 |
Home | Previous Page | |
|
||
 |
|
|
|
||
 |
|
|
|
|
|||||||||||||||
|
|
|||||||||||||||
|
|
BARRY W. RASHKOVER (BR-6413)
|
Securities and Exchange Commission, Plaintiff, v. DAVID KAPLAN Defendant. |
: : : : : : : : : : : : |
04 Civ. 1465 (I.L.G.) COMPLAINT |
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against David Kaplan ("Kaplan" or "Defendant"), alleges as follows:
1. While serving as Divisional Vice President of Finance at Computer Associates International, Inc. ("CA"), defendant Kaplan participated in a widespread practice that resulted in the improper recognition of revenue by CA, one of the world's largest software companies. During at least CA's fiscal year 2000, which ran from April 1, 1999 through March 31, 2000 ("FY2000"), CA prematurely recognized revenue from software contracts that had not yet been consummated, in violation of Generally Accepted Accounting Principles ("GAAP"). Through the conduct of certain members of CA management, including Kaplan, CA held its books open for several days after the end of each quarter to improperly record in that quarter revenue from contracts that were not executed by customers or CA until several days or more after the expiration of the quarter (the "Extended Quarters practice"). CA often concealed this practice by using licensing contracts that falsely bore preprinted signature dates for the last day of the quarter that had just expired, rather than the subsequent dates on which the contracts actually were executed.
2. As a result of this improper practice, CA made material misrepresentations and omissions about its revenue and earnings in Commission filings and other public statements for at least FY2000. For the First, Second, Third and Fourth Quarters of FY2000, respectively, at least 18% 33%, 26% and 7% of CA's reported quarterly revenues pertained to contracts not executed by CA or the clients by the quarter's end. For all quarters of FY2000 combined, CA prematurely recognized over $1.4 billion in revenue from at least 116 contracts that the client or CA signed after the quarter close. CA's FY2000 reported revenues and earnings per share appeared to meet or exceed the consensus estimates of Wall Street analysts, but CA failed to disclose that those reported results improperly included prematurely recognized revenue and did not comply with GAAP. When CA apparently refrained from recognizing revenue prematurely during the First Quarter of FY2001, the company missed its earnings estimate and CA's stock price dropped over 43% in a single day.
3. Kaplan, as a Divisional Vice President and the head of Financial Reporting, oversaw the preparation of CA's financial statements for inclusion in its Forms 10-Q and 10-K while aware that those statements included revenue from backdated contracts in violation of GAAP.
4. By virtue of the conduct alleged in this Complaint: Kaplan, directly or indirectly, singly or in concert, has engaged in acts, practices and courses of business that constitute violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b), 78m(b)(5); and Rules 10b-5, 13b2-1, and 13b2-2 ,17 C.F.R. §§ 240.10b-5, 240.13b2-1 and 240.13b2-2; and Kaplan, pursuant to Section 20(e) of the Exchange Act, 15 U.S.C. § 78t(e), is also liable for aiding and abetting CA's violations of Sections 10(b), 13(a) and 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13 thereunder.
5. Unless Kaplan is permanently restrained and enjoined by this Court, he will again engage in the acts, practices, and courses of business set forth in this Complaint and in acts, practices, and courses of business of similar type and object. By this action, the Commission seeks judgment, among other things: (a) permanently enjoining Defendant from engaging in the acts, practices and courses of business alleged herein, pursuant to Section 21(d) of the Exchange Act, 15 U.S.C. §78u(d); (b) requiring Defendant to disgorge any and all ill-gotten gains together with prejudgment interest; (c) requiring Defendant to pay civil money penalties pursuant to Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3); and (d) barring Defendant from serving as an officer or director of any publicly held company pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2).
6. The Commission brings this action pursuant to the authority conferred upon it by Section 21 of the Exchange Act, 15 U.S.C. § 78u, seeking to restrain and enjoin permanently the Defendant from engaging in the acts, practices, and courses of business alleged herein, and seeking civil penalties and other relief.
7. The Defendant, directly and indirectly, has used the means or instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange, in connection with the transactions, acts, practices, and courses of business alleged herein.
