SECURITIES EXCHANGE ACT OF 1934
Rel. No. 42096 / November 4, 1999
Accounting Auditing Enforcement Rel. No.1202 / November 4, 1999
Admin. Pro. File No. 3-9793
: In the Matter of : JEAN-PAUL BOLDUC, : ORDER DENYING BRIAN J. SMITH, C.P.A., : APPLICATION FOR RICHARD N. SUKENIK, C.P.A., : INTERLOCUTORY APPEAL, PHILIP J. RYAN III, : TAKING THE MATTER UP CONSTANTINE L. HAMPERS, : ON THE COMMISSION'S A. MILES NOGELO, and : ON THE COMMISSION'S ROBERT W. ARMSTRONG III, C.P.A : SCHEDULING BRIEFS :
The Division of Enforcement and the Office of the Chief Accountant (collectively, the "Division") seek interlocutory review of a July 2, 1999, order by an administrative law judge ("July 2 Order"). We deny the Division's application but have determined to review the law judge's ruling on our own motion.
The Order Instituting Proceedings ("OIP") alleges that, from 1991 through 1996, various officers, directors and employees of W.R. Grace & Co. ("WR Grace") engaged in fraudulent conduct by filing false and misleading reports with the Commission and making false and misleading statements in press releases and at analyst teleconferences. As alleged in the OIP, this fraudulent conduct included manipulating and falsely reporting the earnings of National Medical Care Inc. ("NMC"), a subsidiary of WR Grace. This false information was allegedly incorporated into WR Grace's financial statements and disseminated to the investing public.
The OIP further alleges that respondent Armstrong, a vice president and controller of NMC during the relevant period, and a certified public accountant, knew that NMC's earnings were not being recorded in conformity with Generally Accepted Accounting Principles. Armstrong also was alleged to have participated in manipulating NMC's earnings in accordance with directives from WR Grace. The OIP alleges that Armstrong committed or caused violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 19341 and Exchange Act Rules 10b-5 and 13b2-1; 2 caused violations of Sections 13(a) and 13(b)(2) of the Exchange Act3 and Exchange Act Rules 12b-20, 13a-1 and 13a-13;4 and willfully violated the federal securities laws or rules and regulations within the meaning of Rule 102(e)(1)(iii) 5 of the Commission's Rules of Practice, or engaged in improper professional conduct under Rule of Practice 102(e)(1)(ii).6
Armstrong was licensed as a certified public accountant ("CPA") in Massachusetts from July 20, 1977, to June 20, 1983. He allowed his CPA license to lapse in 1983 and has not renewed it. The law judge, in the July 2 Order, dismissed the Division's request for relief against Armstrong under Rule of Practice 102(e)(ii) and (iii) on the ground that Armstrong was not licensed to practice accountancy during the time of the events at issue -- 1991 through 1996. The law judge ruled that, in light of the Commission's October 1998 amendment to Rule of Practice 102(e), the term "accountants" in the context of Rule 102(e) is limited to "persons licensed to practice as accountants," and that Rule 102(e) therefore applies only to licensed accountants.
The Division applied to the law judge for certification of the July 2 Order for interlocutory Commission review. In an order dated July 13, 1999, the law judge denied the request for certification on the grounds that the July 2 Order did not present a controlling question of law as to which there is a substantial ground for a difference of opinion, and that immediate interlocutory review would not materially advance the completion of the proceeding. The Division then sought interlocutory review directly from the Commission, filing an "Emergency Application for Immediate Commission Review" of the July 2 Order. 7
Rule of Practice 400 provides for interlocutory review of a hearing officer's ruling by the Commission upon certification of the ruling by the hearing officer or upon the Commission's own motion.8 Rule 400 does not contain any provision relating to a party's ability to petition the Commission directly for interlocutory review of a hearing officer's ruling.9 Accordingly, we deny the Division's "Emergency Application for Immediate Commission Review" of the July 2 Order.
We have determined, however, to review the law judge's ruling in the July 2 Order on our own motion pursuant to Rule of Practice 400(a).10 We believe that it is not clear whether the term "accountants" as used throughout Rule 102(e) refers only to "persons licensed to practice as accountants" at the time the alleged misconduct occurred. Moreover, the evidentiary requirements relating to the proof and defense of the Rule 102(e) allegations can differ significantly from the other charges against Armstrong brought pursuant to Section 21C of the Exchange Act.11 Deferring review of the July 2 Order could require a second trial on the Rule 102(e) allegations in the event we were to determine that the dismissal of those allegations was improper. Reviewing the July 2 Order now will avoid substantial expense and permit the law judge to hear all of the evidence relating to Armstrong in one hearing in the event that we reinstate the Rule 102(e) allegations. These circumstances justify immediate review of the July 2 Order.
Accordingly, it is ordered that the Division's Emergency Application for Immediate Commission Review of the July 2, 1999, order of the law judge be, and it hereby is denied; and it is further
Ordered that, pursuant to Rule of Practice 400(a), the July 2, 1999, order of the law judge be, and it hereby is, submitted to the Commission for review; and it is further
Ordered that, pursuant to Rule of Practice 450(a), that the Division's opening brief shall be filed by no later than December 14, 1999. Armstrong's brief in opposition to the Division's opening brief may be filed by January 13, 2000, and any reply brief by January 27, 2000.12 Pursuant to Rule 180(c), 13 failure to file a brief in support of the petition may result in dismissal of this review proceeding.
By the Commission.
Jonathan G. Katz
1 15 U.S.C. §§ 78j(b), 78m(b)(5).
2 17 C.F.R. §§ 240.10b-5, 240.13b2-1.
3 15 U.S.C. §§ 78m(a), 78m(b)(2).
4 17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-13.
5 17 C.F.R. § 201.102(e)(1)(iii).
6 17 C.F.R. § 201.102(e)(1)(ii).
7 The Division also made a motion for a partial stay of the proceeding pending our determination of the application for interlocutory review. We granted a stay. See Order Granting Motion for Partial Stay, Exchange Act Rel. No. 41812 (August 31, 1999), ___ SEC Docket ___.
8 17 C.F.R. § 201.400.
10 See also, Orlando Joseph Jett, Order Vacating Order to Produce Memoranda for In Camera Review, Admin. Proc. Rulings No. 514 (June 17, 1996), 62 SEC Docket 503 (hearing officer's ruling reviewed on Commission's own motion after hearing officer denied certification of the ruling for interlocutory review).
11 15 U.S.C. ? 78u-3.
12 Pursuant to Rule 450(a), 17 C.F.R. § 201.450(a), no brief in addition to those specified in this schedule may be filed without leave of the Commission. Attention is called to Rules 150-153 with respect to form and service, and Rule 450 with respect to content and length limitations. Requests for extension of time to file briefs are disfavored.
13 17 C.F.R. § 201.180(c).