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U.S. Securities and Exchange Commission

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS


SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.

RICHARD P. VATCHER,

Defendant.


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CIVIL ACTION

NO.

COMPLAINT

Plaintiff Securities and Exchange Commission (the "Commission") alleges:

Summary

1. Between approximately January 1, 1998 and January 27, 1999, Defendant Richard P. Vatcher ("Vatcher"), then-vice president for international sales of Inso Corporation, Inc. ("Inso"), engaged in a fraudulent revenue recognition scheme designed to falsely boost the amount of revenue produced in Inso's international sales department.

2. In at least six transactions during the first three quarters of 1998, Defendant Vatcher entered into side agreements with customers that negated Inso's right to recognize revenue from the sales, including granting the customers a right to cancel the sale. Vatcher received a salary, plus significant quarterly bonuses based largely on whether the sales group under his management met or exceeded quarterly revenue targets. To boost revenue in each quarter, Vatcher requested that foreign distributors and resellers place immediate orders for software to be re-sold to an end-user. Without informing Inso's finance department, which was responsible for making revenue recognition decisions, Vatcher gave certain distributors and resellers the right to cancel their orders. Vatcher knew, or was reckless in not knowing, that recording revenue from these sales was improper, because he had granted concessions on these sales, including the right to cancel the sale. As a result of Vatcher's actions, Inso improperly reported to the public in press releases and filings with the Commission a total of approximately $3.6 million in revenue during the first three quarters of 1998 that did not conform with generally accepted accounting principles ("GAAP") for the recognition of revenue.

3. On various occasions prior to his termination by Inso in January 1999, Vatcher also gave false and misleading information to members of Inso's finance department to conceal the side agreements he had granted customers. In addition, in at least one transaction, Vatcher falsified documents provided to Inso's finance department to conceal a side agreement that would have negated the recognition of revenue from the sale.

4. In March 1999, after conducting an internal investigation prompted by a customer's report of a side agreement with Vatcher, Inso restated its financial results for the first three quarters of 1998, reversing approximately $3.6 million in revenue from fraudulent transactions in which Vatcher had concealed side agreements with the customer that negated revenue recognition, approximately as follows: $422,000 in the first quarter of 1998; $1.7 million in the second quarter of 1998; and $1.5 million in the third quarter of 1998.

5. By engaging in the acts and practices alleged in this Complaint, Defendant Vatcher violated the antifraud, periodic reporting, books and records, and internal accounting controls provisions of the federal securities laws. Accordingly, Vatcher, directly and indirectly, has engaged in acts, practices, and courses of business that constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act")[15 U.S.C. § 77q(a)] and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act")[15 U.S.C. §§ 78j(b) and 78m(b)(5)] and Rules 10b-5 and 13b2-1 thereunder [17 C.F.R. §§ 240.10b-5 and 240.13b2-1 ]. In addition, Defendant Vatcher aided and abetted Inso's uncharged violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act [15 U.S.C. §§78m(a) and 78m(b)(2)(A)] and Rules 13a-13 and 12b-20 thereunder [17 C.F.R. §§ 240.13a-13 and 240.12b-20].

6. Unless restrained and enjoined, Defendant Vatcher will continue to engage in acts, practices, and courses of business as set forth in this Complaint or in acts, practices, and courses of business of similar object and purpose.

Jurisdiction

7. This Court has jurisdiction over this action pursuant to Section 22 of the Securities Act [15 U.S.C. § 77v] and Sections 21 and 27 of the Exchange Act [15 U.S.C. §§ 78u and 78aa].

8. Defendant, directly or indirectly, has made use of the means and instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange in connection with the acts, practices and courses of business alleged herein.

9. The Commission brings this action pursuant to the enforcement authority conferred upon it by Section 20 of the Securities Act [15 U.S.C. § 77t] and Section 21 of the Exchange Act [15 U.S.C. §§ 78u] for an order permanently restraining and enjoining Defendant Vatcher, imposing civil monetary penalties, and granting other equitable relief.

Defendant

10. Defendant Vatcher, of Framingham, Massachusetts, was Inso's vice president of international sales from August 1997 until January 1999, when Inso terminated his employment following an internal investigation into Vatcher's sales transactions.

