselves in accordance with GAAS by failing to obtain sufficient competent evidential 
+matter with respect to Orecchio’s purported “tax loan,” failing to exercise due professional care in 
+connection with the audits and failing to render accurate audit reports.  In addition, Oprins violated 
+GAAS by failing properly to supervise the audits. 
+27. Oprins and McNeeley failed to obtain sufficient competent evidential matter about 
+Orecchio’s purported “tax loan” during Ernst & Young’s audits of AA Capital’s and the Equity 
+Fund’s 2004 financial statements.  Although Oprins and McNeeley identified Orecchio’s “tax 
+loan” as a related party transaction, they failed to apply heightened scrutiny or perform any 
+additional audit steps to evaluate it.  Instead, Oprins and McNeeley relied upon Stevens’ 
+unsupported assertions and documentation about Orecchio’s purported “tax loan” as sufficient 
+evidential matter. 
+28. Oprins and McNeeley also failed to exercise due professional care during the 
+audits. As discussed above, Oprins and McNeeley failed to exercise professional skepticism in 
+relying upon Stevens’ unsupported assertions and documentation about Orecchio’s “tax loan” 
+despite several red flags that should have caused them to further scrutinize the “tax loan.” 
+29. Oprins and McNeeley also caused Ernst & Young to fail to render accurate audit 
+reports. Ernst & Young’s audit reports inaccurately represented that AA Capital’s and the Equity 
+Fund’s 2004 financial statements were free of material misstatements and that Ernst & Young’s 
+audits were performed in accordance with GAAS.  In fact, AA Capital’s and the Equity Fund’s 
+financial statements were not free of material misstatements because they failed to provide any 
+meaningful information about the nature of Orecchio’s “tax loan” or properly to present it as a 
+related party transaction with Orecchio.  Ernst & Young’s audits were not performed in accordance 
+with GAAS because the audit team failed to take steps to assess the collectability of the “tax loan” 
+and failed to obtain sufficient competent evidential matter about Orecchio’s “tax loan.” 
+30. Oprins further failed properly to supervise Ernst & Young’s audits of AA Capital’s 
+and the Equity Fund’s 2004 financial statements.  Even though Oprins was made aware of 
+Orecchio’s “tax loan,” he never required the audit team to obtain the minimal information 
+necessary to evaluate it as a related party transaction. 
+Violations 
+As a result of the conduct described above, Respondents Oprins and McNeeley engaged in 
+improper professional conduct as defined in Section 4C of the Exchange Act and Rule 102(e)(1)(ii) 
+7
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+and (iv), in that their conduct constituted (A) intentional or knowing conduct, including reckless 
+conduct, that resulted in a violation of applicable professional standards, or in the alternative, (B) 
+negligent conduct, consisting of a single instance of highly unreasonable conduct that resulted in a 
+violation of applicable professional standards in circumstances in which Respondents knew, or 
+should have known, that heightened scrutiny was warranted.   
+III. 
+In view of the allegations made by the Division of Enforcement and the Office of the Chief 
+Accountant, the Commission deems it appropriate that public administrative proceedings be 
+instituted to determine: 
+A. Whether the allegations set forth in Section II are true and to afford Respondents 
+Oprins and McNeeley an opportunity to establish any defenses to such allegations; and 
+B. What, if any, remedial action is appropriate against Respondents Oprins and 
+McNeeley pursuant to Rule 102(e) of the Commission’s Rules of Practice, including, but not limited 
+to, censure and/or denying, temporarily or permanently, the privilege of appearing or practicing 
+before the Commission.    
+IV. 
+IT IS ORDERED that a public hearing for the purpose of taking evidence on the questions 
+set forth in Section III hereof shall be convened at a time and place to be fixed, and before an 
+Administrative Law Judge to be designated by further order as provided by Rule 110 of the 
+Commission's Rules of Practice, 17 C.F.R. § 201.110.   
+IT IS FURTHER ORDERED that Respondents Oprins and McNeeley shall file their 
+answers to the allegations contained in this Order within twenty (20) days after service of this 
+Order, as provided by Rule 220 of the Commission's Rules of Practice, 17 C.F.R. § 201.220.  
+If Respondents Oprins and McNeeley fail to file the directed answers, or fail to appear at a 
+hearing after being duly notified, the Respondents may be deemed in default and the proceedings 
+may be determined against the Respondents upon consideration of this Order, the allegations of 
+which may be deemed to be true as provided by Rules 155(a), 220(f), 221(f) and 310 of the 
+Commission's Rules of Practice, 17 C.F.R. §§ 201.155(a), 201.220(f), 201.221(f) and 201.310. 
+This Order shall be served upon the Respondents in accordance with the provisions of Rule 
+141 of the Commission’s Rules of Practice, 17 C.F.R. § 201.141. 
+IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an initial 
+decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of 
+the Commission’s Rules of Practice. 
+8
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
+in the performance of investigative or prosecuting functions in this or any factually related 
+proceeding will be permitted to participate or advise in the decision of this matter, except as witness 
+or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within 
+the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 
+provisions of Section 553 delaying the effective date of any final Commission action. 
+ By the Commission. 
+       E l i z a b e t h M . M u r p h y
+       S e c r e t a r y 
+9
+ 
\ No newline at end of file
diff --git a/raw/aaer/2010/AAER-3124.pdf b/raw/aaer/2010/AAER-3124.pdf
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index 0000000000000000000000000000000000000000..1b53dbcccdbefa82818faa57211c611c7127b3f7
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diff --git a/raw/aaer/2010/AAER-3137.txt b/raw/aaer/2010/AAER-3137.txt
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+     SEC.gov | Diebold, Inc.; Walden O'Dell; and Gregory Geswein, Kevin Krakora, and Sandra Miller 
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+              U.S. Securities and Exchange Commission  Litigation Release No. 21543 / June 2, 2010  Accounting and Auditing Enforcement Release No. 3137 / June 2, 2010   SEC v. Diebold, Inc. , Civil Action No. 1:10-CV-00908 (D.D.C.);  SEC v. Walden O'Dell , Civil Action No. 1:10-CV-00909 (D.D.C.); and  SEC v. Gregory Geswein, Kevin Krakora, and Sandra Miller , Civil Action No. 5:10-CV-01235 (N.D. Ohio)  SEC CHARGES DIEBOLD AND FORMER FINANCIAL EXECUTIVES WITH ACCOUNTING FRAUD  Diebold To Pay $25 Million Civil Penalty  Former Diebold CEO To Reimburse Cash Bonuses, Stock and Options Pursuant to Section 304 of the Sarbanes-Oxley Act  The U.S. Securities and Exchange Commission today filed fraud and other charges against Diebold, Inc. ("Diebold"), Gregory Geswein, the company's former Chief Financial Officer, Kevin Krakora, the company's former Controller and later CFO, and Sandra Miller, the company's former Director of Corporate Accounting. Diebold is an Ohio corporation that manufactures and sells automated teller machines, bank security systems, and electronic voting machines. The company's stock is registered with the Commission and listed on the New York Stock Exchange.  The Commission alleges that Diebold, Geswein, Krakora, and Miller engaged in fraudulent accounting practices to inflate the company's earnings to meet forecasts. As alleged in the complaints, from at least 2002 through 2007, these fraudulent practices included (i) improper use of "bill-and-hold" accounting; (ii) improper recognition of revenue on a lease agreement subject to an undisclosed buy-back agreement; (iii) manipulating reserves and accruals; (iv) improperly delaying and capitalizing expenses; and (v) improperly writing up the value of used inventory.  The Commission alleges that Diebold filed at least 40 annual, quarterly, and other reports with the Commission, and issued dozens of press releases, that contained material misstatements and omissions concerning the company's financial performance. According to the complaints, Diebold's improper accounting practices misstated the company's reported pre-tax earnings by at least $127 million. As alleged in the complaints, to correct the recent misstatements, on September 30, 2008, Diebold restated its financial statements for the years 2003 through 2006, and the first quarter of 2007, in its Form 10-K for 2007.  The Commission charged Diebold with violating Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. Without admitting or denying the Commission's charges, Diebold has agreed to consent to a final judgment ordering the company to pay a $25 million civil penalty and permanently enjoining the company from future violations.  In a contested action, the Commission charged Geswein, Krakora, and Miller with violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the of the Exchange Act, and Exchange Act Rules 10b 5 and 13b2-1, and aiding and abetting Diebold's violations of Sections 13(a), 13(b)(2)(A) and13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. In addition, the Commission charged Geswein and Krakora with violating Exchange Act Rules 13a-14 and 13b2-2 and Section 304 of the Sarbanes-Oxley Act of 2002. The Commission seeks against these defendants permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, civil monetary penalties, and, with respect to Geswein and Krakora, officer-and-director bars and reimbursement of bonuses and other compensation.  In addition, the Commission filed an action against Walden O'Dell, the former Chief Executive Officer of Diebold, seeking reimbursement for bonuses and other incentive-based and equity-based compensation pursuant Section 304 of the Sarbanes-Oxley Act of 2002. The Commission's complaint alleges that Diebold was required to restate its annual financial statements for 2003, as well as other reporting periods, as a result of fraud and other misconduct. The complaint further alleges that O'Dell received from Diebold cash bonuses, shares of Diebold stock, and stock options during the 12-month period following the issuance of Diebold's 2003 financial statements, and that O'Dell failed to reimburse Diebold for that compensation. The complaint does not allege that O'Dell engaged in the fraud. Without admitting or denying the Commission's allegations, O'Dell has agreed to consent to a final judgment ordering him to reimburse $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock.  The Commission acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Ohio and the Federal Bureau of Investigation. 								
