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U.S. Securities and Exchange Commission

United States of America
Before the
Securities and Exchange Commission

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


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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:

  1. 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.
     
  2. 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.
     
  3. 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").
     
  4. 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)]

 

http://www.sec.gov/litigation/admin/34-46273.htm


Modified: 09/13/2002