Related Party

11. During the relevant period, Inso was a Delaware corporation with its headquarters in Boston, Massachusetts, and with offices and/or sales representatives worldwide. Inso changed its name to eBT International, Inc. on August 28, 2000, and moved its headquarters to Providence, Rhode Island. At all relevant times, Inso was a supplier of software for sharing and publishing electronic information. Inso's 1998 fiscal year ended on December 31. Since March 1994, when Inso became a publicly traded company, Inso's common stock has been traded on the NASDAQ National Market System and registered with the Commission pursuant to Section 12(g) of the Exchange Act. On May 23, 2001, Inso announced plans to cease operations and liquidate its remaining assets.

Background Facts

12. During 1998, Inso derived revenue primarily from the sale of software licenses, software maintenance fees, and royalties from license arrangements with resellers. After its 1999 restatement, Inso's revenue for 1998 was $60 million, compared to $81.8 million for 1997.

13. During the relevant period, Inso's board of directors, in consultation with management, set quarterly and annual revenue goals for the company. Inso's management also set revenue goals for Inso's sales managers, including Vatcher. In addition to his base salary, Vatcher was entitled to receive significant quarterly bonuses based, in large part, on whether the international sales group under his leadership met or exceeded quarterly revenue goals.

14. In early 1998, Inso adopted as its revenue recognition policy Statement of Position 97-2 ("SOP 97-2"), entitled "Software Revenue Recognition," as amended, issued by the American Institute of Certified Public Accountants. SOP 97-2 requires the following in order to recognize revenue: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred; (c) the vendor's fee is fixed or determinable; and (d) collectibility is probable. SOP 97-2 also requires consideration of "informal communications, or other factors [that] indicate that payment is substantially contingent on [a] reseller's success in distributing...the product." Defendant Vatcher was aware of Inso's policies and requirements for revenue recognition.

Fraudulent Revenue Recognition
During the Quarter Ended March 31, 1998

a. The March 1998 Toshiba Advanced Systems, Inc. Transaction

15. In the first quarter of 1998, which ended on March 31, Vatcher caused Inso to improperly recognize revenue of approximately $422,000 based on a purchase order from Toshiba Advanced Systems Corp. ("Toshiba Advanced") , a Japanese company that distributed Inso's software in Japan. To fraudulently boost reported revenue from the international sales group for the quarter, Vatcher asked Toshiba Advanced to place purchase orders in March 1998 for sales to end-user customers that Vatcher anticipated receiving in the following quarter. Based on Vatcher's instruction, on March 31, 1998, Toshiba Advanced placed a purchase order for $485,760 that the company considered to be temporary, and Toshiba Advanced inserted the word "temporary" next to the purchase order number on the fax cover sheet that accompanied the purchase order. Vatcher knew that Toshiba Advanced did not consider this a final order because Vatcher agreed that the order was contingent on the anticipated sale of the software to another company. However, Vatcher failed to inform Inso's internal accountants of this fact. When an employee of Inso's finance department questioned the word "temporary" on the Toshiba Advanced purchase order, Vatcher falsely claimed that the word related to the number of the purchase order, but not to the order itself.

16. As a result of Vatcher's actions, in the first quarter of 1998, Inso improperly recognized approximately $422,000 in revenue ($485,760 less certain unrecognizable software maintenance fees) from the sale to Toshiba Advanced. Recognition of revenue from this transaction did not conform with Inso's revenue recognition policy or with GAAP, which requires, among other things, that the seller's fee be fixed or determinable, and that collectibility be probable. Inso's fee was not fixed or determinable and collectibility was not probable because Toshiba Advanced's order was contingent on the anticipated sale of the software to another customer in the following quarter. Vatcher knew, or was reckless in not knowing, that the revenue from the sale to Toshiba Advanced in the first quarter of 1998 did not conform with GAAP.

b. Disclosure of First Quarter 1998 Results

17. On or about April 22, 1998, Inso issued a press release falsely announcing that revenues for the quarter ended March 31, 1998 were $17.6 million, which was materially inflated by revenue from the contingent sale Vatcher negotiated with Toshiba Advanced. This inflated revenue was also reported in Inso's Form 10-Q filed with the Commission on or about May 15, 1998. Vatcher knew, or was reckless in not knowing, that the press release and Form 10-Q materially overstated Inso's revenue because it included revenue from the contingent sale to Toshiba Advanced.