8. Certain of these transactions, acts, practices and courses of business occurred in the Eastern District of New York, including conduct by the Defendant while at CA's corporate headquarters in Islandia, New York.
9. Accordingly, this Court has jurisdiction over this action, and venue is proper in this district, pursuant to Sections 21 and 27 of the Exchange Act, 15 U.S.C. §§ 78u and 78aa.
10. Kaplan, 37, resides in Melville, New York. During FY2000 Kaplan was a Divisional Vice President at CA in charge of the Financial Reporting Department. Before taking that position in 1997, Kaplan worked in CA's Sales Accounting Department. Before joining CA in the early 1990s, Kaplan worked as a staff accountant at Ernst & Whinney. On or around December 3, 2003, at the request of CA, Kaplan tendered his resignation after he refused to allow counsel for CA's Audit Committee to interview him. Kaplan graduated from SUNY Binghamton with a degree in accounting in 1988 and is a licensed CPA in New York State.
11. CA is a Delaware corporation headquartered in Islandia, New York. According to CA's Form 10-K Annual Report for the fiscal year ended March 31, 2003 ("2003 10-K"), CA "design[s], market[s], and license[s] computer software products that allow businesses to run and manage critical aspects of their information technology operations and that allow data center managers and programmers to automate their daily functions." CA is one of the largest computer software companies in the world; according to its 2003 10-K, more than 95% of the Fortune 500® companies use its software products. CA's common stock trades on the New York Stock Exchange and is registered pursuant to Section 12(b) of the Exchange Act, 15 U.S.C. §78l(b). Computer Associates' fiscal year concludes at the end of each March. Many of the events alleged in this complaint took place during CA's FY2000, which ran from April 1, 1999 through March 31, 2000.
12. By FY2000, a widespread practice had developed at CA that allowed for the premature recognition of revenue from software licensing agreements. Pursuant to this practice, referred to in this Complaint as the "Extended Quarters practice," CA personnel recorded, into the just-elapsed fiscal quarter, revenue from software contracts that were not finalized and signed until days or weeks after that quarter ended. Reporting revenue in this fashion was improper because it violated GAAP, which required that license agreements be fully executed and final before recognizing revenue. CA's reported revenue and earnings per share appeared to meet or exceed Wall Street analysts' expectations, when - in truth and fact - those results were built in part on revenue that CA recognized prematurely and in violation of GAAP. During at least FY2000, Kaplan, as a senior executive, helped CA engage in these improper revenue recognition practices.
13. In 2003, CA announced that the Audit Committee of its Board of Directors was conducting an inquiry into the timing of revenue recognition at the company. In a press release dated October 8, 2003, CA announced what it described as "preliminary results" of that inquiry. Quoting Walter P. Schuetze, the chair of the Audit Committee, that press release stated, among other things, that:
"The Audit Committee's investigation is continuing, but we have determined that CA recognized certain revenue prematurely in the fiscal year ending March 31, 2000. The committee found that a number of software contracts in that fiscal year appear to have been signed after the end of the quarter in which revenues associated with such contracts had been recognized. Those revenues should have been recognized in the quarter in which the contract was signed."
14. During the time period relevant to this Complaint, including but not limited to FY2000, CA derived its income primarily from licensing software and providing maintenance for that software. CA's software has operated and maintained powerful "mainframe" computers, those generally used by businesses and other organizations. Prior to October 2000, CA's contract and licensing model involved entering into long-term licensing contracts, some as long as seven years in duration. Under that business model, customers paid an initial licensing fee for the software, plus subsequent licensing fees for the right to use the software in subsequent years. In addition, customers paid CA for ongoing maintenance such as technical support. Customers often entered into long-term contracts and spread out the licensing and maintenance fees over the term of the contract.
15. For contracts under its pre-October 2000 business model, GAAP allowed CA to recognize all the license revenue called for during the duration of the contract up front, during the fiscal quarter in which the software was shipped and the contract was executed and final. SOP 97-2, which the American Institute of Certified Public Accountants adopted in October 1997, requires the following before revenue can be recognized from a software sale:
Where a company uses contracts requiring signatures by the licensor and licensee, then SOP 97-2 says that both signatures - the licensor and the customer - are required as "evidence of an arrangement" before the company may recognize revenue. During the period relevant to this Complaint, including but not limited to CA's FY2000, all of CA's license agreements required signatures by both CA and the customer.
