UNITED STATES OF AMERICA
In the Matter of
MARK GOLDBERG, C.P.A.
|ORDER INSTITUTING PROCEEDINGS|
PURSUANT TO SECTION 21C OF THE
SECURITIES EXCHANGE ACT OF
1934 AND RULE 102(e) OF THE
COMMISSION'S RULES OF PRACTICE,
MAKING FINDINGS, IMPOSING
REMEDIAL SANCTIONS, AND IMPOSING
A CEASE-AND-DESIST ORDER
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Mark Goldberg ("Respondent" or "Goldberg") 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 public administrative proceedings, Goldberg has submitted an Offer of Settlement ("Offer"), which 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, and without admitting or denying the findings, except as to the Commission's jurisdiction over him and over the subject matter of the proceedings, which are admitted, Goldberg consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, Imposing Sanctions, and Imposing a Cease-and-Desist Order ("Order").
On the basis of this Order and Goldberg's Offer, the Commission makes the findings set forth below:2
A. American Bank Note Holographics, Inc. ("ABNH"), a Delaware corporation with its principal executive offices located in Elmsford, New York, during all relevant times, was engaged in the origination, production, and marketing of mass-produced secure holograms. Until July 1998, ABNH was a wholly-owned subsidiary of American Banknote Corporation ("ABN").
B. ABN, during all relevant times, was a publicly traded holding company whose stock was registered pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange. Through its subsidiaries, ABN, among other things, supplied stored-value telephone cards and magnetic-strip transaction cards and printed business forms, checks, and counterfeit-resistant documents of value such as money orders, passports, foreign currency, and stock and bond certificates.3
C. On Tuesday, January 19, 1999, ABNH announced that it would restate results for the second and third quarters of 1998 and that it expected that revenues and net income for the fourth quarter of 1998 would be significantly lower than that of the fourth quarter of 1997. ABNH's stock fell from its January 19, 1999 close of $15.125, to a January 20, 1999 close of $4.625, losing 69.4% of its value in a single day's trading. ABN's stock fell from its January 19, 1999 close of $1 5/16, to a January 20, 1999 close of $1 1/8, losing 14.3% of its value during that trading day. On Monday, January 25, 1999, ABNH announced that it would restate its results for each of the first three quarters of 1998 and that its financial statements as of December 31, 1997, and December 31, 1996, and the related Report of Independent Auditors, should no longer be relied upon. Following a day of suspension from trading on January 25, ABNH closed at $1 13/16, more than 50% lower than the previous trading day's close. ABN's stock,also suspended for a day, then closed at $15/16, approximately 12% lower than the previous trading day's close.
D. Mark Goldberg, age 36, served as Controller for ABNH from 1993 until he resigned from the company in June 1997. Goldberg is, and at all relevant times was, a Certified Public Accountant, licensed in Massachusetts.
E. On January 30, 1997, Goldberg, at the behest of his superiors, accrued $1,435,250 in revenue for fiscal year 1996. Two "bill and hold" sales, one for $231,000 and the other for $404,250, accounted for $635,250 in revenue, while research and development work ABNH had performed in 1996 for a foreign customer accounted for the remaining $800,000 in revenue. Goldberg recorded these transactions, which he knew, or was reckless in not knowing, were fraudulent, through a journal entry he made after he had already closed ABNH's books for fiscal year 1996 and provided work papers to ABN's auditors.
F. In a departure from the general rule of revenue recognition, which holds that revenue is recognized when, among other things, delivery has occurred, a "bill and hold' transaction is generally a practice whereby a customer agrees to purchase the goods but the seller retains physical possession until the customer requests shipment to designated locations. The Commission's Accounting and Auditing Enforcement Release Number 108 ("AAER No. 108") states that revenue may be recognized on "bill and hold" sales only if certain conditions are met.
G. Accruing $635,250 in revenue in fiscal year 1996 for the two "bill and hold" transactions was improper because as Goldberg knew, or was reckless in not knowing, ABNH and the customers had not entered into these sales on or before fiscal year-end and the two transactions did not meet the criteria for recognizing revenue for "bill and hold" sales under the Commission's AAER No. 108. First, instead of the customer requesting that the sales occur on a "bill and hold" basis, ABNH made the request. Second, the holograms ABNH sold to these customers had not been segregated from ABNH's inventory and identified as belonging to the customers as of fiscal year-end 1996. Also, as for the $404,250 sale, Goldberg knew, or was reckless in not knowing, that this transaction was completely fabricated. No purchase order, invoice, or shipping documents were ever generated and ABNH subsequently reversed the sale in the first quarter of 1997.