+								 
+									             See Also:        SEC Complaint v. Diebold ;  SEC Complaint v. O'Dell ;  SEC Complaint v. Geswein, Krakora, and Miller                   							  
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diff --git a/raw/aaer/2010/AAER-3143.txt b/raw/aaer/2010/AAER-3143.txt
new file mode 100644
index 0000000000000000000000000000000000000000..33a52c80affef54d50921b34d0e387c9ff335fbf
--- /dev/null
+++ b/raw/aaer/2010/AAER-3143.txt
@@ -0,0 +1,163 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 62260 / June 10, 2010 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3143 / June 10, 2010 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-13933 
+ 
+ 
+In the Matter of 
+ 
+HARRY O. NICODEMUS IV, 
+CPA 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Co mmission”) deems it appropriate that cease-
+and-desist proceedings be, and he reby are, instituted pursuant to  Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against Harry O. Nicodemus IV, CPA (“Nicodemus” or 
+“Respondent”).    
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) whic h the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisd iction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds1 that: 
+RESPONDENT 
+1. Nicodemus resides in Katy, Texas and was the chief financial officer of Equus 
+Total Return, Inc. (“Equus”), a business development company (“BDC”), from November 2003 to 
+November 2006.  He is a CPA licensed in Texas.     
+OTHER RELEVANT ENTITY 
+2. Equus, a Delaware corporation based in Houston, Texas, became a BDC on 
+September 6, 1991.  Equus trades as a closed-end fund on the New York Stock Exchange, under 
+the symbol “EQS.”  Its securities are registered under Section 12(b) of the Exchange Act.   
+ 
+FACTS 
+ 
+3. On June 30, 2005, Equus’s shareholders approved a new fund adviser and a new 
+fund administrator.  Equus’s board ratified the shareholder vote at a meeting later that day. 
+ 
+4. On August 9, 2005,  Equus’s board agreed to pay the new fund administrator a one-
+time supplemental fee of $535,000 to reimburse “extraordinary costs that were incurred by [the 
+fund administrator] above what had been anticipated” with respect to the change in administrators.   
+ 
+5. Nicodemus thereafter prepared (or assi gned someone to prepare) a spreadsheet 
+outlining the components of the supplemental fee: $400,000 for a consulting agreement with an 
+Equus officer (“Fund officer”); $60,000 for the Fund officer’s retention bonus; and $75,000 of 
+retention bonuses for other personnel.  The spreadsheet was prepared in connection with finalizing 
+Equus’s second quarter 2005 Form 10-Q.       
+ 
+6. Equus filed its second quarter 2005 Form 10-Q on August 15, 2005.  Nicodemus 
+certified this filing, which disclosed that the Fund had reimbursed the new administrator $535,000 
+for unexpected costs and expenses associated with the change in administrators.  The Form 10-Q, 
+however, failed to disclose that the true purpose of the special administrative fee was to 
+compensate the Fund officer.   
+ 
+7. On March 31, 2006, Equus filed its 2005 Form 10-K, which Nicodemus certified.  
+This filing also disclosed that the special administrative fee was associated with the change in 
+administrators, but failed to disclose that the true purpose of the special administrative fee was to 
+compensate the Fund officer.   
+8. On April 24, 2006, Equus filed its annua l proxy statement providing information 
+about officer and director compensation in 2005.
+  The proxy statement represented that the Fund 
+                                                 
+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
+officer received compensation of $136,620 in 2005, consisting of realized earnings from the 
+company’s acquisition of his 198,000 stock options.  This figure was materially understated 
+because the Fund officer in fact received more than $430,000 from the transaction.          
+  
+VIOLATIONS 
+ 
+ 9. As a result of conduct described above,  Nicodemus violated Rule 13a-14 under the 
+Exchange Act.  In addition, Nicodemus caused Equus’s violations of Section 13(a), 13(b)(2)(A) 
+and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder. 
+   
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Nicodemus’s Offer.  Accordingly, pursuant to Section 21C of the 
+Exchange Act, it is hereby ORDERED that: 
+ 
+Respondent cease and desist from committing or causing any violations and any future 
+violations of Exchange Act Rule 13a-14 and from causing any violations and any future violations 
+of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 13a-1, 13a-13 and 
+12b-20 thereunder.   
+  
+By the Commission. 
+ 
+ 
+     
+       E l i z a b e t h  M .  M u r p h y  
+       S e c r e t a r y  
+ 3
+ 4
+Service List 
+ 
+ Rule 141 of the Commission's Ru les of Practice provides that the Secretary, or another duly 
+authorized officer of the Commission, shall serve a copy of the Order Instituting Cease-and-Desist 
+Proceedings, Pursuant to Section 21C of the Securities Exchange Act of 1934 Making Findings, 
+and Imposing a Cease-and-Desist Order ("Order"), on the Respondent and his legal agents. 
+ 
+ The attached Order has been sent to the following parties and other persons entitled to 
+notice: 
+ 
+Honorable Brenda P. Murray    
+Chief Administrative Law Judge   
+Securities and Exchange Commission  
+100 F Street, N.E. 
+Washington, DC 20549-2557 
+ 
+Stephen Korotash, Esq.     
+Fort Worth Regional Office    
+Securities and Exchange Commission   
+801 Cherry Street, 19
+th Floor  
+Fort Worth, TX 76102 
+ 
+Mr. Harry O. Nicodemus IV 
+c/o John Cotton, Esq. 
+Cotton & Gundzik, LLP 
+624 South Grand Avenue, 22
+nd Floor 
+Los Angeles, CA 90017   
+             
+John Cotton, Esq. 
