Securities Exchange Act of 1934
Release No. 48682 / October 23, 2003
Accounting and Auditing Enforcement
Release No. 1906 / October 23, 2003
Administrative Proceedings
File No. 3-11314
In the Matter of VICTOR HERMAN, CPA, Respondent.
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ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS, MAKING FINDINGS, AND IMPOSING AN ORDER PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Victor Herman ("Respondent" or "Herman") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice [17 C.F.R. § 201.102(e)(3)].1
II.
In anticipation of the institution of these proceedings, Herman 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, Herman consents to the issuance of this Order and to the entry of the findings and imposition of the remedial sanction set forth below, without admitting or denying the Commission's findings, except that Herman admits that the Commission has jurisdiction over him and over the subject matter of this proceeding, and admits the Commission's findings in Section IV relating to his having been found by a court of competent jurisdiction to have violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1 thereunder.
III.
On the basis of this Order and the Respondent's Offer, the Commission finds that:
A. Herman has been licensed as a certified public accountant in the State of New York, since 1970. Herman was the chief financial officer of the principal operating subsidiaries of Solucorp Industries Ltd. ("Solucorp") from September 1995 until his resignation in early 1999. Herman, age 61, is a resident of Florida.
B. Solucorp is a Yukon Territory corporation headquartered in West Nyack, New York. It is engaged in environmental remediation, including developing and licensing of products for use in environmental cleanups. Solucorp registered its securities with the Commission under Exchange Act Section 12(g) effective February 20, 1998. The company filed a Form 15, certification and notice of termination of registration under Exchange Act Section 12(g), on September 8, 2003.
C. On December 13, 1999, the Commission brought an action in federal district court against Herman and others alleging that Herman had violated Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5), and Rules 10b-5 and 13b2-1 thereunder. SEC v. Solucorp Industries Ltd., Joseph S. Kemprowski, Peter R. Mantia, James G. Spartz, Robert Kuhn, Victor Herman, Arle Pierro, W. Bryan Fair and Glenn R. Ohlhauser, 99 Civ. 11965 (S.D.N.Y.) (WCC).
D. A six-day bench trial was held from March 17 through March 25, 2003. On July 28, 2003, the Court entered its opinion and order which set forth its findings of fact and conclusions of law. The Court found, among other things, that Herman had violated Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1 thereunder.
E. In reaching this decision, the Court found that Herman was responsible for preparing the financial statements of Solucorp for reporting periods December 31, 1995 through 1998, and signed the quarterly filings with the Commission in 1998 as Solucorp's chief financial officer and principal accounting officer. The Court further found that Herman made materially false and misleading statements in various of the filings prepared by him. One such statement, incorporated by Herman in 1996 into three quarterly filings with the British Columbia Securities Commission and an Annual Report, was that another company had included Solucorp in a $50 million contract. The Court found that these materials were disseminated to shareholders, including those in the United States. The Court further found that Herman acknowledged in testimony that at the time he drafted these filings in 1996, he did not believe that the existing documentation between the parties constituted a contract, and that he had been told by a company senior vice president that the contract was still under negotiation. The Court further found that the company materially overstated its revenues in financial statements prepared by Herman and filed with the Commission in 1997 and 1998. This was done by, among other things, recognizing revenue based upon a contract that the Court found, ". . . Herman knew, or was reckless in not knowing, was not finalized and was backdated to support improper revenue recognition."
F. With regard to the foregoing, the Court found that Herman, "knowingly and deliberately falsified [statements] with the intention of deceiving shareholders and potential investors or, at the very least, [was] guilty of reckless disregard for the truth or falsity of the disclosures," in violation of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder.
G. The Court further found that, "Herman, through [his] role in [Solucorp's] financial fraud, knowingly falsified Solucorp's books, records, and/or accounts or [was] reckless in preparing or certifying them [and] . . . either circumvented or failed to implement a system of internal accounting controls for Solucorp," in violation of Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder.
IV.
FINDINGS
On the basis of this Order and the Respondent's Offer, the Commission finds that, on July 28, 2003, in an action brought by the Commission, the United States District Court for the Southern District of New York entered an opinion and order finding that Herman had violated Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1 thereunder.
V.
ORDER
Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
Herman is permanently suspended from appearing or practicing before the Commission as an accountant.
By the Commission.
Secretary
(i) 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: . . .
(B) found by any court of competent jurisdiction in an action brought by the Commission to which he or she is a party . . . to have violated (unless the violation was found not to have been willful) . . . any provision of the Federal securities laws or of the rules and regulations thereunder.