UNITED STATES OF AMERICA
In the Matter of
GEORGE KELLY MOORE, CPA
|ORDER INSTITUTING PUBLIC
PROCEEDINGS PURSUANT TO
SECTION 8A OF THE SECURITIES
ACT OF 1933, SECTION 21C OF
THE SECURITIES EXCHANGE
ACT OF 1934, AND RULE 102(e) OF THE
COMMISSION'S RULES OF PRACTICE,
MAKING FINDINGS, ISSUING CEASE-
AND-DESIST ORDER, AND IMPOSING
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Respondent George Kelly Moore ("Moore"), pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 102(e) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)].1
In anticipation of the institution of these administrative proceedings, Moore has submitted an Offer of Settlement ("Offer"), which the Commission has determined that it is in the public interest to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, prior to a hearing and without admitting or denying the findings contained herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, Respondent Moore consents to the issuance of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934, and Rule 102(e) of the Commission's Rules of Practice, Making Findings, Issuing Cease-and-Desist Order, and Imposing Remedial Sanctions ("Order"), and to the entry of the findings contained herein, and the imposition of the remedial sanctions set forth below.
Accordingly, IT IS ORDERED that said proceedings be, and hereby are, instituted.
On the basis of the Order and Offer, the Commission finds the following:2
George Kelly Moore, age 69, is a certified public accountant registered in the states of North Carolina and Florida, and was at all relevant times a board member, audit committee member, and paid consultant to Swisher International, Inc.
B. Other Relevant Persons and Entities
Swisher International, Inc. ("SII"), a Nevada corporation headquartered in Charlotte, NC, is in the business of franchising commercial and residential hygiene services. Following its initial public offering in 1993, SII registered with the Commission pursuant to Section 12(g) of the Exchange Act. Its common stock traded on the NASDAQ from April 1993 to May 1998 under the symbol SWSH and currently trades on the OTC bulletin board. On April 28, 2000, SII filed a Form 15 terminating its registration with the Commission pursuant to Exchange Act Rule 12(g)(4), and is no longer required to file periodic reports with the Commission.
Patrick Lee Swisher ("Swisher"), 46, has been chief executive officer and a director of SII since its inception. Swisher is also the majority owner of Lone Star Hygiene, LLC ("Lone Star"), a Texas corporation that bought and manages the Houston franchise.
C. The Premature Recognition of the Houston Franchise Sale
SII and CEO Swisher, overstated the company's earnings for the third quarter ended July 31, 1996 by prematurely recording the $450,000 sale of the company-owned Houston franchise to a corporation Swisher set up and controlled. At Swisher's direction, SII prematurely recognized the revenue in its Form 10-Q for the quarter ended July 31, 1996. The $284,017 gain SII recorded on the sale was material as it enabled SII to report quarterly net income of $163,886 instead of a loss of $120,131.
SII's third quarter Form 10-Q also failed to disclose that Swisher was the majority owner of Lone Star. Such disclosures, known as related-party transaction disclosures, are required by Regulation S-X § 210.10, Interim Financial Statements [17 CFR § 210.10], and Statement of Financial Accounting Standards No. 57, Related Party Disclosures.
D. Respondent Helped the Accounting Staff Make an Inaccurate Entry and Failed to See that SII Disclosed the Related Party Nature of the Sale
Moore was Swisher's personal accountant and served on SII's board and audit committee from 1993 to 1998. In 1995, when SII's CFO resigned, the company retained Moore to render services to the accounting department on an interim basis. As a paid consultant earning $125 per hour, Moore advised the staff on the accounting treatment for selected transactions, and had a role in preparing the company's financial statements for inclusion in periodic reports.
In September 1996, several weeks into SII's fourth quarter, Swisher falsely told the accounting staff that the company's sale of the profitable Houston franchise had closed the preceding July. In accordance with Swisher's instruction, Moore, directly or indirectly, caused the accounting staff to make the journal entry that falsified the books by recording a $284,017 gain for the sale in the company's books and records for the quarter ended July 31, 1996.
Through his conversations with Swisher, Moore knew that Swisher was the majority owner of Lone Star, the purchaser of the Houston franchise. Although he reviewed SII's Form 10-Q for the quarter ended July 31,1996, and the Form 10-K for the period ended October 31, 1996, Moore did not identify, or require SII to identify, the Houston franchise sale as a related-party transaction in either filing.
On October 30, 1996, the company filed a Form S-3 registering 221,000 of 480,000 SII shares Swisher had recently transferred to Armand Investment Corporation ("Armand"), a Bahamian company for which Swisher was the sole director. As a paid consultant, Moore billed the company to review the filing. Moore knew or should have known that Swisher controlled Armand's shares. As Swisher's personal accountant and through conversations with him, Moore knew that Swisher had initially contemplated using the Armand entity as the majority owner of Lone Star instead of himself. Nonetheless, Moore signed the Form S-3 as an SII director. Despite that knowledge and his review of the Form S-3, Moore did not disclose, or direct SII to disclose, that Swisher was a beneficial owner of Armand's shares, which was a material fact.