+Cotton & Gundzik, LLP 
+624 South Grand Avenue, 22
+nd Floor 
+Los Angeles, CA 90017 
+(Counsel for Harry O. Nicodemus IV) 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2010/AAER-3148.pdf b/raw/aaer/2010/AAER-3148.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..ea9db7eacc0ff15132a3697cc3248cbf84e20fd9
Binary files /dev/null and b/raw/aaer/2010/AAER-3148.pdf differ
diff --git a/raw/aaer/2010/AAER-3150.txt b/raw/aaer/2010/AAER-3150.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c3b0aa66a14ceaab596ccb39f3d790a7b691134b
--- /dev/null
+++ b/raw/aaer/2010/AAER-3150.txt
@@ -0,0 +1,205 @@
+ 
+ 
+ 
+ 
+ 
+ 
+_______________________________________ 
+ 
+        
+   
+        
+   
+           
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                           
+ 
+ 
+  
+  
+       
+ 
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 62465 / July 7, 2010 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3150 / July 7, 2010 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-13959 
+: 
+In the Matter of : ORDER INSTITUTING 
+: ADMINISTRATIVE PROCEEDINGS 
+  ILSE CAPPEL, CPA, : PURSUANT TO RULE 102(e) OF THE 
+: COMMISSION’S RULES OF PRACTICE, 
+Respondent. : MAKING FINDINGS, AND IMPOSING 
+: R E M E D I A L S A N C T I O N S 
+_______________________________________: 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
+the public interest that public administrative proceedings be, and hereby are, instituted against 
+Ilse Cappel (“Respondent” or “Cappel”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.
+1 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over her and the subject matter of 
+these proceedings, and the findings contained in Section III. C. below, which are admitted, 
+   Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . 
+suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . [p]ermanently 
+enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the 
+Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of 
+the rules and regulations thereunder. 
+1
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant 
+to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+A. Ilse Cappel, age 47, was at all relevant times a certified public accountant licensed 
+to practice in the state of California, on inactive status.  She was employed at Peregrine Systems, 
+Inc. from 1993 until June 2002, and held various positions, including Senior Treasury Manager 
+and Assistant Treasurer.     
+B. Peregrine Systems, Inc. (“Peregrine”) was, at the time of Cappel’s employment, a 
+Delaware corporation with principal offices in San Diego, California.  Peregrine’s primary 
+business involved selling infrastructure management software.  From its initial public offering in 
+April 1997, until it merged with Hewlett-Packard in 2005, Peregrine’s common stock was 
+registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 
+1934 (“Exchange Act”). It traded on the Nasdaq National Market System from its initial public 
+offering until August 30, 2002, when it was delisted and quoted on the Pink Sheets.  In February 
+2003, Peregrine announced the restatement of $509 million of revenue it had improperly 
+recorded. 
+C. On July 6, 2010, a final judgment was entered against Cappel, permanently 
+enjoining her from future violations of Section 17(a) of the Securities Act of 1933 (“Securities 
+Act”) and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 
+thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, in the civil 
+action entitled Securities and Exchange Commission v. Ilse Cappel, Civil Action No. 02 CV 
+2310 (S.D. Cal.). 
+D. The Commission’s First Amended Complaint (“complaint”) alleged, among other 
+things, that Peregrine’s management engaged in deceptive sales and accounting practices, and 
+that Peregrine filed with the Commission materially false financial statements for at least eleven 
+quarters, covering fiscal years 2000, 2001, and the first three quarters of fiscal 2002.  In one 
+portion of the fraud, Cappel and others engaged in a scheme to conceal Peregrine’s difficulties in 
+collecting its accounts receivable.  Those difficulties arose because Peregrine improperly 
+recorded revenue on non-binding arrangements it entered into with customers.  Cappel and the 
+others concealed the accounts receivable problems by, among other things, selling fictitious 
+receivables to banks and improperly accounting for cash collected at quarter end.  In addition, 
+the complaint alleged, Cappel sold Peregrine stock while in possession of material nonpublic 
+information about the fraud.  According to the complaint, by engaging in this and other conduct 
+2
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Cappel violated the antifraud provisions of the federal securities laws and the books and records, 
+reporting, and internal accounting control provisions of the Exchange Act.  
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest 
+to impose the sanction agreed to in Respondent Cappel’s Offer. 
+Accordingly, IT IS HEREBY ORDERED, effective immediately, that Cappel is 
+suspended from appearing or practicing before the Commission as an accountant. 
+By the Commission. 
+Elizabeth M. Murphy 
+Secretary 
+3
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+   
+    
+ 
+ 
+ 
+ 
+   
+  
+ 
+ 
+    
+   
+ 
+ 
+       
+   
+   
+ 
+  
+             
+   
+ 
+  
+ 
+Service List 
+Rule 141 of the Commission's Rules of Practice provides that the Secretary, or another 
+duly authorized officer of the Commission, shall serve a copy of the Order Instituting 
+Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making 
+Findings, and Imposing Remedial Sanctions ("Order"), on the Respondent and her legal agent. 
+The attached Order has been sent to the following parties and other persons entitled to 
+notice: 
+Honorable Brenda P. Murray 
+Chief Administrative Law Judge 
+Securities and Exchange Commission 
+100 F Street, N.E. 
+Washington, DC 20549-2557 
+Erica Williams, Esq.  
+Securities and Exchange Commission  
+Division of Enforcement 
+100 F Street, N.E. 
+Washington, DC 20549-4010 
+Ms. Ilse Cappel 
+c/o Barbara Howe Murray, Esq. 
+Coughlan, Semmer & Lipman, LLP 
+501 West Broadway 
+Suite 400 
+San Diego, CA 92101 
+Barbara Howe Murray, Esq. 
+Coughlan, Semmer & Lipman, LLP 
+501 West Broadway 
+Suite 400 
+San Diego, CA 92101 
+(Counsel for Ilse Cappel) 
+4
+ 
\ No newline at end of file
diff --git a/raw/aaer/2010/AAER-3159.txt b/raw/aaer/2010/AAER-3159.txt
new file mode 100644
index 0000000000000000000000000000000000000000..55ae928aed2e131a1e0cee16ea3558f6b919502c
--- /dev/null
+++ b/raw/aaer/2010/AAER-3159.txt
@@ -0,0 +1,1370 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
+ 
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+     
+     
+     SEC.gov | General Electric Company; Ionics, Inc.; and Amersham  plc 
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+              General Electric Company; Ionics, Inc.; and Amersham  plc
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+              U.S. SECURITIES AND EXCHANGE COMMISSION  Litigation Release No. 21602 / July 27, 2010  Accounting and Auditing Enforcement Release No. 3159 / July 27, 2010   Securities and Exchange Commission v. General Electric Company; Ionics, Inc.; and Amersham plc , Civil Action No. 1:10-CV-01258 (D.D.C.)(RWR)  SEC Files Settled Books and Records and Internal Controls Charges Against General Electric Company and two Subsidiaries for Improper Payments to Iraqi Ministries Under the U.N. Oil for Food Program. GE Agrees to Pay Over $23.4 Million in Disgorgement, Interest, and Penalties  The Securities and Exchange Commission today filed Foreign Corrupt Practices Act books and records and internal controls charges against General Electric Company ("GE") and two GE subsidiaries ¢€" Ionics, Inc. (currently GE Ionics, Inc.) and Amersham plc (currently GE Healthcare Ltd.) ¢€" in the U.S. District Court for the District of Columbia. The General Electric Company, headquartered in Fairfield, Connecticut, participates in a wide variety of markets. The SEC alleges that two GE subsidiaries ¢€" along with two other subsidiaries of public companies that have since been acquired by GE ¢€" made $3.6 million in illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.  According to the Commission's Complaint:  From approximately 2000 to 2003, two GE subsidiaries, Marquette-Hellige ("Marquette") and OEC-Medical Systems (Europa) AG ("OEC-Medical"), made approximately $2.04 million in kickback payments in the form of computer equipment, medical supplies, and services to the Iraqi Health Ministry. Two other current GE subsidiaries, Ionics Italba S.r.L. ("Ionics Italba"), and Nycomed Imaging AS ("Nycomed"), made approximately $1.55 million in cash kickback payments under the Program prior to GE's acquisition of their parent companies. Nycomed was a subsidiary of publicly-registered Amersham plc, which was acquired by GE after the conduct at issue in the Complaint and is currently known as GE Healthcare Ltd. Ionics Italba was a subsidiary of publicly-registered Ionics, Inc., which was acquired by GE after the conduct at issue and is currently known as GE Ionics, Inc.  Marquette, based in Germany, manufactures and sells cardiology monitoring equipment and has been a GE subsidiary since 1998. Marquette entered into three Program contracts in which it either paid or agreed to pay illegal kickbacks in the form of computer equipment, medical supplies, and services after declining to make the payments in cash. The contracts were for the supply of disposable electrodes, transducers, and fetal monitors to the Iraqi Health Ministry. The contracts generated a combined gross profit to Marquette of $8.8 million. In order to obtain two of the contracts, Marquette's Iraqi agent made in kind kickback payments of goods and services worth approximately $1.2 million to the Iraqi Health Ministry in violation of UN regulations. In order to obtain the third contract, the agent offered to make an additional in-kind kickback payment worth approximately $250,000. The illegal kickbacks were made or offered with the knowledge and approval of Marquette officials.  