United States of America
In the Matter of
DEBRA D. VALICE
|ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS,AND IMPOSING ACEASE-AND-DESIST ORDER|
The Securities and Exchange Commission deems it appropriate to initiate public cease-and-desist proceedings against Respondent Debra D. Valice ("Valice" or "Respondent") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
In anticipation of these proceedings, Respondent has submitted an Offer of Settlement that the Commission has determined to accept. Solely for purposes of these proceedings and any others brought by or on behalf of the Commission or to which the Commission is party, and without admitting or denying the findings contained herein, except that Respondent admits the Commission's jurisdiction over her and over the subject matter of these proceedings, Respondent has consented to entry of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order ("Order"), as set forth below.
On the basis of this Order and the Offer submitted by Respondent, the Commission finds that:
Seitel, Inc. is a Delaware corporation based in Houston, Texas, that licenses geologic seismic data for use in petroleum exploration activities. Seitel files periodic and current reports and proxy statements with the Commission, pursuant to the registration of its common stock under Section 12(b) of the Exchange Act. During all relevant periods, Seitel's common stock traded on the New York Stock Exchange.
Respondent, age 46, of Houston, Texas, is a CPA and served as Seitel's chief financial officer from 1987 until June 2002. She also served on the company's Board of Directors from 1995 until June 2002. As CFO, Valice supervised and managed Seitel's accounting department and was responsible for the company's maintenance of an effective system of internal controls. She was also responsible for ensuring that the company complied with the terms of its executive contracts.
As discussed below, Seitel's deficient controls over payments to or on behalf of top executives facilitated unauthorized payments in 2001 and early 2002.1
In April and July 2001, former Seitel CEO Paul A. Frame directed Seitel's accounting department to pay three invoices, from the company's principal outside counsel, totaling $750,000, purportedly for company legal fees. In fact, these funds paid Frame's legal fees and settlement costs in a lawsuit brought by his former girlfriend, who alleged that he had converted property and abused her.
Since the girlfriend also sought damages from Seitel for alleged complicity in Frame's misconduct, Seitel had instructed Frame to obtain separate counsel and to pay his own fees and expenses in the litigation.2 Seitel's accounting department paid the invoices without further inquiry. The invoices doubled Seitel's legal expense for the period and lacked supporting detail as to the services provided, contrary to typical legal invoices processed at Seitel. In addition, the first two of these invoices, totaling $400,000, purported to be for "Legal Fees Retainer"; however, Seitel already was paying its outside counsel an agreed monthly retainer of $75,000. The first invoice was addressed to Valice, which was not common at Seitel. She did not inquire as to what legal matter the invoice related. Instead, she asked Frame whether it should be paid. He responded yes, without further explanation, so she marked the invoice "approved per Paul Frame" and put it in line for payment.
Frame liked to race Ferraris and, in 2001, he deceived the company into funding his hobby. In February 2001, Frame gave the accounting department what he described as a "sponsorship agreement" for the 2001 Ferrari Challenge season. This "agreement" was merely a form letter from a Ferrari dealership, addressed to participating drivers and calling for a $75,600 "support" payment. Because the alleged agreement came from Frame, Seitel's accounting department paid the amount without seeking further documentation to determine whether it pertained to Seitel's business.
Also in February 2001, Frame asked Valice and the accounting department to approve an additional $179,000 payment to the Ferrari dealership. Frame initially represented that this was to buy a racecar bearing Seitel's logo. When asked for the car's title, Frame changed his story, claiming that the funds merely bought sponsorship of a racecar. He also offered the unusual explanation that the company would receive a "residual" value of $130,000 when the car was sold in two years, so Seitel's advertising expense each year would only be $25,000. Valice and the accounting department paid the requested amount without seeking a contract or other documentation to support Frame's representations.
Over the rest of 2001, Frame submitted, and Seitel paid, additional invoices totaling over $150,000 for such things as track rentals, tires, fuel and lubricants, car preparation, and race entry fees. Frame personally approved each invoice in writing, describing the costs as "advertising." Frame also charged about $30,000 on his corporate credit cards, which Seitel paid, for airline tickets, hotel accommodations, meals and other incidentals associated with these races, as well as for spare tires and other racing gear. Frame described these expenses as business development. Seitel's accounting department accepted Frame's descriptions without further inquiry and paid the invoices and statements, coding the costs to either advertising or entertainment expense. This continued even as accounting department personnel grew increasingly skeptical that the expenses pertained to legitimate racing sponsorship or business development.