16. During at least FY2000, CA violated GAAP, including SOP 97-2, by recording into fiscal quarters that had expired software contracts that were not executed - and for which "evidence of an arrangement" did not exist - until a subsequent quarter. This Extended Quarters practice resulted in CA's premature recognition of revenue. As a consequence, CA made material misrepresentations and omissions of fact concerning CA's revenues and earnings for FY2000 in various public documents and in connection with the purchase and sale of securities. CA's reported results for FY2000 appeared to meet or exceed the revenue and earnings estimates of outside analysts when, in fact, those reported results did not comply with GAAP and were false and misleading.
17. Specifically, CA made the following misrepresentations and omissions about its revenue and earnings per share.
a. First Quarter FY2000. In its Form 10-Q quarterly report for the First Quarter of FY2000 (quarter ended June 30, 1999) and in a press release dated July 20, 1999, CA represented that its total revenue for the quarter amounted to approximately $1.222 billion. In that Form 10-Q, CA represented that its earnings per share totaled a loss of $0.80 per share (diluted basis). Analysts surveyed by First Call estimated, on average, that CA would achieve $0.47 per share earnings for its First Quarter of FY2000. In its July 20, 1999 press release CA represented that its results included amortization expenses and a $646 million charge related to CA's purchase of another company. Excluding these charges, CA represented that it earned $0.49 a share, beating the mean analyst estimate. CA's reported and announced revenue and earnings per share results were false and misleading. CA recorded as revenue for the First Quarter of FY2000 several contracts that CA's customers executed after June 30, 1999. The GAAP value of these contracts totaled at least $16 million. Additionally, CA executed, well after the First Quarter of FY2000, several other contracts with a GAAP value totaling at least $207 million. Thus, CA improperly recorded at least $223 million of GAAP revenue in the First Quarter of FY2000, representing at least 18% of all reported gross revenue. Because CA prematurely recorded revenue into the First Quarter of FY2000, its reported earnings per share also were false. CA omitted to disclose, in its contemporaneous Commission filings and press releases including but not limited to its Form 10-Q for the First Quarter of FY2000 and July 20, 1999 press release, that its reported quarterly revenue was inconsistent with GAAP and included revenue that was not appropriately recorded in the First Quarter of FY2000.
b. Second Quarter FY2000. In its Form 10-Q quarterly report for the Second Quarter of FY2000 (quarter ended September 30, 1999) and in a press release dated October 19, 1999, CA represented that its total revenue for the quarter amounted to approximately $1.605 billion. In that Form 10-Q, CA represented that its earnings per share totaled $0.60 per share (diluted basis). In its press release dated October 19, 1999, CA also announced earnings per share of $0.60 (diluted basis) but also represented that its "[s]econd quarter operating earnings per share (diluted) excluding acquisition related amortization charges, was $[0].75, [per share] compared to $[0].58 a year ago, an increase of 29%." Analysts surveyed by First Call estimated, on average, that CA would achieve $0.59 per share earnings for its Second Quarter of FY2000. CA's reported and announced revenue and earnings per share results were false and misleading. CA recorded as revenue for the Second Quarter of FY2000 several contracts that CA's customers executed after September 30, 1999. The GAAP value of these contracts totaled at least $450 million. Additionally, CA executed, well after the Second Quarter of FY2000, several other contracts, with a GAAP value totaling at least $80 million. Thus, CA improperly recorded at least $530 million of GAAP revenue in the Second Quarter of FY2000, representing at least 33% of all reported gross revenue for that quarter. Because CA prematurely recorded revenue into the Second Quarter of FY2000, its reported earnings per share also were false. CA omitted to disclose, in its contemporaneous Commission filings and press releases including but not limited to its Form 10-Q for the Second Quarter of FY2000 and October 19, 1999 press release, that its reported quarterly revenue was inconsistent with GAAP and included revenue that was not appropriately recorded in the Second Quarter of FY2000.