OEC-Medical, based in Switzerland, manufactures and sells medical equipment. In 2000, OEC-Medical entered into a Program contract to provide C-Arms (C-shaped armatures used to support X ray equipment) to the Iraqi Ministry of Health. OEC made an in-kind kickback payment worth approximately $870,000 on the contract and earned a wrongful profit of $2.1 million. The OEC-Medical contract was negotiated by the same third party agent that handled the Marquette contracts. As was done with the Marquette contracts, the Iraqi agent agreed to make the payment on behalf of OEC-Medical in the form of computer equipment, medical supplies, and services, rather than cash. In order to conceal from UN inspectors the fact that the agent's commission had been increased to cover an illegal kickback, OEC-Medical and the agent entered into a fictitious "services provider agreement," purporting to identify services the agent would perform to justify his increased commission.  During the Program, Nycomed was a subsidiary of Amersham plc, which GE acquired in 2004. Nycomed's violations occurred prior to the 2004 acquisition. At the time of the violations, however, Amersham plc was subject to the Commission's regulatory jurisdiction because it listed American Depository Receipts on the NYSE. GE acquired the liabilities of Amersham plc, along with the assets, in the 2004 acquisition.  Between 2000 and 2002, Norway-based Nycomed entered into nine contracts involving the payment of cash ASSF kickbacks. The contracts were all direct agreements between Nycomed and the Iraqi Ministry of Health for the provision of Omnipaque and Omniscan. Omnipaque is an injectible contrast agent used in conjunction with X-rays; and Omniscan is a contrast agent used in conjunction with magnetic resonance imaging (MRI). Nycomed paid approximately $750,000 in kickbacks on the nine contracts and earned approximately $5 million in wrongful profits. The contracts were negotiated by Nycomed's Jordanian agent. The kickback payments were explicitly authorized by Nycomed's salesman in Cyprus. The Nycomed salesman increased the agent's commission from 17.5% to 27.5% of the contract price, and artificially increased the UN contract prices by 10%, all to cover the cost of the kickbacks.  During its involvement in the Program, Ionics Italba was a subsidiary of Ionics, Inc., which GE acquired in 2005. Ionics Italba's violations occurred prior to the acquisition. At the time of the violations, however, Ionics, Inc., was a publicly-listed company in the United States and was therefore subject to the Commission's regulatory jurisdiction. GE acquired Ionics' liabilities, along with the assets, in the 2005 acquisition.  Ionics Italba, based in Italy, manufactures and sells water purification equipment. Between 2000 and 2002, Ionics Italba paid $795,000 in kickbacks and earned $2.3 million in wrongful profits on five Program contracts to sell water treatment equipment to the Iraqi Oil Ministry. In the first of these contracts, the illegal kickback payment was concealed under a fictitious line item for "modification and adaptation at site of obsolete spare parts." When UN inspectors requested additional detail about the line item, officials at Ionics Italba passed the inquiry along to the Iraqi Oil Ministry. The Ministry's proposed response, which described services neither party intended to be performed, was incorporated nearly verbatim in a letter that Ionics Italba provided to the UN. Four of the five contracts were negotiated with side letters documenting the commitment of Ionics Italba to make cash kickback payments. The side letters were concealed from UN inspectors in violation of a Program requirement to provide all contract documentation for inspection and UN approval. On the majority of the Ionics Italba contracts, invoices provided by the sales agent included fictitious activities to justify the agent's inflated commission.  GE; Ionics, Inc.; and Amersham plc failed to maintain adequate systems of internal controls to detect and prevent the payments; and the defendants' accounting for these transactions failed properly to record the nature of the payments. GE; Ionics, Inc.; and Amersham plc, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining them from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and ordering GE to disgorge $18,397,949 in wrongful profits, pay $4,080,665 in pre-judgment interest, and pay a civil penalty of $1,000,000.  The settlement with GE represents the Commission's fifteenth enforcement action brought in connection with the UN Oil for Food Program. In total, the SEC has recovered over $204 million in disgorgement of profits, prejudgment interest, and civil penalties in Oil for Food-related cases.  The Commission considered remedial acts promptly undertaken by GE and the cooperation the company afforded the Commission staff in its investigation. The Commission acknowledges the assistance of the Department of Justice, Fraud Section, and the United Nations Independent Inquiry Committee. 								
+								 
+									             See Also:        SEC Complaint                   							  
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+                                                 
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+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 63033 / October 4, 2010 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3195 / October 4, 2010 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11374 
+: 
+In the Matter of 
+Victor R. Wahba, CPA 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: 
+On January 15, 2004, Victor R. Wahba (“Wahba”) was suspended from appearing or  
+practicing as an accountant before the Commission as a result of settled public administrative 
+proceedings instituted by the Commission against Wahba pursuant to Rule 102(e) of the 
+Commission's Rules of Practice.
+1  Wahba consented to the entry of the January 15, 2004 order 
+without admitting or denying the findings therein.  This order is issued in response to Wahba’s 
+application for reinstatement to practice before the Commission as an accountant. 
+During the years 1997 and 1998, Wahba was employed as a partner at Weiser LLP 
+(“Weiser”).  During these two years, Wahba participated as the partner in charge of Weiser’s 
+surprise inspections of the Sagam Capital Management Corporation (“Sagam Corp.”).  As the 
+partner in charge of these surprise inspections, the Commission alleged that Wahba engaged in 
+instances of highly unreasonable conduct by failing to conduct them in accordance with the 
+Investment Advisers Act of 1940 (“Advisers Act”) Rule 206(4)-2(a)(5). This conduct caused 
+and aided and abetted Sagam Corp.’s violations of Section 206(4) of the Advisers Act and 
+constituted improper professional conduct. 
+Wahba has met all of the conditions set forth in his suspension order and, in his capacity 
+as an independent accountant, has stated that he will comply with all requirements of the 
+Commission and the Public Company Accounting Oversight Board, including, but not limited to 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+1 See Accounting and Auditing Enforcement Release No. 1943 dated January 15, 2004.  Wahba was permitted, 
+pursuant to the order, to apply for reinstatement after four years upon making certain showings. 
+ 
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+control standards. In his capacity  as a preparer or reviewer, or as a person responsible for the 
+preparation or review, of financial statements of a public company to be filed with the 
+Commission, Wahba attests that he will undertake to have his work reviewed by the independent 
+audit committee of any company for which he works, or in some other manner acceptable to the 
+Commission, while practicing before the Commission in this capacity.   
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific.
+ On the basis of the information supplied, representations made, and undertakings agreed 
+to by Wahba, it appears that he has complied with the terms of the January 15, 2004 order 
+denying him the privilege of appearing or practicing before the Commission as an accountant, 
+that no information has come to the attention of the Commission relating to his character, 
+integrity, professional conduct or qualifications to practice before the Commission that would be 
+a basis for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of 
+Practice, and that Wahba, by undertaking to have his work reviewed by the independent audit 
+committee of any company for which he works, or in some other manner acceptable to the 
+Commission, in his practice before the Commission as a preparer or reviewer of financial 
+statements required to be filed with the Commission, and that Wahba, by undertaking to comply 
+with all requirements of the Commission and the Public Company Accounting Oversight Board, 
+including, but not limited to, all requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards, in his practice before the Commission as an 
+independent accountant has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Victor R. Wahba, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant. 
+By the Commission. 
+Elizabeth M. Murphy 
+Secretary 
+2 Rule 102(e)(5)(i) provides: 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). 