E. Respondent Failed to Disclose Another Material Related-Party Transaction
On or about July 30, 1997, SII sold the company-owned Charlotte franchise to a corporation owned by a senior SII officer for $415,000. SII recorded a $381,461 gain for the Charlotte sale. This was a material transaction as it allowed the company to avoid reporting an approximately $133,000 quarterly loss. The Charlotte franchise sale was a related-party transaction, which fact was not disclosed in SII's Form 10-Q for the period ended July 31, 1997, as it should have been under Regulation S-X § 210.10, Interim Financial Statements [17 CFR § 210.10] and Statement of Financial Accounting Standards No. 57, Related Party Disclosures.
Moore, and others at the company, knew that a senior SII officer was president of the corporation purchasing the Charlotte franchise. Nonetheless, Moore failed to disclose, and failed to require SII to disclose, the sale as a related-party transaction.
F. Respondent Failed to Write-Down Notes Receivable to Account for Interest-Free Periods
SII had a common practice of granting interest-free periods to new franchisees on franchise sales that the company financed. Between November 1, 1995 and October 31, 1997, approximately 30% of SII's franchise sales included interest-free periods. However, SII failed to discount notes receivable to reflect such interest-free periods, as required by generally accepted accounting principles. Moore failed to require that SII write-down the notes, and thus caused SII's financial statements to be misstated.
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 to file annual and quarterly reports with the Commission and to keep this information current. The obligation to file such reports embodies the requirement that they be true and correct. See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). Exchange Act Rule 12b-20 further 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. Information regarding the financial condition of a company is presumptively material. SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985).
Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets; Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation in conformity with generally accepted accounting principles. Rule 13b2-1 also prohibits the direct or indirect falsification of any book, record, or account subject to Section 13(b)(2)(A).
Moore committed a violation of Rule 13b2-1 and caused SII'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, by assisting the accounting staff in preparing the journal entry reflecting the Houston franchise sale in the third quarter 1996. Also, Moore failed to require that SII write-down its notes receivable and disclose the related-party nature of two material transactions.
Section 17(a)(2) of the Securities Act, prohibits any person from obtaining money or property by means of untrue statements of material facts or omissions, in the offer or sale of securities. Section 17(a)(3) of the Securities Act proscribes "any transaction, practice or course of business, which operates or would operate as a fraud or deceit..." in the offer or sale of securities. A violation of these provisions may be established by a showing of negligence. Aaron v. SEC, 448 U.S. 680, 697 (1980); SEC v. Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir.1997). Respondent committed or caused violations of Section 17(a)(2) and (3) of the Securities Act by signing the Form S-3 which omitted to disclose the material fact that Swisher beneficially owned Armand's 480,000 shares of SII stock.
Based on the foregoing, the Commission finds that Respondent George Kelly Moore willfully violated or aided and abetted others who violated Sections 17(a)(2) and (3) of the Securities Act; Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules12b-20, 13a-1, 13a-13, and 13b2-1 thereunder for purposes of Rule 102(e)(1)(iii) of the Commission's Rules of Practice.
Moore also caused violations of Sections 17(a)(2) and (3) of the Securities Act; Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules12b-20, 13a-1, and 13a-13 for purposes of Section 8A of the Securities Act and Section 21C of the Exchange Act.
In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement submitted by George Kelly Moore:
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondent George Kelly Moore cease and desist from committing or causing any violation and any future violation of Sections 17(a)(2) and (3) of the Securities Act, and Exchange Act Rule 13b2-1, and that Moore cease and desist from causing any violation and any future violation 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 thereunder.
IT IS HEREBY FURTHER ORDERED, effective immediately, that:
A. Moore be, and hereby is, denied the privilege of appearing or practicing before the Commission as an accountant;
B. After two (2) years from the date of the Order, Moore may request that the Commission consider his reinstatement by submitting an application (attention: Office of Chief Accountant) to resume appearing or practicing before the Commission as:
1. A preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Moore's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner as long as he practices before the Commission in this capacity; and/or
2. An independent accountant. Such an application must satisfy the Commission that: (a) Moore, or any firm with which he is or becomes associated is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (b) Moore, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Moore appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
C. The Commission's review of any request or application by Moore to resume appearing or practicing before the Commission may include consideration of, in addition to the matter referred to above, any other matters relating to Moore's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
By the Commission.
Jonathan G. Katz
|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) [to] have willfully violated, or willfully aided and abetted the violation of any provision of the federal securities laws or the rules and regulations thereunder.
|2||The findings herein are made pursuant to the Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
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