c. Third Quarter FY2000. CA also improperly recognized revenue from late-signed contracts in the Third Quarter of FY2000. In its Form 10-Q quarterly report for the Third Quarter of FY2000 (quarter ended December 31, 1999) and in a press release dated January 26, 2000, CA represented that its total revenue for the quarter amounted to approximately $1.81 billion. In its Form 10-Q for that quarter, CA represented that its earnings per share amounted to $0.72 (on a diluted basis). In its press release dated January 26, 2000, CA represented that its "[t]hird quarter operating earnings per share (diluted) was $[0].91, compared to $[0].71 a year ago, an increase of 28%, excluding acquisition related amortization charges and a one time non-cash asset write-down of $37 million." Analysts surveyed by First Call estimated, on average, that CA would achieve $0.90 per share earnings for its Third Quarter of FY2000. CA's reported and announced revenue and earnings per share results were false and misleading. CA recorded as revenue for the Third Quarter of FY2000 contracts that both CA and the customers executed after the end of December 1999. The GAAP value of these contracts totaled approximately $350 million. CA also recorded, as revenue for the Third Quarter of FY2000, at least approximately $130 million in GAAP revenue from contracts CA executed after the Third Quarter of FY2000. Thus, CA improperly recorded at least approximately $480 million of GAAP revenue in its Third Quarter of FY2000, representing at least 26% of CA's reported gross revenue for that quarter. Because CA prematurely recorded revenue into the Third Quarter of FY2000, its reported earnings per share also were false. CA omitted to disclose, in its contemporaneous Commission filings and press releases including but not limited to its Form 10-Q for the Third Quarter of FY2000 and January 26, 2000 press release, that its reported quarterly revenue was inconsistent with GAAP and included revenue that was not appropriately recorded in the Third Quarter of FY2000.
d. Fourth Quarter FY2000. CA also improperly recognized revenue in the Fourth Quarter of FY2000 (quarter ended March 31, 2000). In its Form 10-K Annual Report for FY2000, and in a press release dated May 15, 2000, CA represented that its total revenue for the Fourth Quarter of FY2000 amounted to $2.127 billion. In that Form 10-K Annual Report, CA represented that earnings per share for the Fourth Quarter of FY2000 amounted to $0.70 (diluted basis). In a press release dated May 11, 2000, CA stated "it expects financial results for the fourth quarter ending March 31, 2000 to be in line with consensus estimates." In its press release dated May 15, 2000, CA represented that, for the Fourth Quarter of FY2000, "[o]perating earnings per share (diluted) increased 26% to $1.13 from last year's $.90, excluding the Sterling acquisition charge, other acquisition amortization charges and the one time non-cash charge." CA's reported revenue and announced earnings per share results were false and misleading. CA recorded as revenue for the Fourth Quarter of FY2000 several contracts that actually were executed by CA and the customers after the end of March 2000. The GAAP value of these contracts totaled approximately $120 million. CA executed one other contract after the quarter and recognized approximately $45 million in GAAP revenue from that contract. Thus, CA improperly recognized as revenue over about $165 million of GAAP revenue in the Fourth Quarter of FY2000, representing at least 7% of all reported gross revenue for that quarter. Because CA prematurely recorded revenue into the Fourth Quarter of FY2000, its reported earnings per share also were false. CA omitted to disclose, in its contemporaneous Commission filings and press releases including but not limited to its Form 10-K for FY2000 and May 15, 2000 press release, that its reported quarterly revenue was inconsistent with GAAP and included revenue that was not appropriately recorded in the Fourth Quarter of FY2000.
e. Year End FY2000. CA's Form 10-K for FY2000 was inaccurate and misleading also in that it (a) repeated false statements about CA's quarterly results as reported in the Form 10-Qs for the First, Second and Third Quarters, as set forth in paragraph 17(a) through (c) above; (b) contained false statements about the company's annual revenue and earnings results; and (c) failed to disclose the Extended Quarters practice. CA also misstated the company's annual earnings per share in its Form 10-K Annual Report for FY2000. The $165 million in contract revenue referenced in paragraph 17(d) above was not only improper revenue for the Fourth Quarter of FY2000, but also for FY2000 as a whole: By reporting that CA's revenue for FY2000 was $6.103 billion, CA's Form 10-K for FY2000 was false and misleading. Because CA prematurely recorded revenue into the FY2000, its reported earnings per share for FY2000 also were false.
