SECURITIES EXCHANGE ACT OF 1934
Release No. 49684 / May 11, 2004

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 2011 / May 11, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11486


In the Matter of

BRADLEY J. SCHMIDT, CPA

Respondent.


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ORDER INSTITUTING PUBLIC
ADMINISTRATIVE PROCEEDINGS
PURSUANT TO RULE 102(e)(3) OF
THE COMMISSION'S RULES OF
PRACTICE, MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Bradley J. Schmidt ("Schmidt" or "Respondent"), pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.1

II.

In anticipation of the institution of these proceedings, Respondent 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 to which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings and the findings contained in Section III.3 below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.

III.

On the basis of this Order and Respondent's Offer, the Commission finds that:

1. Bradley J. Schmidt, 34, is a certified public accountant licensed in California. Schmidt was the audit manager on Arthur Andersen LLP's 1997 and 1998 audits of the year-end financial statements of Styling Technology Corporation ("Styling") and on Arthur Andersen's reviews of Styling's quarterly financial statements from the first quarter of 1997 through the third quarter of 1998. Schmidt left Arthur Andersen to accept employment with Styling in April 1999 and served as its senior vice president of financial reporting from then until the summer of 2000.

2. Styling Technology Corporation is a Delaware corporation headquartered in Scottsdale, Arizona, that at all relevant times was engaged in the development, production and marketing of beauty salon products. Styling's common stock is registered with the Commission under Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and, until November 1999, was listed for trading on the Nasdaq National Market System. In August 2000, Styling entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code and, shortly thereafter, restated its financial statements for 1997, 1998 and the first two quarters of 1999. Pursuant to a plan of reorganization filed in the bankruptcy court, Styling sold off all of its business assets.

3. On May 7, 2004, the U.S. District Court for the District of Columbia entered a final judgment by consent against Schmidt, permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder in a civil action entitled Securities and Exchange Commission v. Sam Leopold, et al., Civil Action Number 03-CV-2491 RMU. The Court also ordered Schmidt to pay a civil penalty of $30,000. Schmidt consented to the entry of the Court's order without admitting or denying the allegations of the Commission's complaint.

4. The Commission's complaint alleged, among other things, that Styling's principal executive officers and others engaged in a fraudulent scheme that resulted in Styling filing materially false and misleading financial statements in its annual reports on Form 10-K for the fiscal years ended December 31, 1997, and December 31, 1998, and in its quarterly reports on Form 10-Q for the first two quarters of fiscal year 1999. The complaint alleged that, in the course of the 1998 year-end audit of Styling, Schmidt encountered numerous red flags that should have alerted him to significant financial problems at the company, yet recklessly failed to ensure that the audit team follow basic audit procedures in its examination of the company. The complaint alleged that Schmidt and the audit partner then caused Arthur Andersen to render an unqualified audit report on Styling's 1998 financial statements, falsely representing that the Styling audit had been conducted in accordance with generally accepted auditing standards and that Styling had reported its financial condition and results of operations in conformity with generally accepted accounting principles. The complaint further alleged that Schmidt, while serving as Styling's vice president of financial reporting, participated in the preparation of the company's 1999 second quarter Form 10-Q, which he knew or was reckless in not knowing contained false and misleading statements concerning Styling's sales during the quarter and the purpose of its write-off of $5.1 million of uncollectible accounts receivable.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Schmidt's Offer.

Accordingly, IT IS HEREBY ORDERED, effective immediately, that:

A. Respondent is suspended from appearing or practicing before the Commission as an accountant.

B. After 5 years from the date of this order, Respondent may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing and 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 Respondent'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:

(d) Respondent acknowledges his responsibility, as long as Respondent appears or practices before the Commission as an independent accountant, to comply with all requirements of the Commission and the Board, including, but not limited to, all requirements relating to registration, inspections, concurring partner reviews and quality control standards.

  • (a) Respondent, or the public accounting firm with which he is associated, is registered with the Public Company Accounting Oversight Board ("Board") in accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective;

    (b) Respondent, or the registered public accounting firm with which he is associated, has been inspected by the Board and that inspection did not identify any criticisms of or potential defects in the Respondent's or firm's quality control system that would indicate that the Respondent will not receive appropriate supervision or, if the Board has not conducted an inspection, 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 former SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms or an organization providing equivalent oversight and quality control functions;

    (c) Respondent has resolved all disciplinary issues with the Board, and has complied with all terms and conditions of any sanctions imposed by the Board (other than reinstatement by the Commission); and

C. The Commission will consider an application by Respondent 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 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 Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.

By the Commission.

Jonathan G. Katz
Secretary

Endnotes


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.