United States of America
In the Matter of
James A. Fitzhenry,
|ORDER INSTITUTING PUBLIC ADMINISTRATIVE 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 AND IMPOSING REMEDIAL SANCTIONS AND CEASE-AND-DESIST ORDER|
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against James A. Fitzhenry ("Respondent" or "Fitzhenry") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.1
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "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 as to the Commission's jurisdiction over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative 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 and Imposing Remedial Sanctions and Cease-and-Desist Order ("Order"), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds that:
1. James A. Fitzhenry, age 46, resides in Portland, Oregon. From 1993 to 2001, Fitzhenry was a Senior Vice President, General Counsel and Secretary for FLIR Systems, Inc. ("FLIR"). Fitzhenry currently serves as FLIR's Senior Vice President for Corporate Operations. He is licensed to practice law in Oregon and the District of Columbia.
2. FLIR is an Oregon corporation headquartered in Portland, Oregon. FLIR designs and manufactures thermal imaging and broadcast camera systems that detect infrared radiation. Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Nasdaq National Market System.
3. At year-end 1998, FLIR improperly recognized $4.1 million in revenue from two purported sales to one of FLIR's independent sales representatives in Colombia, South America based upon non-binding letters of intent. As part of the 1998 year-end audit of FLIR's financial statements, FLIR's outside auditors, PricewaterhouseCoopers LLP ("PwC"), selected these sales for testing and sent an accounts receivable confirmation, which the sales representative refused to return. These sales resulted in a 14% overstatement of pre-tax earnings for fiscal year 1998.
4. In February 1999, Fitzhenry attempted to obtain a binding and unconditional agreement from FLIR's independent sales representative to purchase the units stated in the non-binding letters of intent. Fitzhenry made this attempt at the request of FLIR's President and Chief Executive Officer. Fitzhenry knew that this request was made in connection with FLIR's 1998 year-end audit. The sales representative refused to provide an agreement of the type requested by Fitzhenry. Fitzhenry reported this refusal to FLIR's President and Chief Executive Officer.
5. From Fitzhenry's negotiations with FLIR's independent sales representative, he understood that the $4.1 million in sales were conditional in nature because the sales representative had no obligation to purchase the units.
6. On or about April 12, 1999 and April 20, 1999, Fitzhenry signed two management representation letters to PwC, in connection with FLIR's 1998 year-end audit. Among other things, both letters confirmed that: (1) risk of ownership for the units had passed to FLIR's independent sales representative; and (2) the independent sales representative had made a fixed commitment to purchase the goods. Fitzhenry never told PwC about his negotiations with the independent sales representative, nor did he tell PwC that he understood the transactions were "conditional" in nature. Consequently, Fitzhenry made material misrepresentations and omitted material information in the management representation letters.
7. As a result of the conduct described above, Fitzhenry willfully2 violated Rule 13b2-2 of the Exchange Act which prohibits an officer or director of an issuer from, directly or indirectly, making or causing to be made a materially false or misleading statement, or omitting to state, or causing another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with (1) any audit or examination of the financial statements of the issuer required to be made or (2) the preparation or filing of any document or report required to be filed with the Commission.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Fitzhenry's Offer.
Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
A. Fitzhenry is denied the privilege of appearing or practicing before the Commission as an attorney for five years. Furthermore, before appearing and resuming practice before the Commission, Fitzhenry must submit an affidavit to the Commission's Office of the General Counsel truthfully stating, under penalty of perjury, that he has complied with this Order, that he is not subject to any suspension or disbarment as an attorney by a court of the United States or of any state, territory, district, commonwealth, or possession, and that he has not been convicted of a felony or misdemeanor involving moral turpitude as set forth in Rule 102(e)(2) of the Commission's Rules of Practice.
B. Pursuant to Section 21C of the Exchange Act, Fitzhenry shall cease and desist from committing or causing any violations and any future violations of Rule 13b2-2 of the Exchange Act.
By the Commission.
Jonathan G. Katz
1 Rule 102(e)(1)(iii) provides, in relevant part, that:
The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it . . . any person who is found . . . to have willfully violated . . . any provision of the Federal securities laws or the rules and regulations thereunder.
2 "Willfully" as used in this Order means intentionally committing the act which constitutes the violation, see Wonsover v. SEC 205 F.3d 408, 414 (D.C.Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). There is no requirement that the actor also be aware that he is violating one of the Rules or Acts.
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