UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39792 / March 25, 1998 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1018 / March 25, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9564 :ORDER INSTITUTING In the Matter of :PROCEEDINGS PURSUANT TO :SECTION 21C OF THE SECURITIES :EXCHANGE ACT OF 1934 AND JOY LYNN SCHNEIDER GREEN, CPA, :RULE 102(e) OF THE :COMMISSION'S RULES OF :PRACTICE, MAKING FINDINGS, Respondent. :IMPOSING SANCTIONS, AND :ISSUING CEASE-AND-DESIST :ORDER I. The Commission deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice[1] against Joy Lynn Schneider Green ("Schneider"), a certified public accountant. **FOOTNOTES** [1]:Paragraph 1 of Rule 102(e)(1) provides, in relevant part, that: The Commission may ... deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter ... (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. II. In anticipation of the institution of these administrative proceedings, Schneider has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, Schneider, without admitting or denying the findings contained in this order, except that she admits the jurisdiction of the Commission over her and over the subject matter of these proceedings, consents to the issuance of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, Imposing Sanctions, and Issuing Cease-and-Desist Order ("Order"), the findings contained herein, and the imposition of the relief set forth below. III. The Commission makes the following findings:[2] A.FACTS 1.Summary From at least July 1, 1993 through July 1995, Sensormatic Electronics Corporation, a company engaged in manufacturing and selling electronic security systems, improperly recognized revenue in order to manipulate its quarterly revenue and earnings to reach its budgeted earnings goals and thereby meet analysts' quarterly earnings projections. Sensormatic employed the following practice, among others, to improperly and prematurely recognize revenue. At the end of each quarter Sensormatic turned back the computer clock that dated and recorded shipments. Based on these shipping documents, Sensormatic then prematurely recognized revenue on shipments made past the end of the quarter ("out-of-period shipments"). Sensormatic improperly recognized revenue on out-of-period shipments for many years prior to July 1, 1993. Joy Lynn Schneider Green, Sensormatic's then Controller of U.S. Operations, was responsible for the revenue accounting, the accuracy of the books and records, and the preparation of internal financial statements of the company's domestic operations. While in this position, she played a role in Sensormatic's improper recognition of revenue. Schneider was aware that shipping documents had been backdated by resetting the computer clock and that based on these documents revenue was improperly and prematurely recorded. Schneider also knew that Sensormatic prepared its financial statements using the improperly recorded revenue. She knew or should have known that, due to the improper recognition of revenue, the financial statements were not in conformity with generally accepted accounting principles ("GAAP") and misstated Sensormatic's earnings. Nevertheless, Schneider permitted this conduct to continue and failed to report it to the Audit Committee of Sensormatic's Board of Directors or the independent auditors. In addition, Schneider knew that documents had been withheld from Sensormatic's independent auditors during the fiscal year 1994 audit, but did not report this information to the independent auditors. During the fiscal year 1995 audit she hid in her desk a document containing information requested by the auditors and discussed it with her superior, but did not reveal its contents to the auditors. As a result of her conduct, Schneider caused Sensormatic's violations of the reporting provisions, caused the falsification of Sensormatic's books and records, caused and willfully aided and abetted Sensormatic's violations of the recordkeeping and internal controls provisions, and violated Exchange Act Rule 13b2-2, which prohibits a company officer from making material misrepresentations or omissions to auditors in connection with an audit. 2.Respondent:Joy Lynn Schneider Green Schneider, age 41, joined Sensormatic in June 1980 and was the company's Controller of U.S. Operations from November 1992 until November 1995, when she was demoted to Manager of Financial Analysis. During the period from 1986, when she became Manager of Contract Administration, until June 1995, she held various accounting positions in which she had varying but direct responsibility for revenue accounting. Schneider is a certified public accountant, licensed since 1988 by the State of Florida. 3.The Issuer:Sensormatic Electronics Corporation Sensormatic, a Delaware corporation with its principal executive offices in Boca Raton, Florida, manufactures and markets electronic security systems used, among other things, to deter shoplifting. Sensormatic's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded on the New York Stock Exchange. During the relevant period, Sensormatic reported that it recognized revenue upon shipment of its product. 4.Sensormatic's Improper Recognition of Revenue From at least July 1993 through July 1995, Sensormatic improperly recognized and recorded revenue in the quarter that had just ended on out-of-period shipments. Sensormatic improperly manipulated its recognition of revenue and concealed the practice from its independent auditors by resetting the computer clock that dated and recorded shipments. Toward midnight on the last day of the quarter, Sensormatic's computer system was brought down so that the computer clock date would reflect the last day of the quarter. The computer then recorded shipments made during the first days of the new quarter as having occurred on the last day of the prior quarter. Consequently, Sensormatic's records reflecting shipment dates were false. The false shipping records were then used in determining the quarterly revenue figures. As a result, Sensormatic's books and records improperly and prematurely recorded revenue from out-of- period shipments. During the relevant period, the amount of revenue improperly recognized on out-of-period shipments ranged from $4.6 million