U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

Before the

Release No. 8001 / September 10, 2001

Release No. 44779 / September 10, 2001

Release No. 1441 / September 10, 2001

File No. 3-10568

In the Matter of






The Securities and Exchange Commission ("Commission") deems it appropiate to institute public administrative proceedings against Respondent Walter Thompson Reeder ("Reeder") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").

In anticipation of the institution of these administrative proceedings, Reeder has submitted an Offer of Settlement ("Offer"), which the Commission has determined that it is in the public interest to accept. 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, prior to a hearing and without admitting or denying the findings contained herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, Respondent Reeder consents to the issuance 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 Issuing a Cease-and-Desist Order ("Order") and to the entry of the findings and the issuance of the cease-and-desist order as set forth below.


Accordingly, IT IS ORDERED that said proceedings be, and hereby are, instituted.


On the basis of the Order and Offer, the Commission finds the following:1

A. Respondent

Walter Thompson Reeder, 48, has served as vice president and a director of Swisher International, Inc. since March 1988. Reeder is the second highest-ranking officer at the company and reports directly to CEO Patrick Swisher ("Swisher"). Reeder also is the majority owner of Charlotte Hygiene, the company that purchased the Charlotte hygiene franchise. Reeder resides in Charlotte, NC.

B. Other Relevant Persons and Entities

Swisher International Inc. (SII), a Nevada corporation headquartered in Charlotte, NC, is in the business of franchising commercial and residential hygiene services. Following its initial public offering in 1993, SII registered with the Commission pursuant to Section 12(g) of the Exchange Act. Its common stock traded on the NASDAQ from April 1993 to May 1998 under the symbol SWSH and currently trades on the OTC bulletin board. On April 28, 2000, Swisher International filed a Form 15 terminating its registration with the Commission pursuant to Exchange Act Rule 12(g)(4), and is no longer required to file periodic reports with the Commission.

Patrick Lee Swisher, 46, has been Chief Executive Officer and a director of SII since its inception. Swisher is also the majority owner of Lone Star Hygiene, LLC ("Lone Star"), a Texas corporation that bought and manages the Houston franchise.

C. The Premature Recognition of the Houston Franchise Sale

SII and its Chairman Patrick L. Swisher overstated the company's earnings for the quarter ended July 31, 1996 by prematurely recording the $450,000 sale of the company-owned Houston franchise to a corporation Swisher set up and controlled. At Swisher's direction, SII improperly recognized the revenue in its Form 10-Q for the quarter ended July 31, 1996, despite the fact that the sale was not finalized. The $284,017 gain SII recorded on the sale was material as it enabled SII to report quarterly net income of $163,886 instead of a loss of $120,131. Swisher's and Reeder's intentional or reckless conduct resulted in the accounting staff recognizing the sale of the Houston franchise as a third quarter transaction, when in fact that transaction was not yet completed.

SII's third quarter Form 10-Q also failed to disclose that Swisher was the majority owner of Lone Star. Such disclosures, known as related-party transaction disclosures, are required by Regulation S-X § 210.10, Interim Financial Statements [17 CFR § 210.10], and Statement of Financial Accounting Standards No. 57, Related Party Disclosures.

By virtue of his position and conversations he had with Swisher, Reeder knew that Swisher was the majority owner of Lone Star, the entity that purchased the Houston franchise. Reeder also knew that the company's financial statements did not reflect (1) that Swisher was the majority owner of Lone Star or (2) that it was a related-party transaction. Nonetheless, on or about February 14, 1997, Reeder reviewed and signed a representation letter requested by the auditors. In this letter, Reeder told the auditors that all "Related-party transactions and related amounts receivable or payable including sales, purchases, loans, transfers, leasing arrangements and guarantees, all of which have been recorded in accordance with the economic substance of the transactions" had been properly recorded and disclosed in the company's financial statements. SII's Form 10-K filed after the close of the audit did not disclose the related-party nature of the Houston franchise sale.

On October 30, 1996, the company filed a Form S-3 registering 221,000 of 480,000 SII shares Swisher had recently transferred to Armand Investment Corporation ("Armand"), a Bahamian company for which Swisher was the sole director. The registration statement, which respondent Reeder signed as a director, did not disclose that Swisher was a beneficial owner of the shares, which was a material fact.

Reeder knew that Swisher was the sole director of Armand. Through conversations with Swisher, Reeder knew that Swisher had initially contemplated using the Armand entity as the majority owner of Lone Star Hygiene instead of himself and therefore that Swisher controlled Armand. Reeder also understood Armand to be a retirement vehicle for Swisher. Subsequently, on January 21, 1997, Reeder witnessed Swisher's signature as an "Authorized Representative" and "President" of Armand Investment Corporation. Nonetheless, SII made no effort to amend or update the Form S-3.


Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibits a person from making misstatements or omissions of material fact or engaging in any scheme to defraud in connection with the purchase or sale of a security. A fact is material if there is a substantial likelihood that a reasonable investor would consider the information to be important. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). To violate Section 10(b) and Rule 10b-5, a defendant must act with scienter, Aaron v. SEC, 446 U.S. 680, 695 (1980), defined as a mental state embracing intent to deceive, manipulate, or defraud. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). Recklessness also has been found to satisfy the scienter requirement. See, e.g., Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 120 (2d Cir. 1982).

Reeder's intentional or reckless conduct resulted in SII's accounting staff prematurely recognizing the Houston franchise sale in the third quarter of 1996, in violation of Section 10(b) and Rule 10b-5 thereunder. As a result, the financial statements included in SII's Form 10-Q for the quarter ended July 31, 1996 and the Form 10-K for the period ended October 31, 1996, were materially overstated.

Section 13(b)(5) of the Exchange Act provides that no person shall knowingly falsify any book, record, or account or circumvent internal controls. Rule 13b2-1 prohibits the falsification of any book, record, or account subject to Section 13(b)(2)(A). Rule 13b2-2 prohibits an officer or director from making material false statements or omissions to an accountant in connection with an audit of an issuer's financial statements or the preparation of any document or report required to be filed with the Commission. By signing the representation letter that told the auditors that all related-party transactions had been disclosed, under the circumstances described above, Reeder's intentional or reckless conduct violated Section 13(b)(5). This conduct also violated Rules 13b2-1 and 13b2-2. Likewise, Reeder's conduct resulting in the creation of records reflecting the Houston franchise sale in the company's third quarter violated Rule 13b2-1.

Section 17(a)(2) of the Securities Act, prohibits any person from obtaining money or property by means of untrue statements of material facts or omissions, in the offer or sale of securities. Section 17(a)(3) of the Securities Act proscribes "any transaction, practice or course of business, which operates or would operate as a fraud or deceit . . ." in the offer or sale of securities. A violation of these provisions may be established by a showing of negligence. Aaron v. SEC, 448 U.S. 680, 697 (1980); SEC v. Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir. 1997). Respondent violated Sections 17(a)(2) and (3) by signing the Form S-3 which omitted to disclose the material fact that Swisher beneficially owned Armand's 480,000 shares of SII stock.


Based on the foregoing, the Commission finds that Respondent Walter Thompson Reeder violated Sections 17(a)(2) and (3) 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.


In view of the foregoing, the Commission deems it appropriate to impose the following orders:

Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondent Walter Thompson Reeder cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act; and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2.

By the Commission.

Jonathan G. Katz


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.


Modified: 09/13/2001