Fraudulent Revenue Recognition
During the Quarter Ended June 30, 1998

18. In the second quarter of 1998, which ended on June 30, Vatcher caused Inso to improperly recognize approximately $1.7 million in revenue that did not conform with GAAP or Inso's revenue recognition policy from transactions for which he was responsible, including, but not limited to, the following transactions:

a. The June 1998 Toshiba Advanced Transaction

19. In approximately June 1998, to boost second quarter revenue, Vatcher asked Toshiba Advanced to place a purchase order for software that Toshiba Advanced would purportedly distribute to another Japanese customer. Vatcher was expecting the other customer to place an order for approximately $1,132,704 early in the third quarter. Vatcher sent an e-mail to Toshiba Advanced stating that he would cancel its order on or before July 15, 1998. On or about June 30, 1998, Toshiba Advanced placed an order for $1,132,704 of software licenses and maintenance that it considered to be temporary. Vatcher failed to inform Inso's finance department that he had granted Toshiba Advanced a right to cancel the order. When Inso later attempted to collect for this transaction, Toshiba Advanced refused to pay.

20. As a result of Vatcher's actions, in the second quarter of 1998, Inso improperly recognized approximately $989,000 in revenue ($1,132,704 less certain unrecognizable software maintenance fees) from the sale to Toshiba Advanced. Recognition of revenue from this transaction did not conform with GAAP because Vatcher granted Toshiba Advanced the right to cancel the order. Vatcher knew, or was reckless in not knowing, that the revenue from the sale to Toshiba Advanced in the second quarter of 1998 was not in conformity with GAAP.

b. The Software Distribution International Transaction

21. At the end of the second quarter of 1998, Vatcher anticipated completing a $300,000 sale to a French software company early in the following quarter. In order to recognize the anticipated revenue in the second quarter, Vatcher asked Software Distribution International ("SDI"), another French software company, to act as a distributor and place a $300,000 order before the close of Inso's second quarter. Vatcher entered into an agreement with SDI that its order would become effective only upon SDI's receipt of the other company's order. Based on this agreement, SDI placed an order for $300,000 on June 30, 1998, which Vatcher provided to Inso's finance department. However, Vatcher did not inform Inso's finance department that the sale was contingent on a future sale to another company.

22. On or about July 28, 1998, SDI learned that the other company did not intend to place an order, and SDI canceled the sale. However, Vatcher did not inform Inso's finance department that SDI canceled the sale. In mid-September 1998, when Inso attempted to collect payment for the order, an SDI employee stated that the order had been canceled in July. When questioned by Inso's controller about SDI's cancellation of the order, Vatcher falsely stated that he had allowed SDI to cancel its order to preserve Inso's relationship with SDI, whose end-user could not purchase the software because of financial problems. Inso's controller informed Vatcher that cancellations could affect revenue recognition and Inso's financial statements and needed to be reported right away to the finance department. Vatcher responded that he understood these issues.

23. As a result of Vatcher's actions, in the second quarter of 1998, Inso improperly recognized approximately $261,000 in revenue ($300,000 less certain unrecognizable software maintenance fees) from the sale to SDI. Recognition of revenue from this transaction did not conform with GAAP because SDI's order was contingent on the placement of another company's order for the software. Vatcher knew, or was reckless in not knowing, that the revenue from the sale to SDI in the second quarter of 1998 was not in conformity with GAAP.

c. The Hermes Precisa Pty. Ltd. Transaction

24. On or about June 29, 1998, Vatcher obtained a purchase order from Hermes Precisa Pty. Ltd. ("Hermes"), an Australian software reseller, for a $350,000 software license to be resold to the Australian Army. The Australian Army had a license for Inso's software that was due to expire at the end of June 1998, and had not finalized a contract to extend the license. In order to record revenue in the second quarter from the anticipated license renewal, Vatcher asked Hermes to place an order with Inso for the amount of the Army's anticipated license renewal. Hermes' purchase order stated on its face that the order was conditioned on the signing of a software license contract with the Australian Army. Inso's sales representative in Australia faxed Hermes' signed purchase order to Vatcher. However, Vatcher provided to Inso's finance department a falsified copy of the purchase order from which he removed the conditional language.