+ 
+ 
+ 
+ 
+SERVICE LIST 
+Walter G. Ricciardi 
+Paul, Weiss, Rifkind, Wharton & Garrison LLP 
+1285 Avenue of the Americas 
+New York, NY 10019-6064 
\ No newline at end of file
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 9166 / December 20, 2010 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 63579 / December 20, 2010 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3221 / December 20, 2010 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-14167 
+In the Matter of : ORDER INSTITUTING PUBLIC 
+: ADMINISTRATIVE AND CEASE-AND-
+MOORE STEPHENS WURTH : DESIST PROCEEDINGS PURSUANT 
+FRAZER & TORBET LLP : TO SECTION 8A OF THE 
+: SECURITIES ACT OF 1933 AND 
+and : SECTION 4C OF THE SECURITIES 
+: EXCHANGE ACT OF 1934 AND RULE 
+K. DEAN YAMAGATA, CPA, : 102(e) OF THE COMMISSION’S 
+: RULES OF PRACTICE, MAKING 
+Respondents. : FINDINGS, AND IMPOSING 
+: REMEDIAL SANCTIONS AND A 
+: CEASE-AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
+the public interest that public administrative and cease-and-desist proceedings be, and hereby 
+are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and 
+Section 4C
+1 of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of 
+1  Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to 
+possess the requisite qualifications to represent others…; (2) to be lacking in character or integrity, or to 
+have engaged in unethical or improper professional conduct; or (3) to have willfully violated, or willfully 
+aided and abetted the violation of, any provision of the securities laws or the rules and regulations 
+thereunder. 
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+the Commission’s Rules of Practice2 against Moore Stephens Wurth Frazer & Torbet LLP and 
+Kerry Dean Yamagata (collectively, “Respondents”).  
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over themselves and over the subject 
+matter of these proceedings, which are admitted, Respondents consent to the entry of this Order 
+Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the 
+Securities Act of 1933 and Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and 
+a Cease-and-Desist Order (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds
+3 that 
+Summary 
+1. This matter concerns Respondents’ improper professional conduct in connection 
+with annual audits and quarterly reviews of the financial statements of China Energy Savings 
+Technology, Inc. (“China Energy”) in 2004 and 2005, and Respondents’ violation of the 
+document retention requirements of Regulation S-X.  China Energy materially overstated its 
+Earnings Per Share (“EPS”) in its fiscal year (“FY”) 2004 annual report.  China Energy also 
+materially overstated its revenues and net income in its FY 2005 annual report and two quarterly 
+reports. Respondents failed to conduct the releva nt audits and reviews in accordance with the 
+standards and rules of the Public Company Accounting Oversight Board (“PCAOB”).  Although 
+Respondents determined that the China Energy engagement involved high risks, Respondents did 
+not exercise professional skepticism and due professional care, and Respondents otherwise 
+violated professional standards. Respondents issued unqualified audit opinions, which were 
+included in China Energy’s FY 2004 and 2005 annual reports.  Respondents also issued interim 
+review reports which contained no reservations, before China Energy filed its quarterly reports in 
+FY 2005. 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may censure a person or deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have engaged in unethical or 
+improper professional conduct. 
+3  The findings herein are made pursuant to Respondents’ Offers of Settlement and are not 
+binding on any other person or entity in this or any other proceeding. 
+2
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+Respondents 
+2. Moore Stephens Wurth Frazer & Torbet, LLP (hereinafter “MSWFT”) is a public 
+accounting firm registered with the PCAOB and located in Orange County, California.  MSWFT 
+served as China Energy’s auditor for the fiscal years ended September 30, 2004 and September 
+30, 2005, and also reviewed the quarterly financial statements of China Energy for the periods 
+December 31, 2004 through December 31, 2005.   
+3. Kerry Dean Yamagata, CPA, age 53, is a partner at MSWFT and was the 
+engagement partner for MSWFT’s China Energy engagements.  As such, Yamagata exercised 
+final authority on all significant decisions relating to MSWFT’s China Energy audits and 
+reviews. Yamagata is a Certified Public Accoun tant, licensed in California, and a resident of 
+Chino Hills, California. 
+Other Relevant Entity 
+4. China Energy Savings Technology, Inc. is a Nevada shell corporation. In 2004 
+and 2005, China Energy indirectly acquired ownership of Shenzhen Dicken Industrial 
+Development, Ltd. (“Dicken Industrial”), a company located in the People’s Republic of China 
+(“PRC”) that claimed to manufacture and sell energy savings equipment.  China Energy was 
+listed on the NASDAQ National Market System between April 2005 and February 2006.  In 
+September 2006, the Commission instituted administrative proceedings pursuant to Section 12(j) 
+of the Exchange Act against China Energy.  China Energy did not answer the order instituting 
+proceedings and the registration of its securities with the Commission was revoked in December 
+2006. On December 4, 2006, the Commission filed a civil injunctive action against China 
+Energy, a Chinese national named Chiu Wing Chiu (“Chiu”) and certain other entities and 
+individuals, alleging violations of the antifraud and registration provisions of the federal 
+securities laws. In March 2009, th e U.S. District Court for the Eastern District of New York 
+entered a final judgment in that litigation that permanently enjoined China Energy, Chiu, and the 
+other liability defendants from violations of the antifraud and registrations provisions and 
+ordered the payment of various penalties and approximately $35 million in disgorgement and 
+interest, and certain other ancillary relief.  In July 2009, in granting summary judgment to the 
+Commission against the relief defendants in the litigation, the U.S. District Court found that the 
+relief defendants were Chiu’s nominees and that Chiu was an owner of China Energy and had 
+exercised control over China Energy.    
+3
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+Facts 
+Respondents Encounter Audit Conditions 
+That Should Have Caused Them to Exercise Heightened Skepticism
+ 
+5. In 2004, as required by PCAOB standards, MSWFT conducted an initial 
+assessment of the risks associated with the China Energy engagement.  AU § 312, Audit Risk and 
+Materiality in Conducting an Audit; AU § 316, Consideration of Fraud in a Financial Statement 
+Audit.  The audit team rated the risks relating to improper revenue recognition, management 
+override of controls and overstated assets as “high.”  The team also concluded that revenue 
+recognition was “the key issue” in the engagement. 
+6. Throughout the engagement, Yamagata and the MSWFT team were aware of 
+significant problems with China Energy’s internal controls.  During the FY 2004 audit, MSWFT 
+tested China Energy’s internal controls over sales and over cash receipts and disbursements, and 
+the team concluded that those controls were not operating effectively and could not be relied 
+upon. In its Form 10-K for FY 2005, China Energy’s management reported that it was unable to 
+complete its assessment of internal control over financial reporting, and MSWFT disclaimed an 
+opinion on the effectiveness of such controls. 
+7. During the engagement, Respondents learned information that contradicted China 
+Energy’s disclosures in its annual reports.  China Energy claimed in its filings that Dicken 
+Industrial’s operations were located on a single floor of a building in Shenzhen, PRC.  When the 
+audit team arrived at that location to begin their audit field work for FY 2004, however, none of 
+Dicken Industrial’s inventory was at the site. Only inventory belonging to a much smaller 
+research and development subsidiary was on site.  Instead, the company claimed that Dicken 
+Industrial’s inventory was actually in three other locations, including two cities hundreds of 
+miles from Shenzhen.  
+8. MSWFT also encountered difficulties in conducting certain audit procedures and 
+relied on affiliates to complete material aspects of the audit work.  The MSWFT audit team was 
+unable to observe inventory or obtain bank or customer confirmations when it arrived in 
+Shenzhen to conduct the FY 2004 audit field work.  After the team returned to the U.S., MSWFT 
+hired personnel from an affiliated Beijing firm to observe Dicken Industrial’s inventory and 
+obtain bank confirmations.  The same Beijing affiliate performed inventory observation and 
+obtained bank confirmations for the FY 2005 audit. 
+China Energy Misstates EPS in FY 2004. 
