UNITED STATES OF AMERICA
In the Matter of
CHARLES P. MORRISON, CPA,
PURSUANT TO RULE 10(e)
OF THE COMMISSION'S
RULES OF PRACTICE,
MAKING FINDINGS AND
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Charles P. Morrison ("Morrison") pursuant to Rule 102(e) of the Commission's Rules of Practice.1
In anticipation of the institution of these proceedings, Morrison 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except for those set forth below in Section II, paragraph C., which are admitted, Morrison, by his Offer, consents to the entry of the findings and imposition of sanctions contained in this Order Instituting Public Proceedings, Making Findings and Imposing Sanctions ("Order").
Accordingly, IT IS ORDERED that proceedings against Morrison be, and hereby are, instituted.
On the basis of this Order and the Offer submitted by Morrison, the Commission finds that:
A. Allegheny Health, Education and Research Foundation ("AHERF") is a Pennsylvania nonprofit healthcare organization formed in 1983. Until 1998, it was the parent holding company and sole member or owner of numerous subsidiaries. On July 21, 1998, AHERF instituted bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code on behalf of itself and four of these subsidiaries in the U.S. District Court for the Western District of Pennsylvania.
B. Charles P. Morrison, age 41, resides in Venetia, Pennsylvania. He has been licensed in the state of Pennsylvania as a certified public accountant since 1983. From at least 1994 through August 1998, Morrison was the chief financial officer of a group of AHERF subsidiaries collectively known as the Delaware Valley Obligated Group ("Delaware Valley"). Morrison also was an AHERF Senior Vice President of Finance and Treasurer for related entities of AHERF based in the Delaware Valley. Prior to joining AHERF, Morrison worked as an accountant for a large accounting firm for eight years. In that position Morrison participated in one or more audits of the financial statements of public companies, which were included in filings with the Commission.
C. On January 31, 2001, a Final Judgment and Order was entered against Morrison by the United States District Court for the Eastern District of Pennsylvania, in Securities and Exchange Commission v. David W. McConnell, et al., Civil Action No.
00-2261, pursuant to his consent. The Final Judgment and Order permanently enjoined Morrison from future violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; and ordered him to pay a civil penalty in the amount of $25,000.
D. The Commission's Complaint alleged that, as an umbrella holding company, AHERF managed and provided centralized corporate support services for the acquired entities, but did not assume liability for their pre-existing debt. The obligation to repay debt within AHERF was placed on collections of one or more of its non-profit subsidiaries known as "obligated groups."
E. The Commission's Complaint alleged that, pursuant to contractual obligations, the obligated groups, through AHERF as their agent, provided to nationally recognized repositories annual Secondary Market Disclosure Reports ("Disclosure Reports") containing audited financial statements prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), debt coverage ratios and other information. These Disclosure Reports were made available to the public through these repositories and were the most easily accessible source of information for investors and potential investors in AHERF bonds.
F. The Commission's Complaint further alleged that AHERF made material misstatements in documents issued to the public in December 1996 and February 1998. Among other things, in published financial statements, AHERF overstated: (a) the 1996 income of Delaware Valley by approximately $40 million; (b) the 1997 income of AHERF by approximately $59.6 million; and (c) the 1997 income of Delaware Valley by approximately $59.6 million.
G. The Commission's Complaint alleged that, from at least December 1996 through July 1998, Morrison violated Section 10(b) of the Exchange Act and Rule 10b-5 by, among other things, creating, reviewing and approving false financial statements and Disclosure Reports of AHERF and Delaware Valley, thereby masking AHERF's severely deteriorating financial condition. The Complaint further alleged that, in accordance with Delaware Valley obligations under certain debt agreements, Morrison falsely certified to the Delaware Valley bond trustee and others that the 1997 audited financial statements fairly presented the consolidated financial position and the results of operations for AHERF, including Delaware Valley, as of and for the fiscal year ended June 30, 1997, and that they were prepared in accordance with GAAP.
On the basis of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Morrison and to impose the sanctions specified therein.
Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
A. Morrison is suspended from appearing or practicing before the Commission as an accountant.
B. After three years from the date of this Order, Morrison 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 Morrison'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) Morrison 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"); (b) Morrison 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 Morrison 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.
C. The Commission's review of an application by Morrison to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Morrison's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
By the Commission.
Jonathan G. Katz
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)(A).
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