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U.S. Securities and Exchange Commission

Before the

Release No. 42742 / May 2, 2000

Release No. 1252 / May 2, 2000

File No. 3-10195

______________________________________ : A CEASE-AND-DESIST ORDER


The Securities and Exchange Commission deems it appropriate that proceedings be, and hereby are, instituted against Stephen H. Spargo 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


In anticipation of the institution of these proceedings, Spargo has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, Spargo, 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, consents to the entry of the findings and the issuance of this Order Instituting Proceedings, Making Findings, Imposing Sanctions and Imposing a Cease-and Desist Order (the "Order").

Accordingly, IT IS ORDERED that proceedings against Spargo be, and hereby are, instituted.


On the basis of this Order and the Offer submitted by Spargo, the Commission finds that:2

A. Stephen H. Spargo, age 42, is a certified public accountant licensed in Pennsylvania. He was Senior Vice President of Corporate Support Services (the "Accounting Department") for Allegheny Health Education and Research Foundation ("AHERF") from 1993 to on or about June 2, 1997, reporting directly to AHERF's Chief Financial Officer ("CFO"). Spargo worked as a staff accountant for a large accounting firm for three years and was the director of finance and CFO of two community hospitals prior to joining AHERF. While acting as a staff accountant for the large accounting firm, Spargo participated in one or more audits of the financial statements of public companies, which were included in filings with the Commission.

B. AHERF is a Pennsylvania nonprofit healthcare organization formed in 1983. Until recently, it was the parent holding company and sole member or owner of numerous subsidiaries.3 On July 21, 1998, AHERF instituted bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code on behalf of itself and four of these subsidiaries in the U.S. District Court for the Western District of Pennsylvania.

C. By the time of the bankruptcy in July 1998, AHERF's obligated groups were responsible for, at least, thirteen bond issues, with outstanding debt of more than $900 million. The obligation to repay debt within AHERF was placed on groups of one or more of its non-profit subsidiaries known as "obligated groups". By 1997, AHERF had five obligated groups: Allegheny General Hospital ("Allegheny General"), Allegheny University Medical Centers, Delaware Valley, Allegheny Hospitals, Centennial ("Centennial"), and Allegheny Hospitals, New Jersey.

D. The AHERF obligated groups, through AHERF as their agent, provided to nationally recognized repositories annual Secondary Market Disclosure Reports ("Disclosure Reports") which contained, among other things, a section explaining the financial health of the reporting entity(ies), debt coverage ratios, and attaching audited financial statements. These Disclosure Reports were made available to the public through these repositories and were the most easily accessible source of information for investors and potential investors in AHERF bonds.

E. In particular, Delaware Valley was obligated to repay approximately $356 million (original principal amount) of tax-exempt Health Services Revenue Bonds issued in June 1996 (the "Delaware Valley Refinancing"). The refinancing documents required AHERF to provide annually to all nationally recognized repositories:

1. Delaware Valley's audited financial statements prepared in accordance with Generally Accepted Accounting Principles ("GAAP"); and

2. Delaware Valley's Secondary Market Disclosure Report that included, among other things, financial information, debt service coverage ratios and utilization statistics.

These documents were made available to the public, including investors in Delaware Valley and other AHERF bond issues, through these repositories.

F. AHERF's financial reporting function, including the initial preparation of financial statements, was primarily handled by Spargo's staff in the Accounting Department, although significant aspects of the financial reporting function also were the responsibility of other departments or entities within AHERF.

G. As a member of AHERF senior management, Spargo participated in all significant decisions affecting, among others, Delaware Valley's financial statements. He oversaw AHERF's accounting department and was responsible for the accuracy of the numbers in the financial statements. He further received and reviewed drafts of Delaware Valley's 1996 Disclosure Report.

H. Between December 12, 1996 and January 7, 1997, AHERF sent Delaware Valley's 1996 Disclosure Report and audited financial statements to the nationally recognized repositories and numerous other third parties.

I. Delaware Valley's audited financial statements for the year ended June 30, 1996 were materially false and misleading and failed to comply with GAAP in that they materially overstated Delaware Valley's 1996 net income and misrepresented the condition of Delaware Valley accounts receivable.

J. Delaware Valley's 1996 Disclosure Report was materially false and misleading in that it mirrored the numerical misstatements in the 1996 financial statements and it materially misrepresented the condition of Delaware Valley accounts receivable.

K. From, at least, December 1996 through June 2, 1997, Spargo willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in that he, directly or indirectly, in connection with the purchase or sale of securities, namely, AHERF bonds, by use of any means or instrumentality of interstate commerce, or the mails: (1) employed devices, schemes or artifices to defraud; (2) made untrue statements of material fact and omitted to state material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; and (3) engaged in acts, practices and courses of business which operated as a fraud and deceit upon persons, including the purchasers and prospective purchasers of such securities. Such violations include his deliberate and/or reckless misrepresentation or failure to disclose, directly or indirectly, to investors:

1. the overstatement of Delaware Valley's net income at June 30, 1996 by the failure to adjust Delaware Valley's bad debt reserves to account for uncollectible accounts receivable; and

2. the misrepresentation of the condition of Delaware Valley accounts receivable in Delaware Valley's 1996 Disclosure Report, including the misrepresentation of the reason for the increase in net accounts receivable.


On the basis of this Order and the Offer submitted by Spargo, the Commission finds that Spargo willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.


In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Spargo. In determining to accept the Offer, the Commission considered cooperation afforded the Commission staff.

Accordingly, IT HEREBY IS ORDERED pursuant to Section 21C of the Exchange Act, that Spargo cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and

IT IS FURTHER ORDERED, effective immediately, that:

A. Spargo is denied the privilege of appearing or practicing before the Commission as an accountant.

B. After three years from the date of this Order, Spargo may request that the Commission consider his reinstatement by submitting an application to the 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 Spargo'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) Spargo, 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");

(b) Spargo, 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 Spargo 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 an application by Spargo to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Spargo'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) 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... (iii) [t]o have willfully violated ... any provision of the Federal securities laws or the rules and regulations thereunder.

2 The findings herein are made pursuant to Spargo's Offer and are not binding on any other person or entity in this or any other proceeding.

3 AHERF's underlying entities are referred to as "subsidiaries," although technically AHERF was their sole "member", not a shareholder.