U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18654 / April 1,2004
Accounting and Auditing Enforcement
Release No. 1985 / April 1, 2004
SECURITIES AND EXCHANGE COMMISSION v. WILLIAM W. FREISE, , Civil Action No. 1:04CV00531 (D.D.C.) (filed March 31, 2004).
IN THE MATTER OF DAVID T. THOMSON CPA, AND DAVID T. THOMSON PC, Admin. Proc. No. 3-11453, Exchange Act Rel. No. 34-49516 (April 1, 2004).
SEC SUES WILLIAM W. FREISE, FORMER PRESIDENT AND DIRECTOR OF POWERBALL INTERNATIONAL INC., FOR ALTERING COMPANY BANK STATEMENTS TO CONCEAL FRAUD
FORMER POWERBALL AUDITORS DENIED PRIVILEGE OF APPEARING OR PRACTICING BEFORE SEC FOR TWO YEARS FOR IMPROPER PROFESSIONAL CONDUCT
On March 31, 2004, the Commission filed an injunctive action against William W. Freise ("Freise"), alleging that during the period June 2002 through April 2003, Freise, the former president and director of Powerball International Inc. ("Powerball"), falsified company records to hide his theft of $7,200, and to hide his failure to pay $40,000 for stock he had received through the exercise of warrants. The Complaint alleges that in order to conceal his fraud, Freise altered monthly bank statements for Powerball's bank account, which made that account appear to contain a substantially higher cash balance than it actually contained. The Complaint alleges that Freise knew that Powerball's financial statements and its reports to the Commission would reflect such false cash balances. As a result of such conduct, Powerball materially misstated its financial statements for the quarters ended June 30, 2002 and September 30, 2002 and for the year ended December 31, 2002.
The Complaint alleges that Freise violated Section 17(a) of the Securities Act of 1933 (the "Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. The Complaint also alleges that Freise aided and abetted Powerball's 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 promulgated thereunder. The Complaint seeks a permanent injunction prohibiting Freise from future violations of these provisions, disgorgement, prejudgment interest and civil penalties pursuant to Section 21(d)(3) of the Exchange Act and Section 20(d)(1) of the Securities Act. The Commission also seeks an order permanently barring Freise from serving as an officer or director of a public company.
On April 1, 2004, the Commission issued an Order instituting public administrative proceedings against Powerball's former auditors, David T. Thomson, CPA ("Thomson") and David T. Thomson PC ("Thomson PC"), pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)]. The Order denies Thomson and Thomson PC the privilege of appearing or practicing before the Commission as accountants, with the right to request that the Commission consider their reinstatement by submitting an application after two years. The Order finds that Thomson and Thomson PC failed to comply with generally accepted auditing standards ("GAAS") in their audit of Powerball's financial statements for the fiscal year ended December 31, 2002. The Order further finds that Thomson and Thomson PC failed to obtain confirmations of cash balances from Powerball's bank, or otherwise obtain sufficient competent evidential matter to verify Powerball's cash balances and instead relied on faxed copies of bank statements. Obtaining bank confirmations is a fundamental audit requirement that was heightened in this case by the fact that Powerball's cash balances represented over two-thirds of the company's assets. Based on such conduct, the Commission found that Thomson and Thomson PC engaged in improper professional conduct. Thomson and Thomson PC consented to the Order, but neither admitted nor denied the findings in the Order. See In the Matter of David T. Thomson, CPA and David T. Thomson PC., Admin. Proc. No. 3-11453 (April 1, 2004).