In reality, the payments described above purchased a racecar for, and funded Frame's participation in, a racing club featuring amateur drivers racing specially configured Ferraris at various racetracks across North America and in Italy. Contrary to Frame's representations, these events provided Seitel no advertising exposure, since they were not open to the public. Valice does not appear to have known of these facts.
During 2001 and early 2002, Seitel paid Frame almost $2 million as "advances" on his anticipated 2001 bonus, which, under his employment contract, was calculated as a percentage of Seitel's annual pre-tax profits above $10 million (the "pre-tax profits threshold"). Valice, whose bonus was discretionary to the Board and not specifically tied to the pre-tax profits threshold, also received advances on her anticipated 2001 performance bonus totaling $375,000.
Neither person's employment contract expressly provided for payment of bonus advances. Frame's contract stipulated that his bonus was payable only after Seitel's outside auditor certified that pre-tax profits exceeded the threshold and the Board's compensation committee approved payment of the bonus. Valice's bonus was discretionary to the Board. Because Seitel had filed these contracts as exhibits to its periodic reports, investors reasonably could expect Seitel to pay Frame and Valice in accordance with these limitations.
In 2001, Seitel missed the pre-tax profits threshold. The Board declined to award Frame and Valice bonuses and instead determined that advances previously paid but not earned or awarded would be repaid pursuant to promissory notes. The face amount of the notes exceeded what Valice and Frame actually had received in advances. Accordingly, the accounting department, at Valice's direction, cut her and Frame checks for the difference, in the amounts of $159,437 and $176,844, respectively.3
In February 2002, Frame submitted a check request for $148,000, purportedly for an alarm system at a new data facility Seitel was building. Seitel's accounting department obtained an invoice from the vendor, which showed that the system was for Frame's residence. Valice learned of the invoice, but allowed Seitel's accounting department to pay it, even though Frame's employment contract did not provide that the company would pay for such things as personal security systems.
On April 30, 2001, Seitel filed its annual Proxy Statement pursuant to Section 14(a) of the Exchange Act, purporting to disclose, among other things, information concerning related party transactions and management's indebtedness to the company greater than $60,000, both since the beginning of 2000, as required by Item 404 of Regulation S-K. While listing some related party transactions and indebtedness between Seitel and Frame, this Proxy Statement did not disclose that Frame, by that time, had already received $400,000 of personal legal fees, almost $300,000 of racing expenses and $325,000 of advances against his as-yet unearned 2001 bonus.4
On April 30, 2002, Seitel filed a Form 10-K/A for the year ended December 31, 2001, purporting to show the compensation Frame and other executives received during 2001, as well as the company's related party transactions. This filing disclosed that Frame and Valice had received bonus advances, that bonuses were not awarded and that the company had accepted promissory notes for those advances. However, Frame's personal legal costs and racing expenses are absent from these disclosures. Frame signed the amended 10-K. Valice reviewed both filings before they were submitted to the Commission.
As a result of the foregoing, the Commission finds that Respondent violated Section 13(b)(5) of the Exchange Act and caused Seitel's violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1 and 14a-9 promulgated thereunder.
In determining whether to accept Respondent's Offer, the Commission has considered the undertaking by Respondent that she will not contest in her private litigation with Seitel that she owes the company $621,293 under the terms of her promissory note.
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 cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1 and 14a-9 promulgated thereunder.
By the Commission:
Jonathan G. Katz
1 The Commission has simultaneously filed a civil injunctive action in federal district court against Seitel and Frame in connection with these matters. See SEC v. Paul A. Frame and Seitel, Inc. (Lit. Release No. 18177) (June 6, 2003).
2 In May 2001, the former girlfriend dismissed Seitel from the case, giving it a complete release of liability.
3 The Board terminated Valice in June 2002, which prompted her to sue the company. On March 18, 2003, a state court jury found that Seitel wrongfully had terminated and libeled Valice and awarded her over $4 million in damages. The jury also found that Valice had breached her fiduciary duty to Seitel and awarded the company $621,293, which is equal to the face amount of her promissory note.
4 The Proxy Statement did disclose other details of Frame's compensation.
|Home | Previous Page||