UNITED STATES OF AMERICA
| ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against David R. Behanna ("Behanna") pursuant to Rule 102(e) of the Commission's Rules of Practice.1
In anticipation of the institution of these administrative proceedings, Behanna 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 findings of jurisdiction over him and the subject matter of these proceedings and of the entry of the injunction set forth in paragraph III.D. below, which Behanna admits, Behanna consents to the entry of this Order Instituting Public Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order") as set forth below.
On the basis of this Order and the Offer submitted by Behanna, the Commission finds that:
A. Behanna is a certified public accountant and has been licensed since 1983. During the period February 1995 through September 1997, Behanna was the chief financial officer ("CFO") and a director of Windswept Environmental Group, Inc. ("Windswept"). Previously, Behanna was a principal in the accounting firm of Behanna & Oliva, which was Windswept's independent auditor for its fiscal year ended April 30, 1994.
B. Windswept is a Delaware corporation that was known as Comprehensive Environmental Systems, Inc. from February 1995 through April 1997 and as Integrated Resource Technologies, Inc. from June 1993 until February 1995. Windswept is a waste remediation company headquartered in Bay Shore, New York. Since September 1987, Windswept's common stock has been registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and was listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), until it was delisted on October 22, 1996. It currently is traded on the OTC Bulletin Board. On November 22, 1999, the Commission issued, among other remedial sanctions, an order directing Windswept to cease and desist from committing or causing any violation and any future violation of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder. In the Matter of Windswept Environmental Group, Inc., Securities Act Release No. 7780; Exchange Act Release No. 42165.
C. On November 10, 1999, the Commission filed a complaint ("Complaint") against Behanna and sixteen others, SEC v. Curtis, et al., 99 CV 7357 (E.D.N.Y.), alleging, in relevant part, as follows:
1. From at least 1994 through 1996, defendants Grant R. Curtis ("Curtis"), Timothy H. Masley ("Masley") and Leo Mangan ("Mangan") (collectively, "the Trio"), acting as a partnership, masterminded and engaged in a fraudulent scheme to exercise undisclosed control over Windswept and two other public companies and used that control to retail stock of those companies illegally at inflated prices to the public. The Trio caused Windswept to issue an aggregate of over 4 million shares of its common stock to various foreign shell companies, nearly all of which were under the control of the Trio. Approximately 3.4 million of the 4 million shares of Windswept stock issued to the foreign shell companies were sold to the investing public for approximately $5 million. Behanna and other defendants, acting at the direction of the Trio, engaged in conduct which furthered the scheme.
2. With respect to the issuance of the Windswept stock, the Complaint further alleges, among other things, as follows:
a. In March 1995, Windswept issued a total of 200,000 shares of stock to Piedmont Securities, Ltd. ("Piedmont"), an Irish shell company, and filed with the Commission a Form S-8 Registration Statement, signed by Behanna, which purported to register 500,000 shares of Windswept common stock, including the 200,000 shares issued to Piedmont. Behanna signed the corporate resolution authorizing the issuance of the stock to Piedmont. Piedmont never performed any services for Windswept and never paid any consideration for the 200,000 shares of Windswept stock.
b. From May 1995 through May 1996, Windswept issued a total of 2,800,000 shares of unregistered stock in three transactions to Hersilia Investments, Ltd., a British Virgin Islands corporation, and the Hersilia Trust, located in Guernsey, Channel Islands (collectively "Hersilia"). Those transactions purportedly fell within a safe harbor exemption from the registration requirements of the Securities Act provided by Regulation S for offers and sales of securities to foreign persons that occur outside the United States. 17 C.F.R. § 230.901 et seq. Hersilia, however, was controlled by the Trio. Windswept did not receive full consideration for the stock issued to Hersilia.
c. In July 1996, Windswept issued 115,000 shares to Broadcast Communications, Inc. ("Broadcast"), a Liberian company. This stock was purportedly registered on a Form S-8 Registration Statement filed with the Commission on December 21, 1995, which Behanna signed. Broadcast was a nominee for defendant Donald Kessler ("Kessler"), Windswept's then president, chairman, and CEO. Broadcast did not provide any services to Windswept.
d. None of these issuances of Windswept stock described above were properly registered with the Commission or exempt from registration. Most of the stock issued was sold to the public.
3. Behanna, as CFO and through his involvement in Windswept's day-to-day operations, knew, or was reckless in not knowing, that Windswept was controlled by the Trio; that the Trio controlled Piedmont and Hersilia; that Kessler controlled Broadcast; and that Windswept received no consideration for the stock it issued to Piedmont and Broadcast and less than full consideration for the stock it issued to Hersilia. Further, in light of his position and involvement with Windswept, Behanna was a controlling person of Windswept.
4. Windswept's Form 10-K for its fiscal year ended April 30, 1995, its quarterly and annual filings for its fiscal year ended April 30, 1996, and its Form 10-Q for its quarter ended July, 1996, which were all signed by Behanna and filed with the Commission, contained materially false and misleading statements because they failed to disclose, among other things, that (i) Curtis and Masley were control persons of Windswept; (ii) Curtis had been convicted of a felony within the past five years; (iii) the stock issuances to the foreign shell companies were related party transactions; and (iv) the foreign shell companies had performed no services or paid little or no consideration for the stock issued to them.
5. Windswept's books and records, including corporate resolutions, falsely reflected stock issuances to the foreign shell companies, as described above, when, in fact, the members of the Trio and/or Kessler were the true recipients of the stock, and Windswept received little or no consideration for the stock. Windswept failed to adopt internal accounting controls sufficient to accurately reflect that Windswept stock was issued, for little or no consideration, to various nominees and aliases of the Trio and/or Kessler in related party transactions.
6. Behanna and others failed to disclose material facts to accountants in connection with the preparation and filing of documents and reports filed with the Commission, as set forth above, and failed to disclose material facts to accountants in connection with an audit of Windswept's financial statements.
D. On July 22, 2002, the United States District Court for the Eastern District of New York entered a Final Judgment of Permanent Injunction and Other Relief as to David R. Behanna ("Final Judgment") that, among other things, permanently enjoins Behanna from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Rules 13b2-1 and 13b2-2, promulgated under Section 13(b) of the Exchange Act, and from engaging in conduct as a controlling person that would render him liable pursuant to Section 20(a) of the Exchange Act for violations of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. Behanna consented to the entry of the Final Judgment without admitting or denying the allegations in the Complaint, except as to jurisdiction.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Behanna's Offer.
Accordingly, it is hereby ORDERED, effective immediately, that
A. Behanna is suspended from appearing or practicing before the Commission as an accountant.
B. After five years from the date of this Order, Behanna 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 Behanna'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) Behanna, 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) Behanna, 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 Behanna 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.
C. The Commission will consider an application by Behanna 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 the 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 Behanna'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) 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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