for the second quarter of fiscal year 1994 to over $30 million for the third quarter of fiscal year 1995. This revenue information was then included in Sensormatic's periodic reports which were filed with the Commission and disseminated to the public. Sensormatic's periodic reports misstated its quarterly revenue, and thereby misstated Sensormatic's quarterly net income and earnings per share. The false and misleading reports include the quarterly and annual reports on Forms 10-Q and 10-K filed for the first quarter of 1994 through the third quarter of 1995. Sensormatic's misstatements of net income ranged from an understatement of approximately $1.9 million or 9.1% for the second quarter of fiscal year 1994, to an overstatement of $6.7 million or 38.3% for the third quarter of 1995. In addition, Sensormatic issued a press release that materially inflated its preliminary estimates of net income for the fourth quarter of 1995 by over 40% and by over 18% for the entire year. 5.Schneider's Role in Sensormatic's Improper Recognition of Revenue As Controller of U.S. Operations, Schneider was responsible for Sensormatic's revenue accounting, the accuracy of its books and records, and the preparation of financial statements for the company's domestic operations. She also worked with Sensormatic's independent auditors in developing their audit plans, and she prepared schedules for their use. While in this position, she played a role in the improper recognition of revenue. Although aware that shipping documents were backdated, Schneider failed to report these and other practices to the Audit Committee or the independent auditors. At the end of each quarter, Schneider received internal Sensormatic memoranda that listed the amount of revenue Sensormatic still needed to record in order to meet its quarterly revenue goals. Schneider understood that, in order to meet these goals, Sensormatic improperly recorded and recognized revenue on shipments made past the end of the quarter. She knew that the inflated revenue figures were based on the shipping documents that were backdated by turning back the computer clock. Moreover, under her supervision, these revenue figures appeared in internal financial statements that were used in the preparation of the company's financial statements for inclusion in periodic reports. Although she knew that recognizing revenue on post-period shipments was not in conformity with GAAP and contravened Sensormatic's stated revenue recognition policy, Schneider did not inform the company's independent auditors or the Audit Committee about these practices. Schneider also participated in withholding documents and information from Sensormatic's independent auditors during their audits for fiscal years 1994 and 1995. During the audit for fiscal year 1994, Schneider learned that documents which would have disclosed the improper recognition of revenue on out-of- period shipments had been withheld from the independent auditors. She failed to take any steps to notify the auditors or the company's Audit Committee. In addition, Schneider withheld a document from the auditors that would have shown that, at the end of the third quarter of fiscal year 1995, Sensormatic had improperly recognized a substantial amount of revenue at the time goods were shipped to a customer. Revenue should not have been recognized on this shipment until the goods reached the customer, because the contract contained an FOB destination provision. During the audit for fiscal year 1995, the independent auditors specifically questioned Sensormatic concerning the shipping terms in this customer's contract. To respond to the auditors' request, Schneider obtained the contract which contained the FOB destination provision. Schneider reported the terms of the contract to the Vice President of Finance but did not provide the contract, or reveal its contents, to the auditors; instead she hid it in her desk. B.LEGAL ANALYSIS 1.Schneider Violated Rules 13b2-1 and 13b2-2 of the Exchange Act Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing to be falsified any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act. Schneider knew that Sensormatic was improperly recognizing revenue on product shipped out-of-period and turning back the computer clock in order to predate shipping documents, and accordingly, Schneider willfully violated Exchange Act Rule 13b2- 1. Exchange Act Rule 13b2-2 prohibits any officer or director of any issuer from making false or misleading statements or omissions to any accountant in connection with the audit or examination of the financial statements of the issuer. Schneider, an officer of Sensormatic, willfully violated Exchange Act Rule 13b2-2 when she failed to disclose to the auditors that: Sensormatic had improperly recognized revenue; documents revealing the improper recognition of revenue had been withheld; and the customer's contract discussed above contained the FOB destination provision. 2.Schneider Caused Sensormatic's Violations of the Reporting Provisions of the Federal Securities Laws Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act, such as Sensormatic, to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the Commission. Pursuant to instructions applicable to Form 10-K and Form 10-Q, the financial statements contained in these periodic reports must conform with Regulation S-X which requires conformity with GAAP. 17 C.F.R.  210.4-01(a)(1). An issuer violates these provisions if it files a periodic report that contains materially false or misleading information. See e.g., SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). In addition, Exchange Act Rule 12b-20 requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading. Sensormatic violated these provisions by filing materially false and misleading periodic reports during the relevant period of time. As discussed above, these reports, including the financial statements therein, misstated the company's results of operations, including revenue and net income, and falsely stated that the company recognized revenue upon shipment during the stated periods, whereas in fact the company intentionally and prematurely recognized revenue from shipments in the succeeding period or periods and did not comply with GAAP. Schneider