18. The premature recognition of revenue at CA during at least FY2000 was the result of a systemic, intentional practice by certain CA personnel. To implement and conceal this Extended Quarters practice, CA personnel employed a variety of improper techniques, many of which rendered the company's books and records false and misleading. Indicia of this are:
a. Some employees at CA called the Extended Quarters practice the "35-day month" practice, because generally most quarters were extended by at least 3 business days, although some quarterly extensions lasted longer.
b. Sometimes, CA had its customers execute contracts bearing pre-printed dates from the just expired quarter even though the customer did not actually sign the contract until days or weeks into the new quarter.
c. Other times, even when the customer signed the contract before quarter end, CA did not execute the contract until the following quarter.
19. CA did not prematurely record revenue for software contracts during the First Quarter of FY2001 (quarter ended June 30, 2000). That quarter, CA missed its quarterly earnings estimates. CA issued a press release on July 3, 2000 stating that it would miss the analysts' estimates, specifically citing the fact that the company did not complete several large contracts that they had hoped to conclude before the close of the quarter. This was only the second time in CA's then recent history that CA missed Wall Street's estimates. The next trading day, July 5, 2000, CA's stock dropped over 43% from $51.12 to $28.50 as the market reacted to the news. Subsequent days of trading brought negligible gains.
20. During the period relevant to this Complaint, including but not limited to CA's FY2000, Kaplan, as head of Financial Reporting, helped CA improperly recognize revenue during at least April 1999 through April 2000. Specifically, Kaplan (1) knew about CA's Extended Quarters practice, (2) helped implement it, and (3) prepared false financial statements for inclusion in CA's Forms 10-Q and Form 10-K.
21. During at least FY2000, Kaplan had chief responsibility for consolidating CA's worldwide revenue through a series of reports each quarter and preparing the financial information CA included in its Forms 10-K and 10-Q.
22. Kaplan knew about CA's Extended Quarters practice when he prepared financial statements that were included in CA's Forms 10-Q and Form 10-K for FY2000. Kaplan worked closely with CA Executive A in the days after the end of a fiscal quarter and Kaplan was aware that CA Executive A was tracking contracts that were executed after the end of the prior fiscal quarter for inclusion in the expired quarter. Kaplan conveyed to CA Executive B the "flash date" to which the fiscal quarter would be extended. During the "flash period" Kaplan discussed contracts with CA Executive A that had been obtained after the end of the fiscal quarter. Kaplan gave CA Executive B a contract with Customer X signed by CA Executive C but missing the signature date, which CA booked in the Third Quarter of FY2000.
23. During the days after quarter end, Kaplan made handwritten calculations to determine if CA had enough revenue to meet its Wall Street estimates based on the revenue CA had received to that point and repeated this process as more revenue came in. Kaplan and CA Executive D reviewed Status Reports in Kaplan's office after quarter end and discussed what additional revenue might come in for the prior quarter. Kaplan knew from the Status Reports and Missing Reports that the financial consolidation he oversaw included contracts that were not completed until after quarter end. Further, Kaplan reviewed the Status Reports daily, and had conversations about them with CA Executive C. CA Executive C often called Kaplan in the first few days of a new quarter and asked if CA had met its quarterly revenue target for the prior quarter. On some occasions, when Kaplan said that CA did not have enough revenue to meet its target, CA Executive C responded in words or substance that Kaplan should look for another $20 million that would be coming in, or that CA Executive C would go get another $20 million. CA Executive C often called the next day to follow up and make sure that Kaplan saw an additional $20 million reflected by a new contract or contracts on the Status Report.
