United States of America
In the Matter of
Jeffrey J. Schneider, CPA,
|ORDER INSTITUTING A PUBLIC ADMINISTRATIVE PROCEEDING PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted against Jeffrey J. Schneider ("Schneider") pursuant to Rule 102(e) of the Commission's Rules of Practice.1
In anticipation of the institution of this public administrative proceeding, Schneider has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings, except that he admits the entry of the injunction set forth in paragraph III.2, and further admits the Commission's jurisdiction over him and over the subject matter of this proceeding, Schneider consents to the entry of this Order Instituting a Public Administrative Proceeding Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions. ("Order").
On the basis of this Order and Schneider's Offer, the Commission makes the following findings:2
1. Schneider is a certified public accountant licensed in New York. From November 1998 through June 2000, Schneider was employed as a manager at Werblin Casuccio & Moses, P.C. (the "Werblin Firm"), a public accounting firm located in Syosset, New York. Schneider served as the audit manager in connection with the Werblin Firm's audit of AppOnline.com, Inc. ("AppOnline"), then known as IMN Financial Corp., for 1998 and as an internal auditor with respect to AppOnline's 1999 audit.
2. On September 4, 2003, the United States District Court for the Eastern District of New York entered a final judgment permanently enjoining Schneider from (i) violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1, and (ii) aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. SEC v. Paul Skulsky, et al., No. 02-CV-1524 (DRH).
3. In its complaint in SEC v. Paul Skulsky, et al., the Commission, among other things, alleges:
a. AppOnline misappropriated funds that warehouse banks had advanced to close mortgage loans, and used these funds to pay, among other things, its operating expenses. In order to conceal its misappropriation of funds, AppOnline materially misrepresented its financial condition. Among other things, AppOnline created a phantom payable on its books and records to a related party, the Skulsky Trust. This liability to the Skulsky Trust generally reflected the amount of funds that AppOnline had misappropriated from the warehouse banks. In fact, AppOnline did not owe the Skulsky Trust any funds. Because this sham liability to the Skulsky Trust became too large, AppOnline also improperly netted unrelated receivables to reduce the amount of the supposed liability. As of December 31, 1999, AppOnline had misappropriated approximately $47 million from its warehouse banks.
b. The Werblin Firm caused the issuance of an audit report containing an unqualified opinion stating that the audit was conducted in accordance with Generally Accepted Auditing Standards ("GAAS") and that the financial statements had been prepared in conformity with Generally Accepted Accounting Principles ("GAAP"). Schneider knew, or was reckless in not knowing, that these representations were false.
4. Based on the foregoing, the Commission finds that: (i) Schneider has been permanently enjoined within the meaning of Rule 102(e)(3)(i) of the Commission's Rules of Practice "by ... [a] court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder;" and (ii) Schneider engaged in improper professional conduct and willfully violated, or willfully aided and abetted the violation of, provisions of the Federal securities laws and rules, for purposes of Rule 102(e)(1)(ii) and (iii) respectively, of the Commission's Rules of Practice. Specifically, Schneider violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1, and aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.
In view of the foregoing, the Commission deems it appropriate to accept the Offer and impose the relief agreed to therein.
Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
A. Schneider is suspended from appearing or practicing before the Commission as an accountant.
B. After five years from the date of this order, Schneider may request that the Commission consider his reinstatement by submitting an application (attention: Office of the 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 Schneider'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) Schneider, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");
(b) Schneider, 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 or equivalent organization; and
(c) As long as Schneider appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
C. The Commission will consider an application by Schneider to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy. However, if state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Schneider's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
By the Commission.
Jonathan G. Katz
1 Rule 102(e)(3)(i) of the Commission's Rules of Practice provides, in relevant part, that: [t]he Commission, with due regard to the public interest and without preliminary hearing may ... suspend from appearing or practicing before it any ... accountant ... who has been by name: (A) [p]ermanently enjoined by any court of competent jurisdiction, by reason of his or her conduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. Paragraph 1 of Rule 102(e) 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.
2 The findings herein are made pursuant to Schneider's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
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