+9. China Energy materially overstated EPS in its annual report for FY 2004.  At the 
+time, China Energy lacked accounting personnel trained in U.S. Generally Accepted Accounting 
+Principles (“GAAP”) and was unable to complete an EPS calculation.  At China Energy’s 
+request, MSWFT prepared the initial EPS calculation.  In making the calculation, however, a 
+MSWFT accountant used the wrong number of shares (7.8 million shares, instead of 11.3 
+million), which had the effect of overstating EPS by $0.15, or approximately 41%.  Yamagata 
+reviewed the draft calculation but did not identify the error.   
+4
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+ 
+ 
+ 
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+  
+ 
+ 
+ 
+ 
+ 
+ 
+10. China Energy adopted the EPS calculation without change and included the 
+overstated EPS in the company’s annual report on Form 10-KSB for FY 2004 filed on January 
+15, 2005. In June 2005, in response to questions from the Division of Corporation Finance, the 
+error was identified and China Energy filed an amended Form 10-KSB for FY 2004 that restated 
+EPS from $0.51 to $0.36. 
+China Energy Recognizes Revenues Improperly In FY 2005. 
+11. In FY 2005, China Energy reported total revenues of Rmb 391.5 million.  Over 
+50% of these revenues (Rmb 200.5 million) derived from transactions with four customers, and 
+were booked in the last three quarters of the FY.  China Energy prematurely recognized revenue 
+from two of the customers and improperly recognized revenue from the remaining two 
+customers, causing China Energy’s financial statements to be materially false and misleading for 
+the quarters ended March 31, 2005 and June 30, 2005, and for the FY ended September 30, 2005.  
+MSWFT questioned China Energy about this revenue recognition during the March 31 quarterly 
+review and during the FY 2005 year-end audit.  Yamagata, however, acquiesced in China 
+Energy’s improper revenue recognition and accepted the company’s explanations, even though 
+those explanations were inconsistent with the company’s prior representations and with contracts 
+and other company records. 
+12. China Energy claimed to sell its products under two types of contracts.  For 
+ordinary sales, the customer agreed to pay, and China Energy recognized revenue, upon 
+shipment.  For “Energy Savings” contracts, China Energy and the customer first signed a 
+preliminary agreement.  China Energy then delivered, installed and tested its product. The 
+customer and China Energy then signed a final agreement, in which the customer agreed to pay 
+China Energy on a monthly basis, based on the expected “Energy Savings” from the equipment 
+supplied by China Energy. China Energy disclosed in its annual reports that it recognized 
+revenue for Energy Savings contracts only on execution of the final agreement.   
+13. During the quarter ended March 31, 2005, China Energy recognized revenue of 
+Rmb 79 million from two customers located in the cities of Chongqing and Hangzhou, which 
+was 85% of China Energy’s total revenues for the quarter.  China Energy told MSWFT that these 
+transactions were Energy Savings contracts.  During the quarterly review, MSWFT questioned 
+China Energy about the transactions and China Energy continued to maintain that these were 
+Energy Savings contracts. When MSWFT s ought to obtain documentation, however, China 
+Energy was unable to produce final customer agreements to pay or other documentation 
+indicating that revenue recognition was proper.  After MSWFT advised China Energy that it 
+could not recognize the revenue, China Energy claimed, for the first time, that the transactions 
+were ordinary sales and revenue could be recognized upon shipment.  China Energy provided to 
+MSWFT copies of shipping documents that it claimed were also sales contracts for these 
+customers.  Instead of continuing to insist on seeing copies of the contracts or other underlying 
+documentation showing that the revenue was properly booked, Yamagata asked the company to 
+add a statement to its management representation letter that the transactions were regular sales 
+contracts. MSWFT then gave China Energy an interim review report that contained no 
+reservations. On May 23, 2005, China Energy filed a Form 10-QSB for the quarter ended March 
+31, 2005, which included revenues of Rmb 79 million, as ordinary sales. 
+5
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+ 
+ 
+ 
+ 
+14. During the FY 2005 audit, MSWFT obtained the testing records and the 
+agreements to pay for these customers, showing that both transactions were in fact Energy 
+Savings contracts, and therefore that it was premature and improper for China Energy to have 
+recognized the revenue on those transactions in the quarter ended March 31.  Based on the dates 
+on the documents MSWFT obtained, the Chongqing revenues should not have been recognized 
+until the quarter ended June 30, and the Hangzhou revenues should not have been recognized 
+until the September 30 fiscal year end.  
+15. During the quarter ended June 30, 2005, China Energy recognized new Energy 
+Savings revenues of Rmb 69 million.  This was 87% of the total revenues recognized by China 
+Energy that quarter and included additional revenues from the Hangzhou customer (Rmb 29.9 
+million) and revenues from two new Energy Savings contracts for customers located in the cities 
+of Xinjiang (Rmb 23.3 million) and Shanghai (Rmb 15.8 million).  During MSWFT’s quarterly 
+review, China Energy informed MSWFT that the Chongqing and Hangzhou ordinary sales 
+contracts from the previous quarter now had been converted into Energy Savings contracts.  
+MSWFT asked no questions concerning either the “conversion” or the new Energy Savings 
+revenues recognized during the quarter, and MSWFT provided China Energy with an interim 
+review report for the quarter that contained no reservations.  On August 22, 2005, China Energy 
+filed a Form 10-QSB for the quarter ended June 30, 2005; the quarterly financial statements 
+included the Rmb 69 million in Energy Savings revenues.  As noted above, the Hangzhou 
+revenues should not have been recognized until year-end.  No testing documents or agreements 
+to pay are known to exist for the other two customers, and therefore the Xinjiang and Shanghai 
+revenues should not have been recognized at all. 
+16. During the final quarter of FY 2005, China Energy recognized an additional 
+Rmb 52.5 million in Energy Savings revenues from the Xinjiang and Shanghai customers.  This 
+amount was 41% of the total revenues recognized by China Energy that quarter.  
+17. During the FY 2005 audit, MSWFT identified the Xinjiang and Shanghai revenue 
+as a problem and advised China Energy that it needed to provide sufficient written documents 
+and explanation to support revenue recognition.  China Energy responded that, as of November 
+21, 2005 (over seven weeks after the end of the FY), installation of the equipment was “most[ly] 
+completed,” which indicated that the company had not completed the steps necessary to 
+recognize the revenue under its disclosed policy (i.e., completion of installation and testing and 
+execution of final agreements to pay by the customers).  According to MSWFT’s email records, 
+during the audit MSWFT received a 17-page fax from China Energy containing further 
+explanation of China Energy’s reasons for recognizing revenue from the Xinjiang and Shanghai 
+transactions. MSWFT did not retain the fax in its workpapers or other files.  Email records 
+indicate that MSWFT continued to have significant concerns regarding the Xinjiang and 
+Shanghai transactions after reviewing the fax. China Energy never provided documentation that 
+the equipment purportedly delivered to Xinjiang and Shanghai had been tested or that these 
+customers had entered into a final agreement to pay.  Without evidence of such agreement, it 
+was improper for China Energy to recognize any revenues from the Xinjiang and Shanghai 
+customers.  Nevertheless, Yamagata allowed China Energy to recognize total revenues of 
+Rmb 91.6 million for FY 2005 from these two customers.  On December 20, 2005, China Energy 
+filed a Form 10-K for FY 2005, which contained China Energy’s audited financial statements for 
+FY 2005. These financial statements included th e Energy Savings revenues as described above.  
+6
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+Also included in the Form 10-K was MSWFT’s audit report, which was unqualified, except for 
+the disclaimer as to internal controls. 
+Legal Standards and Analysis 
+18. Section 4C of the Exchange Act and Rule 102(e)(1)(ii) provide that the 
+Commission may temporarily or permanently deny an accountant the privilege of appearing or 
+practicing before it if it finds, after notice and opportunity for hearing, that the accountant 
+engaged in improper professional conduct. Under Section 4C(b) of the Exchange Act and Rule 
+102(e)(1)(iv), improper professional conduct includes negligent conduct in the form of repeated 
+instances of unreasonable conduct, each resulting in a violation of applicable professional 
+standards, that indicate a lack of competence to practice before the Commission. 