25. As a result of Vatcher's actions, in the second quarter of 1998, Inso improperly recognized approximately $350,000 in revenue from the sale to Hermes. Recognition of revenue from this transaction did not conform with GAAP because the sale was not final until the Australian Army renewed its software license. Vatcher knew, or was reckless in not knowing, that the revenue from the sale to Hermes in the second quarter of 1998 was not in conformity with GAAP.

d. Disclosure of Second Quarter 1998 Results

26. On or about July 16, 1998, Inso issued a press release falsely announcing that revenues for the quarter ended June 30, 1998 were $16,213,000, which was materially inflated by the revenue from contingent sales negotiated by Vatcher during the second quarter. This inflated revenue was also reported in Inso's Form 10-Q filed with the Commission on or about August 15, 1998. Vatcher knew, or was reckless in not knowing, that the press release and Form 10-Q materially overstated Inso's revenue.

Fraudulent Revenue Recognition
During the Quarter Ended September 30, 1998

27. In the third quarter of 1998, which ended on September 30, Vatcher caused Inso to improperly recognize approximately $1.5 million in revenue that did not conform with GAAP or Inso's revenue recognition policy from transactions for which he was responsible, including, but not limited to, the following transactions:

a. The Research Group Transaction

28. Throughout 1998, members of Inso's sales team were negotiating a large sale to a British company (the "British Company"). On or about the last day of the third quarter, September 30, 1998, a sales manager who reported to Vatcher contacted Vatcher and reported that he had reached an agreement in principle for a three-year license to the British Company totaling approximately $1.1 million, and that the deal should be completed within 2 to 6 weeks.

29. In order to record the revenue in the third quarter of 1998 from the anticipated sale to the British Company, Vatcher instructed a sales representative in Inso's London office to obtain a purchase order for $1.1 million from The Research Group, a small British software company. Vatcher faxed to the sales representative a side letter signed by Vatcher stating that he would cancel the order if the British Company failed to complete a contract with Inso by November 1998. Vatcher told the sales representative to provide the side letter to The Research Group. Vatcher also told the sales representative to dispose of his copy of the side letter, and not to discuss it with anyone. After receiving Vatcher's side letter, on September 30, 1998, The Research Group issued a purchase order for $1.1 million of software to be re-sold to the British Company. Vatcher failed to inform Inso's finance department about the side letter or its contents.

30. As a result of Vatcher's actions, in the third quarter of 1998, Inso improperly recognized approximately $935,000 in revenue ($1.1 million less certain unrecognizable software maintenance fees) from the sale to The Research Group. Recognition of revenue from this transaction did not conform with GAAP because Vatcher granted The Research Group the right to cancel the sale. Vatcher knew, or was reckless in not knowing, that the revenue from the sale to The Research Group in the third quarter of 1998 was not in conformity with GAAP. b

b. The MediaGold France Transaction

31. In mid-September 1998, Vatcher instructed an Inso sales representative to propose that MediaGold France ("MediaGold"), a French software reseller, sign a $400,000 sales contract by the end of the quarter. MediaGold's managing director informed Inso's sales representative that he would sign the contract on the condition that he be given seven days within which to cancel. To obtain the sales contract, Vatcher instructed Inso's sales representative to issue a side letter stating that MediaGold had the right to cancel the sale within seven days. As a result, on or about September 30, 1998, MediaGold signed a contract for the purchase of $400,000 of software licenses and maintenance. Vatcher did not inform Inso's finance department that he had authorized a written agreement granting MediaGold a right to cancel the sale. MediaGold later canceled the sale.

32. As a result of Vatcher's actions, in the third quarter of 1998, Inso improperly recognized approximately $394,000 in revenue from this transaction ($400,000 less certain unrecognizable software maintenance fees). Recognition of revenue from this transaction did not conform with GAAP because Vatcher gave MediaGold a right to cancel the sale. Vatcher knew, or was reckless in not knowing, that the revenue from the sale to MediaGold in the third quarter of 1998 was not in conformity with GAAP.

c. Disclosure of the Third Quarter 1998 Results

33. On or about October 15, 1998, Inso issued a press release falsely announcing that revenues for the quarter ended September 30, 1998 were $18,707,000, which was materially inflated by revenue from the contingent sales negotiated by Vatcher. This inflated revenue was also reported in Inso's Form 10-Q filed with the Commission on or about November 16, 1998. Defendant Vatcher knew, or was reckless in not knowing, that the press release and Form 10-Q materially overstated Inso's revenue.

Inso Also Reported the Improper Revenue
In a Public Filing for a Stock Offering

34. On or about December, 18, 1998, Inso also filed with the Commission a Form S-3 for an offering of $29 million of common stock in connection with an acquisition of another company. The Form S-3 incorporated by reference the materially false and misleading financial results contained in Inso's Forms 10-Q for the first three quarters of 1998. Defendant Vatcher knew, or was reckless in not knowing, that Inso's Form S-3 referenced the materially overstated revenue from Inso's first three quarters of 1998.