24. Kaplan received a copy of an email CA Executive B sent to CA Executive F on December 29, 1998 stating that "Tuesday, January 5 will be the last day of business for December." On May 19, 1998, CA Executive A sent Kaplan an email that he had previously sent to all of CA's controllers. The email stated in part "Any TOPS records that you approve that relates to a prior month (i.e. should not be viewed by the sales force as current months business) MUST be approved using a "CORP" id as the TOPS booking manager."
25. Kaplan prepared the financial information contained in CA's three Forms 10-Q and its Form 10-K for FY2000, knowing or recklessly disregarding the fact that each of these included inflated statements of CA's revenue. As described above, CA prematurely recognized hundred of millions of dollars in revenue from dozens of contracts during FY2000, and included this prematurely recognized revenue on its Forms 10-K and 10-Q, making them false and misleading. Kaplan knew that CA extended its quarters to improperly book additional revenue and that this revenue was included on the internal financial reports that were used to prepare the financial statements for the Forms 10-K and 10-Q. Accordingly, Kaplan knew that he was creating false and misleading Forms 10-K and 10-Q because they included this improperly recognized revenue.
26. Kaplan misled CA's outside auditors for FY2000, regarding CA's Extended Quarters practice. Kaplan had the main responsibility for dealing with CA's outside auditors on a day-to-day basis. Kaplan discussed SOP 97-2 with CA's outside auditors and never mentioned CA's Extended Quarters practice. Further, Kaplan told CA's outside auditors that CA only recognized revenue from a contract in the quarter in which the customer had executed the contract and gave CA's outside auditors the impression that CA complied with SOP 97-2. As discussed above, this was not the case. Kaplan knew that CA was not complying with SOP 97-2 in that CA recognized revenue from contracts before they were completed and signed but backdated signature dates to deceive, among others, CA's outside auditors.
27. Kaplan engaged in conduct designed to conceal the Extended Quarters practice and obstruct the staff's investigation. In response to the government's investigation, Kaplan and Executive B reviewed documents at CA, which provided evidence of the existence of the Extended Quarters practice. Kaplan and Executive B conspired to create plausible benign explanations for the documents before giving them to CA's legal department. Kaplan further obstructed the staff's investigation by wrongly deceiving CA's outside counsel, and derivatively the government. He followed instructions from CA Executive A and CA Executive E to respond to questions from Wachtell with half-truths and vague answers designed to hide the Extended Quarters practice, knowing that Wachtell would provide these false explanations to the government on CA's behalf.
28. The Commission realleges and incorporates by reference herein each and every allegation contained in paragraphs 1 through 27.
29. Kaplan, directly or indirectly, singly or in concert, by use of the means or instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange, in connection with the purchase or sale of CA securities, knowingly or recklessly, has: (a) employed, is employing or is about to employ, devices, schemes and artifices to defraud; (b) made, is making or is about to make untrue statements of material fact, or has omitted, is omitting, or is about to omit to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; and/or (c) engaged, is engaging and is about to engage in transactions, acts, practices and courses of business which operated or would have operated as a fraud or deceit upon purchasers of CA securities and upon other persons, including in CA's Commission filings for FY2000 including the Form 10-K and Forms 10-Q for the First, Second and Third Fiscal Quarter and in other public statements.
30. By reason of the foregoing, Kaplan, singly or in concert, directly or indirectly, has violated, and unless enjoined will again violate, Section 10(b) of the Exchange Act, 15. U.S.C. § 78j(b), and Rule 10b-5, 17 C.F. R. § 240.10b-5, thereunder.
31. The Commission realleges and incorporates by reference herein each and every allegation contained in paragraphs 1 through 27.
32. Exchange Act Section 13(b)(5) states that no person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account described in Exchange Act Section 13(b)(2). Exchange Act Rule 13b2-1 prohibits any person from directly or indirectly, falsifying or causing to be falsified, an issuer's books and records.
33. By reason of the foregoing, Kaplan has violated, and unless enjoined, will again violate Section 13(b)(5) of the Exchange Act, 15 U.S.C. § 78m(b)(5), and Rule 13b2-1, 17 C.F.R. § 240.13b2-1, thereunder.
34. The Commission realleges and incorporates by reference herein each and every allegation contained in paragraphs 1 through 27.