+19. The applicable professional standards of care for accountants practicing before the 
+Commission include, but are not limited to, Article 2 under Regulation S-X (17 C.F.R. § 210.2-
+01 et. seq.) and the standards and rules of the PCAOB.  The standards of care may overlap, and 
+one failure may constitute or contribute to another.  
+20. Certain conditions require auditors to exercise heightened skepticism, AU 
+§ 316.46; In re Gregory M. Dearlove, CPA, Exch. Act Rel. No. 57244, p. 8 (Jan. 31, 2008). This 
+was true in this case after Respondents: (i) concluded that the risks of the China Energy 
+engagement were high as to significant accounts; (ii) concluded that China Energy’s internal 
+controls were not operating effectively and could not be relied upon; (iii) became aware of facts 
+concerning inventory and operations which, although not materially inconsistent with financial 
+statement assertions, contradicted China Energy’s public disclosures; and (iv) encountered 
+difficulties in conducting important audit procedures.  Nevertheless, Respondents Yamagata and 
+MSWFT violated applicable professional standards by failing to:  (i) obtain sufficient competent 
+evidential matter regarding Energy Savings revenues through inspection, observation, inquiries, 
+and confirmations to afford a reasonable basis for MSWFT’s opinion regarding the FY 2005 
+financial statements of China Energy, as required by AU § 326.01, Evidential Matter; 
+(ii) exercise professional skepticism and due professional care regarding Energy Savings 
+revenues in the performance of the audit of China Energy for FY 2005, as required by 
+AU § 230.01, Due Professional Care in the Performance of Work, and AU § 230.07; 
+(iii) document significant findings or issues, actions taken to address them (including additional 
+evidence obtained), and the basis for the conclusions reached in the FY 2005 audit, as required 
+by PCAOB Auditing Standard No. 3, Audit Documentation, paragraph 12; (iv) properly 
+supervise assistants, including assistants engaged from outside the firm, in the FY 2004 audit of 
+China Energy, as required by AU § 311.01, Planning and Supervision; and (v) ensure the 
+independence of MSWFT in connection with the audit of EPS in FY 2004, as required by 
+Regulation S-X and AU §§ 150.02, paragraph 2, Generally Accepted Auditing Standards, 220 
+Auditor Independence. 
+21. Respondents Yamagata and MSWFT further violated applicable professional 
+standards in reviewing the financial statements of China Energy for the quarters ended March 31, 
+2005 and June 30, 2005. Respondents Yamagata and MSWFT became aware of information 
+concerning significant sales transactions that gave them cause to believe that the information in 
+7
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+ 
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+ 
+ 
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+ 
+ 
+ 
+ 
+the interim financial statements may not have been in conformity with GAAP in all material 
+respects, AU § 722.22, Interim Financial Information; nevertheless Respondents failed to 
+perform additional interim review procedures, such as reading the sales contracts or discussing 
+the transactions with senior marketing personnel, AU § 722.22.  Respondents also failed to 
+consider the reasonableness and consistency of management’s response to inquiries concerning 
+the significant sales transactions, AU § 722.17. 
+22. Rule 2-06 under Regulation S-X provides that for a period of seven years after an 
+accountant concludes an audit or review of an issuer’s financial statements, the accountant shall 
+retain records relevant to the audit or review, including workpapers and other documents that 
+form the basis of the audit or review, and memoranda, correspondence, communications, other 
+documents and records (including electronic records), which: 
+A.	 Are created, sent or received in connection with the audit or review, and  
+B.	 Contain conclusions, opinions, analyses, or financial data related to the 
+auditor or review. 
+The rule requires that such documents shall be retained whether they support the 
+auditor’s final conclusions regarding the audit or review, or contain information or data, relating 
+to a significant matter, that is inconsistent with the auditor’s final conclusions regarding that 
+matter or the audit or review.  Nevertheless, Respondents failed to retain correspondence 
+received from China Energy which contained conclusions and opinions relating to significant 
+revenue recognition issues. 
+23. Rule 2-01(c)(4)(i) under Regulation S-X provides that an accountant is not 
+independent if, at any point during the audit and professional engagement period, the accountant 
+provides non-audit services to an audit client, including any bookkeeping or other service related 
+to the accounting records or financial statements of the audit client, unless it is reasonable to 
+conclude that the results of these services will not be subject to audit procedures during an audit 
+of the audit client’s financial statements.  Rule 2-02(b) under Regulation S-X requires the 
+accountant’s report to state whether the audit was made in accordance with generally accepted 
+auditing standards (“GAAS”), which require that the accountant be independent of the client.  
+“[R]eferences in Commission rules and staff guidance and in the federal securities laws to GAAS 
+or to specific standards under GAAS, as they relate to issuers, should be understood to mean the 
+standards of the PCAOB . . . .” SEC Release No. 34-49708. Respondent MSWFT’s 
+independence from China Energy was impaired under Rule 2-01(c)(4)(i) due to the firm’s 
+preparation of an EPS calculation that was subject to audit procedures by MSWFT in connection 
+with the audit of China Energy’s FY 2004 financial statements.  Nevertheless, MSWFT violated 
+Rule 2-02(b) by stating incorrectly in its audit report that the audit was performed in accordance 
+with the standards of the PCAOB. Respondent Yamagata was a cause of such violation. 
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+Findings 
+24. Based on the foregoing, the Commission finds that Respondents Yamagata and 
+MSWFT engaged in improper professional conduct pursuant to Section 4C of the Exchange Act 
+and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+25. Based on the foregoing, the Commission finds that Respondents Yamagata and 
+MSWFT violated Rule 2-06 under Regulation S-X (17 C.F.R. § 210.2-06). 
+26. Based on the foregoing, the Commission finds that Respondent MSWFT violated 
+Rule 2-02(b) under Regulation S-X (17 C.F.R. § 210.2-02(b)) and that Respondent Yamagata 
+was a cause of such violation. 
+Undertakings 
+MSWFT Shall Retain an Independent Consultant 
+27. MSWFT has undertaken to retain, within thirty days after the entry of this Order, 
+an independent consultant (“Independent Consultant”), not unacceptable to the Commission 
+staff.  The Independent Consultant will review and evaluate the audit and interim review policies 
+and procedures of MSWFT regarding: (i) trai ning in client fraud detection; (ii) auditor 
+independence; (iii) client acceptance and retention; (iv) document retention; (v) use of and 
+supervision of affiliate firms and personnel (taking into consideration PCAOB Staff Audit 
+Practice Alert No. 6, dated July 12, 2010); (vi) third party confirmations; (vii) work paper sign-
+off and dating; and (viii) audit committee communications.  The Independent Consultant’s 
+review and evaluation will assess the forgoing areas to determine whether MSWFT’s policies 
+and procedures are adequate and sufficient to ensure compliance with Commission regulations 
+and with PCAOB standards and rules.  MSWFT will cooperate fully with the Independent 
+Consultant and will provide reasonable access to firm personnel, information, and records as the 
+Independent Consultant may reasonably request for the Independent Consultant’s reviews and 
+evaluations. MSWFT will provide to the Comm ission staff a copy of the engagement letter 
+detailing the scope of the Independent Consultant’s responsibilities. 
+28. Within sixty days of being retained, the Independent Consultant will issue a 
+written report (“Report”) to MSWFT:  (a) summarizing the Independent Consultant’s review and 
+evaluation; and (b) making recommendations, where appropriate, reasonably designed to ensure 
+that audits conducted by MSWFT comply with Commission regulations and with PCAOB 
+standards and rules.  The Independent Consultant will provide a copy of the Report to the 
+Commission staff and the PCAOB staff when the Report is issued. 
