UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17952 / January 27, 2003
Accounting and Auditing Enforcement Release No. 1707 / January 27, 2003
Former Arthur Andersen Auditor and Two Additional Former Sunbeam Officers Settle SEC Charges
Securities and Exchange Commission v. Albert Dunlap et al., Civil Action No. 01-8437-CIV (Middlebrooks)(S.D. Fla.)
Phillip E. Harlow, the audit partner on the Arthur Andersen engagements to audit Sunbeam's 1996 and 1997 year-end financial statements, Robert J. Gluck, Sunbeam's former controller and chief accounting officer, and Donald R. Uzzi, a former Sunbeam vice-president for sales, have settled charges brought against them by the Securities and Exchange Commission. These settlements resolve all outstanding matters in the Sunbeam litigation.
Pursuant to his offer of settlement, the Commission today entered an Order denying Phillip Harlow ("Harlow") the privilege or appearing or practicing before the Commission as an accountant, with a right to reapply after three years. In the Matter of Phillip A. Harlow, CPA, Exchange Act Release No. 34-47261, Accounting and Auditing Enforcement Release No. 17952. The Commission found that, in connection with Arthur Andersen's audits of Sunbeam's 1996 and 1997 year-end financial statements:
- Harlow failed to exercise professional skepticism when performing audit procedures and gathering and analyzing audit evidence. In some instances, moreover, Harlow accepted uncorroborated representations of Sunbeam's management in lieu of performing appropriate audit procedures.
- Harlow failed to exercise due professional care in performing the audit and preparing the audit report. Although Harlow identified a number of audit risks and accounting issues associated with the Sunbeam engagement and should have known these items could have a material impact on the financial statements, he failed to perform sufficient audit procedures to determine whether the financial statements were in conformity with GAAP. Specifically, Harlow did not adequately address the Company's excessive restructuring and litigation reserves at year-end 1996, which resulted in the overstatement of the Company's income in 1997. Similarly, his lack of care in conducting the 1997 year-end audit allowed management to recognize revenue on sales that did not comport with applicable accounting standards.
- Harlow failed to obtain sufficient competent evidential matter through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an audit opinion regarding the financial statements under audit.
- Harlow failed to render an accurate audit report. To the contrary of the representations made by Harlow in the Arthur Andersen audit reports on Sunbeam's 1996 and 1997 year-end financial statements, the financial statements were not in conformity with GAAP, and the audits werel not performed in accordance with GAAS.
- Harlow, therefore, engaged in "improper professional conduct" for purposes of Commission Rule 102(e).
Harlow consented to the entry of the order without admitting or denying the findings therein. In conjunction with the entry of the administrative order, the Commission withdrew and dismissed its complaint in district court as to Harlow.
Robert Gluck ("Gluck"), without admitting or denying the allegations in the Commission's complaint, agreed to the entry of a judgment: (1) permanently enjoining him from violating or aiding and abetting violations of the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder; (2) barring him for a period of five years from serving as an officer or director of any public company, and (3) requiring him to pay a civil penalty of $100,000. Gluck has also consented to the entry of a Commission order barring him from appearing or practicing before the Commission as an accountant, with a right to reapply after five years.
Donald Uzzi, without admitting or denying the allegations in the Commission's complaint, agreed to the entry of a judgment: (1) permanently enjoining him from violating Section 17(a) of the Securities Act and from violating or aiding and abetting violations of Sections 10(b) 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder; and (2) requiring him to pay a civil penalty of $100,000. The Honorable Judge Donald Middlebrooks signed the final judgments as to Gluck and Uzzi today.
Former Sunbeam CEO Albert J. Dunlap, CFO Russell A. Kersh and vice-president of sales Lee B. Griffith previously settled the Commission's charges against them in the district court action.
See also Lit. Release Nos. 17001 (May 15, 2001) and 17710 (September 4, 2002) and Accounting and Auditing Enforcement Release No. 1393 (May 15, 2001).