Vatcher Caused Inso to Falsify its Books and Records
and Circumvented Inso's Internal Accounting Controls

35. Between at least January 1, 1998 and January 27, 1999, Vatcher caused the falsification of Inso's books and records by providing materially false information regarding revenue to employees of Inso's finance department who were responsible for maintaining Inso's books and records, including recording revenue. Vatcher caused the entry into Inso's books and records of revenue that he knew, or was reckless in not knowing, falsely inflated Inso's revenue. Vatcher also provided at least one falsely altered purchase order to Inso's finance department - the Hermes purchase order from which original terms had been removed that made the sale contingent on Inso's completion of a software license renewal with the Australian Army.

Inso Restated its Financial Results
Reported on Forms 10-Q for the First Three Quarters of 1998

36. In March 1999, Inso corrected the improperly reported financial results contained in its Form 10-Q filings for the first three quarters of 1998. In its restatement of financial results, Inso reduced the previously reported nine-month revenue for the first three quarters of 1998 by approximately $7.1 million, from $52.5 million to $45.4 million; and reduced net income (profit) for the same period by approximately $3.2 million, from $5.6 million to $2.4 million. Approximately $3.6 million of the reversed revenue was attributable to transactions in which Vatcher had concealed side agreements with the customer that negated revenue recognition, including the six transactions discussed above (and approximately six other transactions not discussed herein), approximately as follows: $422,000 in the first quarter of 1998; $1.7 million in the second quarter of 1998, and $1.5 million in the third quarter of 1998.

FIRST CAUSE OF ACTION

Vatcher Violated Section 17(a) of the Securities Act

37. Paragraphs 1 through 36 are hereby realleged and incorporated herein by reference.

38. Between approximately January 1998 and January 1999, Defendant Vatcher provided false and misleading revenue information and/or failed to provide material revenue information to Inso's finance department. As a result of Vatcher's conduct, Inso's Form S-3 filed with the Commission in December 1998 (that incorporated by reference the materially false and misleading financial results contained in Inso's Forms 10-Q for the first three quarters of 1998) reported materially false and misleading financial results that included revenue that did not conform with GAAP. Accordingly, this public offering document contained untrue statements of material fact and omitted to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

39. Defendant Vatcher knew, or was reckless in not knowing, that the financial results incorporated into Inso's Form S-3 were materially false and misleading.

40. Defendant Vatcher, in the offer or sale of a security, by use of the means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly: (a) employed a device, scheme, or artifice to defraud; or (b) obtained money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in any transaction, practice or course of business which operates or would operate as a fraud or deceit upon the purchaser in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

41. By reason of the foregoing, Defendant Vatcher violated Section 17(a) of the Securities Act.

SECOND CAUSE OF ACTION

Vatcher Violated Section 10(b) of the Exchange Act
and Rule 10b-5 Thereunder

42. Paragraphs 1 through 41 are hereby realleged and incorporated herein by reference.

43. In each of the first three quarters of 1998, Defendant Vatcher provided false and misleading revenue information to Inso's finance department regarding sales transactions for which he was responsible. As a result of Vatcher's conduct, Inso's Forms 10-Q for the first, second, and third quarters of fiscal 1998, Inso's Form S-3 offering document filed in December 1998 (that incorporated by reference the materially false and misleading financial results contained in Inso's Forms 10-Q for the first three quarters of 1998), and certain press releases issued in connection with those filings reported materially false and misleading financial results that included revenue that did not conform with GAAP. These public statements contained untrue statements of material fact and omitted to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

44. Defendant Vatcher knew, or was reckless in not knowing, that Inso's Forms 10-Q for the first three quarters of fiscal 1998, Form S-3 offering document, and certain press releases issued in connection with those filings, were false and misleading.

45. Defendant Vatcher, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce or of the mails, directly or indirectly: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon other persons, including purchasers and sellers of such securities, in violation of 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.