+29. MSWFT will adopt, as soon as practicable, all recommendations of the 
+Independent Consultant in the Report.  Provided, however, that within thirty days of issuance of 
+the Report, MSWFT may advise the Independent Consultant in writing of any recommendation 
+that it considers to be unnecessary, unduly burdensome, or impractical.  MSWFT need not adopt 
+any such recommendation at that time, but instead may propose in writing to the Independent 
+Consultant and the Staff an alternative policy or procedure designed to achieve the same 
+objective or purpose. MSWFT and the Independent Consultant will engage in good-faith 
+negotiations in an effort to reach agreement on any recommendations objected to by MSWFT.  
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+In the event that the Independent Consultant and MSWFT are unable to agree on an alternative 
+proposal within thirty days, MSWFT will abide by the determinations of the Independent 
+Consultant. 
+30. Within sixty days of issuance of the Report, but not sooner than thirty days after a 
+copy of the Report is provided to the Commission staff, MSWFT will certify to the Staff in 
+writing that it has adopted and has implemented or will implement all recommendations of the 
+Independent Consultant (“Certification of Compliance”).  MSWFT will provide a copy of the 
+Certification of Compliance to the PCAOB staff. 
+31. MSWFT will not accept any new issuer audit clients with operations located in 
+the People's Republic of China, the Hong Kong Special Administrative Region, and Taiwan, 
+between the date of this Order and the issuance of the Certification of Compliance. 
+32. Six months after issuance of the Certification of Compliance, the Independent 
+Consultant will undertake a follow-up review and evaluation of MSWFT’s compliance with the 
+matters certified.  Within thirty days after the completion of the follow-up review and evaluation, 
+the Independent Consultant will issue a supplemental written report to MSWFT certifying the 
+firm’s compliance, describing any matters on which the Independent Consultant is unable to 
+certify compliance, and making recommendations, where appropriate, reasonably designed to 
+ensure that audits of MSWFT comply with Commission regulations and with PCAOB standards 
+and rules. The Independent Consultant will provide a copy of the suppl emental report to the 
+Commission staff and to the PCAOB staff. 
+33. Upon request, and for good cause shown, the Commission staff may extend any 
+of the above procedural dates. 
+34. MSWFT will require the Independent Consultant to enter into an agreement that 
+provides that, for the period of engagement and for a period of two years from completion of the 
+engagement, the Independent Consultant shall not enter into any employment, consultant, 
+attorney-client, auditing or other professional relationship with MSWFT, or any of its present or 
+former affiliates, directors, officers, employees, or agents acting in their capacity as such.  The 
+agreement will also provide that the Independent Consultant will require that any firm with 
+which he/she is affiliated or of which he/she is a member, and any person engaged to assist the 
+Independent Consultant in performance of his/her duties under this Order shall not, without prior 
+written consent of the Division of Enforcement, enter into any employment, consultant, attorney-
+client, auditing or other professional relationship with MSWFT, 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. 
+35. MSWFT shall certify, in writing, compliance with the undertakings set forth 
+above. The certification shall id entify the undertakings, provide written evidence of compliance 
+in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.  
+The Commission staff may make reasonable requests for further evidence of compliance, and 
+Respondent agrees to provide such evidence. The certification and supporting material shall be 
+submitted to Antonia Chion, Associate Director, Division of Enforcement, Securities and 
+Exchange Commission, 100 F St., N.E., Washington, D.C. 20549-5720B SP2, with a copy to the 
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+Office of Chief Counsel of the Enforcement Division, no later than sixty (60) days from the date 
+of the completion of the undertakings.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Yamagata’s and Respondent MSWFT’s Offers. 
+Accordingly, pursuant to Section 8A of the Securities Act and Section 4C of the 
+Exchange Act and Rule 102(e) of the Commission’s Rules of Practice, it is hereby ORDERED 
+that: 
+A. Respondents Yamagata and MSWFT cease and desist from committing or causing 
+any violations and any future violations of Rules 2-02(b) and 2-06 under Regulation S-X (17 
+C.F.R. §§ 210.2-02(b) and 210.2-06); 
+B. Respondent MSWFT is censured; 
+C. Respondents MSWFT and Yamagata, jointly and severally, shall, within thirty 
+days of the entry of this Order, pay disgorgement of audit fees of $100,000 and prejudgment 
+interest of $29,500. If timely paym ent is not made, additional interest shall accrue pursuant to 
+SEC Rule of Practice 600. Payment shall be: (A ) made by wire transfer, United States postal 
+money order, certified check, bank cashier's check or bank money order; (B) made payable to the 
+Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial 
+Management, Securities and Exchange Commission, Operations Center, 6432 General Green 
+Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies 
+MSWFT and Yamagata as Respondents in these proceedings, the file number of these 
+proceedings, a copy of which cover letter and money order or check shall be sent to Antonia 
+Chion, Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 
+F St., N.E., Washington, D.C. 20549-5720B SP2; 
+D. Respondent Yamagata is denied the privilege of appearing or practicing before 
+the Commission as an accountant;  
+E. After two years from the date of this order, Respondent Yamagata may request 
+that the Commission consider his reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent Yamagata’s work in his practice 
+before the Commission will be reviewed either by the independent audit committee of the public 
+company for which he works or in some other acceptable manner, as long as he practices before 
+the Commission in this capacity; and/or 
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+2. an independent accountant. Such  an application must satisfy the 
+Commission that: 
+(a) Respondent Yamagata, or the public accounting firm with which 
+he is associated, is registered with the PCAOB in accordance with the Sarbanes-Oxley Act of 
+2002, and such registration continues to be effective; 
+(b) Respondent Yamagata , or the registered public accounting firm 
+with which he is associated, has been inspected by the PCAOB and that inspection did not 
+identify any criticisms of or potential defects in the respondent’s or the firm’s quality control 
+system that would indicate that the respondent will not receive appropriate supervision; 
+(c) Respondent Yamagata has resolved all disciplinary issues with the 
+PCAOB, and has complied with all terms and conditions of any sanctions imposed by the 
+PCAOB (other than reinstatement by the Commission); and
+ (d) Respondent Yamagata acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, including, but not limited to, 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards. 
+F. The Commission will consider an application by Respondent Yamagata to resume 
+appearing or practicing before the Commission provided that his state CPA license is current and 
+he has resolved all other disciplinary issues with the applicable state boards of accountancy.  
+However, if state licensure is dependent on reinstatement by the Commission, the Commission 
+will consider an application on its other merits.  The Commission’s review may include 
+consideration of, in addition to the matters referenced above, any other matters relating to 
+Respondent Yamagata’s character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission. 
+  By the Commission. 
+       E l i z a b e t h M . M u r p h y
+       S e c r e t a r y 
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+Service List 
+Rule 141 of the Commission's Rules of Practice provides that the Secretary, or another duly authorized 
+officer of the Commission, shall serve a copy of the Order Instituting Public Administrative and Cease-and-Desist 
+Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 4C of the Securities Exchange Act of 
+1934 and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+and a Cease-and-Desist Order ("Order"), on the Respondents and their legal agents. 
+The attached Order has been sent to the following parties and other persons entitled to notice: 
+Honorable Brenda P. Murray 
+Chief Administrative Law Judge 
+Securities and Exchange Commission 
+100 F Street, N.E. 
+Washington, DC 20549-2557 
+Patrick L. Feeney, Esq. 
+U.S. Securities and Exchange Commission 
+100 F. Street N.E.  
+Washington DC, 20549-5720 
+Kerry Dean Yamagata 
+c/o Lawrence West, Esq. 
+Latham & Watkins LLP 
+555 Eleventh Street, N.W. 
+Suite 1000 
+Washington, DC 20004 
+Moore Stephens Wurth Frazer and Torbet LLP 
+c/o Lawrence West, Esq. 
+Latham & Watkins LLP 
+555 Eleventh Street, N.W. 
+Suite 1000 
+Washington, DC 20004 
+Lawrence West, Esq. 
+Latham & Watkins LLP 
+555 Eleventh Street, N.W. 
+Suite 1000 
+Washington, DC 20004 
+(Counsel for Kerry Dean Yamagata and Moore Stephens Wurth Frazer and Torbet LLP) 
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\ No newline at end of file