H. Accruing $800,000 in revenue for fiscal year 1996 for research and development work ABNH had performed for a foreign customer was improper because, as Goldberg knew, or was reckless in not knowing, as of fiscal year-end 1996, ABNH had neither billed its customer for this amount nor received payment of this amount. More importantly, however, Goldberg's recognition of revenue for this work was improper because, as Goldberg knew, or was reckless in not knowing, ABNH's customer, to the extent it had any obligation to pay this sum, did not have an unconditional obligation to pay ABNH $800,000 as of fiscal year-end 1996. Payment of the $800,000 obligation was contingent, at a minimum, upon certain approvals being obtained from government officials. This had not occurred as of December 31, 1996 and, in fact, the government officials never gave the required approvals.
I. In the course of auditing ABN, ABN's auditors generally deployed a separate team of auditors to ABNH to audit its books. Certain members of the ABNH audit team would then participate in the ABN corporate audit. In connection with the audit, Goldberg, at the direction of his superiors, sent out audit confirmations, under his signature, to the customers involved in the transactions referred to above. Goldberg asked the customers to confirm these transactions even though he knew, or was reckless in not knowing, that the transactions were fraudulent. In particular, the confirmations for the two "bill and hold" transactions required the customers to confirm, as of year-end 1996, that the transactions met certain of the criteria set forth in AAER 108, which Goldberg knew, or was reckless in not knowing, was false.
J. As a consequence of the conduct described above, ABN filed with the Commission, on March 27, 1997, an annual report on Form 10-K for fiscal year 1996, which Goldberg knew, or was reckless in not knowing, contained materially false and misleading financial statements. As a result, ABN's fiscal year 1996 financial statements overstated its net income by 31% and ABN violated Sections 10(b), 13(a), and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-1 thereunder. Also, certain ABN officers violated Rule 13b2-2 of the Exchange Act by making materially false and misleading statements to ABN's independent auditor in connection with its audit of ABN's financial statements for fiscal year 1996.
K. By overstating ABNH's revenues and sending out false audit confirmations, Goldberg 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 the securities of ABN, (1) employed devices, schemes or artifices to defraud, (2) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or (3) engaged in acts, practices or courses of business which would or did operate as a fraud or deceit upon purchasers of the securities of ABN.
L. Goldberg willfully violated Section 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, by knowingly circumventing a system of internal accounting controls and knowingly falsifying books, records or accounts described in Section 13(b)(2) of the Exchange Act. Specifically, Goldberg made false entries in ABN's accounting system when he accrued revenue for "bill and hold" sales and research and development expenses through a manual journal entry on January 30, 1997 and also sent out false audit confirmations with respect to those transactions.
M. Goldberg caused ABN's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder because he knew that by misstating ABNH's revenue for fiscal year 1996 by over $1.4 million, ABN would misstate its revenue and earnings in its annual report on Form 10-K for fiscal year 1996.
N. Goldberg caused ABN's violations of Sections 13(b)(2)(A) and (B) of the Exchange Act by failing to keep books, records and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of its assets, and by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded asnecessary to permit preparation of financial statements in conformity with generally accepted accounting principles. Specifically, Goldberg made false entries in ABN's accounting system when he accrued revenue for "bill and hold" sales and research and development expenses through a manual journal entry he made on January 30, 1997 and also sent out false audit confirmations with respect to those transactions.
O. Goldberg caused violations of Rule 13b2-2 of the Exchange Act by certain ABN officers by overstating ABNH's revenues, sending out false audit confirmations, and making materially false and misleading statements to ABN's independent auditor in connection with its audit of ABN's financial statements for fiscal year 1996.
P. Based on the foregoing, Goldberg willfully violated, and willfully aided and abetted the violation of, provisions of the Federal securities laws and the rules thereunder within the meaning of Rule 102(e)(1)(iii) of the Commission's Rules of Practice.
Goldberg has submitted an Offer of Settlement in which, without admitting or denying the findings herein, he consents to the Commission's entry of this Order, which: (1) makes findings, as set forth above; (2) orders Goldberg to cease and desist from committing or causing any violation, or any future violation, of certain provisions of the federal securities laws, as set forth below; and (3) denies Goldberg the privilege of appearing or practicing before the Commission as an accountant. As set forth in Goldberg's Offer of Settlement, Goldberg undertakes to cooperate with Commission staff in connection with this action and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party.
In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Goldberg and impose the relief specified therein. Accordingly, IT IS HEREBY ORDERED that Goldberg cease and desist from committing or causing any violation, or any future violation, of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and that Goldberg cease and desist from causing any violation, or any future violation, of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20 and 13a-1 thereunder.
IT IS HEREBY FURTHER ORDERED that Goldberg shall comply with his undertaking described in Section IV. above.
IT IS HEREBY FURTHER ORDERED, effective immediately, that:
A. Goldberg is denied the privilege of appearing or practicing before the Commission as an accountant.
B. After three (3) years from the date of this order, Goldberg 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 Goldberg'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) Goldberg, 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) Goldberg, 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 Goldberg 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 application by Goldberg to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Goldberg'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, 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 Goldberg's Offer and are not binding on any other person or entity in this or any other proceeding.|
|3||ABN filed for Chapter 11 bankruptcy on December 8, 1999.|
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