46. By reason of the foregoing, Defendant Vatcher violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

THIRD CAUSE OF ACTION

Vatcher Aided and Abetted Inso's Uncharged Violations of
Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 Thereunder

47. Paragraphs 1 through 46 are hereby realleged and incorporated herein by reference.

48. Section 13(a) of the Exchange Act requires all issuers of securities subject to the reporting requirements of the Exchange Act to file periodic and other reports containing such information as the Commission's rules prescribe. Rule 13a-13, promulgated pursuant to Section 13(a), requires issuers to file with the Commission accurate quarterly reports, including accurate disclosures of their revenues and net income. Rule 12b-20 requires issuers of securities registered under Section 12 of the Exchange Act to add to any required information in a statement or report any such further material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading.

49. Inso violated Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] and Rules 13a-13 and 12b-20 [17 C.F.R. §§ 240.13a-13 and 240.12b-20] (the "Reporting Provisions") by including in its Forms 10-Q for the first three quarters of fiscal 1998 financial statements that failed to conform with GAAP (as required by Regulation S-X [17 C.F.R. § 210.1-01, et seq.]) and which inaccurately reported Inso's revenue. In addition, the description of Inso's financial condition in those periodic reports violated the Reporting Provisions by making untrue statements of material fact and omitting to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

50. By reason of the foregoing, Inso violated Section 13(a) and Rules 13a-13 and 12b-20.

51. By knowingly rendering substantial assistance to Inso's violations, Defendant Vatcher aided and abetted Inso's violations of Section 13(a) and Rules 13a-13 and 12b-20.

FOURTH CAUSE OF ACTION

Vatcher Aided and Abetted Inso's Uncharged Violations
of Section 13(b)(2)(A) of the Exchange Act

52. Paragraphs 1 through 51 are hereby realleged and incorporated herein by reference.

53. Inso violated Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)] by maintaining false and misleading books and records, which, among other things, materially overstated Inso's revenue for the first three quarters of 1998.

54. By knowingly rendering substantial assistance to Inso's violations, Defendant Vatcher aided and abetted Inso's violations of Section 13(b)(2)(A) of the Exchange Act.

FIFTH CAUSE OF ACTION

Vatcher Violated Section 13(b)(5) of the Exchange Act
and Rule 13b2-1 Thereunder

55. Paragraphs 1 through 54 are hereby realleged and incorporated herein by reference.

56. Defendant Vatcher knew, or was reckless in not knowing, that his provision of false and misleading information regarding sales transactions, including providing a falsified purchase order, to Inso's finance department contravened Inso's mandatory accounting controls procedures. Accordingly, Vatcher violated Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)] by knowingly circumventing or failing to implement a system of internal accounting controls and/or knowingly falsifying the books, records and accounts of Inso.

57. Defendant Vatcher's falsification of company records, including a purchase order, also constituted a violation of Rule 13b2-1 [17 C.F.R. § 240.13b2-1], which provides, in part, that "[n]o person shall directly or indirectly, falsify or cause to be falsified, any book, record, or account."

PRAYER FOR RELIEF

58. Accordingly, the Commission respectfully requests that this Court issue a Final Judgment of Permanent Injunction and Other Relief ("Final Judgment"):

A. Permanently restraining and enjoining Defendant Vatcher, his agents, servants, employees, and attorneys, and those persons in active concert or participation with them, and each of them from violating, directly or indirectly, Section 17(a) of the Securities Act and Section 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13, and 13b2-1 thereunder;

B. Ordering Defendant Vatcher to pay civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act; and

C. Granting such other and additional relief as this Court may deem just and proper.

Respectfully submitted,

JUAN MARCEL MARCELINO
DISTRICT ADMINISTRATOR

By: ____________________________
Martin F. Healey, (Massachusetts BBO #227550)
Senior Trial Counsel

David P. Bergers (Massachusetts BBO # 561045)
Assistant District Administrator

John T. Dugan (Massachusetts BBO # 565776)
Branch Chief

Sandra J. Bailey (Massachusetts BBO #600038)
Senior Counsel

Attorneys for Plaintiff
Securities and Exchange Commission
73 Tremont Street, 6th Floor
Boston, Massachusetts 02108
(617) 424-5900 ext. 204 (Healey)

June ____, 2002

CERTIFICATE OF SERVICE

I, Martin F. Healey, certify that on , 2002, I mailed a copy of the foregoing Complaint to counsel for Defendant Richard P. Vatcher as follows:

Steven W. Hansen, Esq.
Bingham Dana LLP
150 Federal Street
Boston, MA 02110

____________________________
Martin F. Healey


http://www.sec.gov/litigation/complaints/complr17578a.htm

Modified: 06/21/2002