35. Exchange Act Rule 13b2-2 prohibits any officer or director of an issuer from making, or causing to be made, a material misstatement or omission to an accountant in connection with any audit or examination of the issuer's financial statements, or the preparation of documents or reports required to be filed with the Commission.
36. Kaplan made, or caused to be made, materially false and misleading statements or omissions to CA's auditors, KPMG and E&Y, in connection with their audits of CA's financial statements and/or the preparation of CA's Forms 10-K and Form 10-Q for FY2000.
37. By reason of the foregoing, Kaplan has violated, and unless enjoined, will again violate Exchange Act Rule 13b2-2, 17 C.F.R. § 240.13b2-2.
38. The Commission realleges and incorporates by reference herein each and every allegation contained in paragraphs 1 through 27.
39. CA, directly or indirectly, singly or in concert, by use of the means or instrumentalities of interstate commerce, or of the mails, or of the facilities of a national securities exchange, in connection with the purchase or sale of CA securities, knowingly or recklessly, has: (a) employed, is employing or about to employ, devices, schemes and artifices to defraud; (b) made, is making or is about to make untrue statements of material fact, or has omitted, is omitting, or is about to omit to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; and/or (c) engaged, is engaging and is about to engage in transactions, acts, practices and courses of business which operated or would have operated as a fraud or deceit upon purchasers of CA securities and upon other persons. CA made untrue statements of material fact in, among other things, Commission filings for FY2000 including the Form 10-K and Forms 10-Q for the Second and Third Fiscal Quarter and in other public statements.
40. By reason of the foregoing, CA, singly or in concert, directly or indirectly, has violated Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, thereunder.
41. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of registered securities to file with the Commission factually accurate annual and quarterly reports. Exchange Act Rule 12b-20 provides that in addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading. By reason of the foregoing, CA violated Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-1, and 13a-13, 17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13, thereunder.
42. Section 13(b)(2)(A) of the Exchange Act requires that issuers make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the issuer.
43. Section 13(b)(2)(B) of the Exchange Act requires, among other things, that issuers maintain a system of internal accounting controls that permit the preparation of financial statements in conformity with GAAP. By reason of the foregoing, CA has violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B).
44. Pursuant to Section 20(e) of the Exchange Act, 15 U.S.C. § 78t(e), Kaplan aided and abetted CA's violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13, and unless enjoined, will again violate these provisions of the Exchange Act and Rules thereunder. Kaplan knowingly provided substantial assistance to CA by, among other things, engaging in the conduct alleged in paragraphs 1 to 27 above.
WHEREFORE, the Commission respectfully requests a Final Judgment:
Permanently enjoining Kaplan, and his agents, servants, employees and attorneys and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from (a) future violations of Sections 10(b) and 13(b)(5) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78m(b)(5), and Rules 10b-5, 13b2-1 and 13b2-2, 17 C.F.R. §§ 240.10b-5, 240.13b2-1 and 240.13b2-1; and (b) aiding and abetting any issuers' future violation of Sections 10(b), 13(a), and 13(b) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78m(a), and 78m(b), and Rules 10b-5, 12b-20, 13a-1, and 13a-13, 17 C.F.R. §§ 240.10b-5, 240.12b-20, 240.13a-1, and 240.13a-13.
Ordering Kaplan to disgorge any and all the ill-gotten gains he received as a result of his violations of the federal securities laws, and to pay prejudgment interest on all such gains.
Ordering Kaplan to pay civil money penalties pursuant to Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3).
Permanently barring Kaplan from serving as an officer or director of a publicly held company pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2).
Granting such other and further relief as the Court may deem just and proper.
Dated: New York, New York
April 8, 2004
________________________________________
Barry W. Rashkover (BW-6413)
Associate Regional Director
Attorney for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
Northeast Regional Office
233 Broadway
New York, New York 10279
(646) 428-1856
Of Counsel:
Edwin H. Nordlinger
Alexander M. Vasilescu
Danielle Friedman
William J. Estes
http://www.sec.gov/litigation/complaints/comp18665a.htm
| Home | Previous Page | Modified: 12/12/2004 |