UNITED STATES OF AMERICA
In the Matter of
RICHARD P. MACCHIARULO, CPA
|ORDER INSTITUTING PUBLIC |
PURSUANT TO RULE 102(e) OF THE
COMMISSION'S RULES OF PRACTICE,
MAKING FINDINGS, AND IMPOSING
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and they hereby are, instituted against Richard P. Macchiarulo ("Respondent" or "Macchiarulo") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.1
In anticipation of the institution of these public administrative proceedings, Respondent 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 to which the Commission is a party, and without admitting or denying the findings herein, except that Respondent admits the jurisdiction of the Commission over him and the subject matter of these proceedings, and admits the Commission's finding that a Final Judgment of Permanent Injunction ("Final Judgment") has been entered against him as set forth in Section III.D., Respondent consents to the entry of this Order Instituting Public Administrative Proceedings 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 Respondent's Offer, the Commission makes the findings set forth below:
A. Macchiarulo, age 39, served as Vice President - Finance of American Bank Note Holographics, Inc. ("ABNH"), a Delaware corporation with its principal executive offices located in Elmsford, New York, from June 1997, until his resignation on February 4, 1999. Prior to this period, Macchiarulo served as Director of Financial Reporting and Budgets for American Banknote Corporation ("ABN"), a publicly traded holding company incorporated in Delaware, with its principal offices located in New York, New York. Macchiarulo is, and at all relevant times was, a Certified Public Accountant licensed by the state of New York.
B. Until July 1998, ABNH was a wholly-owned subsidiary of ABN. Thereafter, ABNH's stock was, at all relevant times, registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and ABNH filed quarterly reports with the Commission.
C. ABN's stock was, during all relevant times, registered pursuant to Section 12(b) of the Exchange Act, and ABN filed quarterly and annual reports with the Commission.
D. On July 18, 2001, the Commission filed a Complaint against Macchiarulo in Securities and Exchange Commission v. Richard P. Macchiarulo ("SEC v. Macchiarulo") (Civil Action No. 01 CV 6454, USCD, S.D.N.Y.). On January 12, 2001, Macchiarulo consented to the entry of the Final Judgment against him in SEC v. Macchiarulo, without admitting or denying the allegations of the Complaint, except as to subject matter jurisdiction, which Macchiarulo admitted. On July 18, 2001, the United Sates District Court for the Southern District of New York entered the Final Judgment which: (1) permanently enjoined Macchiarulo from, directly or indirectly, violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; (2) ordered Macchiarulo to disgorge an amount equal to losses illegally avoided by insider trading plus prejudgment interest thereon; (3) ordered Macchiarulo to pay a civil penalty pursuant to the Insider Trading Sanctions Act of 1984; and (4) prohibited Macchiarulo, for a period of ten years, from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act.
D. The Commission's Complaint in SEC v. Macchiarulo alleged, among other things, that Macchiarulo engaged in a fraudulent scheme which resulted in ABNH filing with the Commission a Registration Statement on Form S-1 that contained materially false and misleading financial statements pertaining to ABNH for fiscal year 1997, as well as the interim quarters for fiscal year 1997 and for the first quarter of fiscal year 1998, and filing with the Commission materially false and misleading financial statements on Form 10-Q for the second and third quarters of fiscal year 1998. According to the Complaint, Macchiarulo's conduct also resulted in ABN filing materially false and misleading financial statements on Form 10-K, for the fiscal year ended December 31, 1997, and on Form 10-Q, for the first three quarters of the fiscal years 1997 and 1998.
The Complaint alleged that Macchiarulo engaged in a number of improper accounting practices that he knew, or was reckless in not knowing, would materially increase ABN's and ABNH's annual and quarterly revenue and net income in a departure from generally accepted accounting principles ("GAAP"), including: recognizing revenue on "bill and hold" sales of holograms that did not meet the criteria for "bill and hold" sales, recognizing revenue on shipments of work in process and with respect to holograms that were never shipped, recognizing revenue for holograms shipped to, but not purchased by, customers, recognizing revenue for holograms shipped to third-party warehouses which the customers had not purchased, and holding open quarters in order to record additional revenue.
The Complaint also alleged that as a result of Macchiarulo's conduct, ABN's and ABNH's books, records, and accounts were falsified and consequently ABN and ABNH failed to make and keep books, records, and accounts that accurately and fairly reflected their transactions and dispositions of assets, and that ABN and ABNH failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP or other criteria applicable to such statements. The Complaint further alleged that Macchiarulo altered copies of certain documents and provided the altered documents to ABN's auditors during the audit of ABN's financial statements for fiscal year 1997. Finally, the Complaint alleged that Macchiarulo violated the anti-fraud provisions of the federal securities law when, in breach of a fiduciary duty he owed to ABNH, he told a friend in December 1998 that it would be a good time for the friend to sell his ABNH stock, which the friend did sell, thereby avoiding trading losses.
In view of the foregoing, the Commission deems it appropriate to accept Macchiarulo's Offer, and,
ACCORDINGLY IT IS HEREBY ORDERED, effective immediately, that Macchiarulo be, and hereby is, permanently suspended from appearing or practicing before the Commission as an accountant.
By the Commission
Jonathan G. Katz
|1|| Rule 102(e)(3) provides, in relevant part, that:
The Commission, with due regard to the public interest and without preliminary hearing, may, by order, temporarily suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any 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.
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