knew that the computer clock was turned back at the end of each quarter to falsely record shipment dates and that Sensormatic recorded and reported revenue on the out-of-period shipments based on the backdated shipping documents. She nevertheless failed to inform the Audit Committee or the independent auditors of the improper recording, recognition, and reporting of revenue. Therefore, Schneider knew, or should have known, that her actions in furtherance of Sensormatic's improper recognition of revenue would contribute to the company's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 3.Schneider Caused and Aided and Abetted Sensormatic's Violations of the Recordkeeping and Internal Controls Provisions of thethe Exchange Act Under Section 13(b)(2)(A) of the Exchange Act, Sensormatic was required to make and keep books and records which accurately reflected its transactions and disposition of assets. Section 13(b)(2)(B) of the Exchange Act requires issuers such as Sensormatic to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP. Sensormatic's resetting of the computer clock to record revenue improperly violated both of these provisions. Sensormatic routinely created documents bearing false dates that were relied upon in Sensormatic's preparation of other books and records, including those that recorded revenue from shipments made past the end of a quarter. By resetting the computer clock, Sensormatic failed to devise and maintain internal controls that would ensure that its financial statements were prepared in conformity with GAAP. By the same conduct described above, Schneider caused and willfully aided and abetted Sensormatic's violations of Sections 13(b)(2)(A) and (B) of the Exchange Act. Schneider knew, or should have known, that her failure to report Sensormatic's improper recognition of revenue and the company's practice of turning back the computer clock and would result in the falsification of Sensormatic's books and records and Sensormatic's failure to maintain adequate internal controls. IV. Based on the foregoing, the Commission finds that: A.Schneider willfully violated Exchange Act Rules 13b2-1 and 13b2-2; B.Schneider caused Sensormatic's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; C.Schneider caused and willfully aided and abetted Sensormatic's violations ofSections 13(b)(2)(A) and (B) of the Exchange Act; and D.Schneider engaged in improper professional conduct within the meaning of Rule102(e) of the Commission's Rules of Practice. V. In view of the foregoing, the Commission finds that it is appropriate to impose the following relief as agreed to in the Offer. Accordingly, IT IS HEREBY ORDERED, that: A.Schneider, pursuant to Section 21C of the Exchange Act, cease and desist fromcommitting or causing any violation, and any future violation, of Exchange ActRules 13b2-1 and 13b2-2 and from causing any violation and any future violationof Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20,13a-1, and 13a-13 thereunder; and B.Schneider is denied the privilege of appearing or practicing before the Commissionas an accountant. C.Three years from the date of this order, Schneider may apply to the Commissionby submitting an application to the Office of the Chief Accountant which requeststhat she be permitted to resume appearing or practicing before the Commission as: 1.a preparer or reviewer, or a person responsible for the preparation orreview, of financial statements of a public company to be filed with theCommission upon submission of an application satisfactory to theCommission in which Schneider undertakes that, in her practice before theCommission, her work will be reviewed by the independent auditcommittee of the company for which she works or in some other manneracceptable to the Commission; 2.an independent accountant upon submission of an application containing ashowing satisfactory to the Commission that: (a)Schneider, or any firm with which she is or becomes associated inany capacity, is and will remain a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") as long as she practices before the Commission as an independent accountant; (b)Schneider or the firm has received an unqualified report relating toher or the firm's most recent peer review conducted in accordancewith the guidelines adopted by the SEC Practice Section; and (c)Schneider will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews,concurring partner reviews, and continuing professional education,as long as she appears or practices before the Commission as anindependent accountant. 3.The Commission's review of any request or application by Schneider toresume appearing or practicing before the Commission may includeconsideration of, in addition to the matters referenced above, any othermatters relating to Schneider's character, integrity, professional conduct, orqualifications to appear or practice before the Commission. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [2]:The Commission's findings herein are made pursuant to Schneider's Offer and are not binding upon any other person or entity in these or any other proceedings. SERVICE LIST Rule 141 of the Commission's Rules of Practice provides that the Secretary, or another duly authorized officer of the Commission, shall serve a copy of the Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, Imposing Sanctions, and Issuing Cease-and-Desist Order on each person named as a party in the order and their legal agent. The attached Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, Imposing Sanctions, and Issuing Cease-and-Desist Order has been sent to the following parties and other persons entitled to notice: Honorable Brenda P. Murray Chief Administrative Law Judge Securities and Exchange Commission 450 Fifth Street, N.W., Mail Stop 11-6 Washington, D.C. 20549 Securities and Exchange Commission Division of Enforcement 450 Fifth Street, N.W., Mail Stop 7-9 Washington, D.C. 20549 Attention: Sharon Zamore, Esq. Lee S. Richards, Esq. Kenneth P. Held, Esq. Richards Spears Kibbe & Orbe One Chase Manhattan Plaza New York, New York 10005 Counsel for Joy Lynn Schneider Green Joy Lynn Schneider Green c/o Lee S. Richards, Esq. Kenneth P. Held, Esq. Richards Spears Kibbe & Orbe One Chase Manhattan Plaza New York, New York 10005