U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

United States of America
Securities And Exchange Commission

Securities Act of 1933
Release No. 8172 / December 23, 2002

Securities Exchange Act Of 1934
Release No. 47083 / December 23, 2002

Accounting and Auditing Enforcement
Release No. 1696 / December 23, 2002

Adminstrative Proceeding
File No. 3-10998

SEC Charges Former Arthur Andersen Partner Robert A. Putnam with Fraud and Improper Professional Conduct in Connection with Audit Work for HBO & Company and ebix.com, Inc.

The United States Securities and Exchange Commission announced today that it has instituted public administrative proceedings against Robert A. Putnam, a former Arthur Andersen LLP partner and a certified public accountant, in connection with audit work he performed for two separate public companies, HBO & Company ("HBOC") and ebix.com, inc. ("Ebix"). The Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 ("Order") alleges that Putnam committed or caused violations of the antifraud provisions of the federal securities laws while acting as HBOC's outside audit engagement partner. Further, the Order alleges that Putnam engaged in improper professional conduct within the meaning of Commission Rule of Practice 102(e) during his work for HBOC and while the engagement partner on the Ebix audit.

HBOC. Putnam was the audit engagement partner for HBOC during the time that senior management were directing a massive financial reporting fraud scheme. The HBOC fraud began in 1997 and continued after its January 1999 merger with San Francisco-based McKesson Corporation, which resulted in the formation of McKesson HBOC Corporation ("McKesson HBOC"). When the fraud was first disclosed in April 1999, McKesson HBOC shares tumbled from approximately $65 to $34, a decline that slashed the company's market value by more than $9 billion. Previously, the Commission has brought fraud and other charges against nine former HBOC and McKesson HBOC officers and employees for their roles in the fraud.

According to the Commission's Order, Putnam approved Arthur Andersen's issuance of six false quarterly review reports during 1997 and 1998 and a false 1997 audit report on HBOC's financial statements. These reports were incorporated in HBOC's public filings. Putnam knew, or was reckless in not knowing, that HBOC's accounting practices did not conform to Generally Accepted Accounting Principles, and that Andersen did not conduct its quarterly reviews and audit in compliance with Generally Accepted Auditing Standards. For instance, the Order alleges that Putnam knew that during the first quarter of 1997, HBOC's reported pretax income was overstated by 9.4 percent, in part because of contingences in HBOC software contracts that should have prohibited revenue recognition. In subsequent periods, Putnam also knew that HBOC was reporting financial results that were significantly inflated, in part because of revenue contingencies found in side letters and HBOC's deliberate misuse of reserve accounts. Although Putnam knew that HBOC management was using improper accounting to boost results, the Order alleges that he failed to stop the practices and did not bring them to the attention of HBOC's audit committee.

Ebix. The Ebix matter concerns Putnam's conduct as the audit engagement partner for Andersen's audit of Ebix for the nine-month period ended December 31, 1998 ("1998 transition period"). Ebix is a software developer and marketer. In connection with the confirmations sent to Ebix's customers during his audit work for the company, Putnam became aware that various customers claimed that they were entitled to refunds of deposits on software and would not pay certain outstanding invoices because they claimed the software Ebix had delivered did not function properly. Despite the negative confirmations, Putnam conducted no further investigation of the revenue and accepted management's representation that the software functioned properly and the revenue was collectible. Ebix subsequently restated its financials statements for the 1998 transition period, reducing its software revenue by $3.4 million of a total of over $19 million in revenue the company recognized for the period. The Order alleges that Putnam's conduct in connection with the audit constituted improper professional conduct.

A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Putnam an opportunity to dispute these allegations, and to determine whether Putnam should be ordered to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and whether Putnam should be censured, or denied the privilege or appearing or practicing before the Commission based upon improper professional conduct and willful violations, or aiding and abetting violations, of the federal securities laws.



Modified: 12/26/2002