SECURITIES EXCHANGE ACT OF 1934
Release No. 49082 / January 15, 2004
INVESTMENT ADVISERS ACT OF 1940
Release No. 2208 / January 15, 2004
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1943 / January 15, 2004
Admin. Proc. File No. 3-11374
In the Matter of WEISER LLP, VICTOR R. WAHBA, CPA and STUART A. NUSSBAUM, CPA Respondents. |
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ORDER INSTITUTING PUBLICADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Weiser LLP ("Weiser"), Victor R. Wahba, CPA ("Wahba"), and Stuart A. Nussbaum, CPA ("Nussbaum") (collectively, the "Respondents") pursuant to Section 203(k) of the Investment Advisers Act of 1940 ("Advisers Act") and Rules 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice.1
II.
In anticipation of the institution of these proceedings, the Respondents have each submitted an Offer of Settlement (collectively, the "Offers"), 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 the Respondents and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below.
III.
On the basis of this Order and the Respondents' Offers, the Commission finds2 that:
A. RESPONDENTS
1. Weiser (formerly known as M.R. Weiser & Co. LLP) is a New York limited liability partnership that maintains its principal place of business in New York, New York. In 1993, Sagam Capital Management Corp. (formerly known as Sagam Management Corp.) ("Sagam Corp.") engaged Weber Lipshie & Co. ("Weber Lipshie") to assist Sagam Corp. and its president, Yehuda Shiv ("Shiv"), in implementing certain undertakings required by a Commission cease-and-desist order. In the Matter of Sagam Management Corp. and Yehuda Shiv, Advisers Act Release No. 1368, Admin. Proc. File No. 3-8023 (April 21, 1993) ("Sagam Corp. Order"). In addition to implementing these undertakings, Sagam Corp. engaged Weber Lipshie to conduct annual surprise examinations for Sagam Corp. As of October 31, 1994, Weber Lipshie ceased doing business and certain of the former partners and employees, including Wahba, joined Weiser. Sagam Corp. engaged Weiser to perform the services that Weber Lipshie previously performed.
2. Wahba, age 39, is a Weiser partner and a certified public accountant who has been licensed to practice by the State of New York since 1992. Wahba, while at Weber Lipshie, worked on the implementation of the undertakings required by the Sagam Corp. Order. Wahba was the Weiser partner in charge of the 1997 and 1998 surprise examinations of Sagam Corp.
3. Nussbaum, age 34, is a senior manager at Weiser and a certified public accountant who has been licensed to practice by the State of New York since 1993. Nussbaum was the manager on Weiser's 1997 and 1998 surprise examinations of Sagam Corp.
B. RELEVANT ENTITY AND INDIVIDUAL
1. Sagam Corp. has been registered with the Commission as an investment adviser since August 10, 1989. It is a Delaware corporation that maintains its principal place of business in New York, New York. On April 21, 1993, the Commission entered the Sagam Corp. Order requiring Sagam Corp. to cease and desist from violating Sections 204 and 206(4) of the Advisers Act and Rules 204-2, 204-3 and 206(4)-2 thereunder. On December 10, 2001, the Commission instituted a civil injunctive action in federal district court in the Southern District of New York against Sagam Corp. alleging that Sagam Corp. violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act by creating and sending false account statements to its clients and by misappropriating client assets. SEC v. Yehuda Shiv, Sagam Capital Management Corp., and Sagam Capital LLC, ("SEC v. Shiv") 01CV11282 (S.D.N.Y.) (AKH). Thereafter, Sagam Corp. consented to a partial judgment enjoining it from future violations of these sections, which the Court entered on July 31, 2002.
2. Shiv, age 72, is an Israeli citizen and is currently incarcerated in a federal correctional institution in Fort Dix, New Jersey. Prior to December 10, 2001, Shiv was the President of Sagam Corp. and made investment decisions for all Sagam Corp. client accounts. In the Sagam Corp. Order, the Commission found that Shiv caused Sagam Corp.'s violations of Sections 204 and 206(4) of the Advisers Act and Rules 204-2, 204-3 and 206(4)-2 thereunder. In SEC v. Shiv, the Commission alleged that Shiv violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act by creating and sending false account statements to the clients of Sagam Corp. and Sagam Capital LLC ("Sagam LLC"), another investment adviser registered with the Commission. On January 24, 2003, the Court in SEC v. Shiv entered, by consent, a final judgment against Shiv which: (1) permanently enjoined him from future violations of the antifraud provisions of the federal securities laws; and (2) ordered disgorgement of $32,215,429, plus prejudgment interest thereon, but waiving payment of all disgorgement, except for the surrender of certain assets valued at approximately $2.8 million, based on Shiv's sworn representations in his Statement of Financial Condition. On July 24, 2002, Shiv pled guilty to one count of securities fraud for violating Section 10(b) of the Exchange Act and Rule 10b-5 and one count of securities fraud for violating Section 206 of the Advisers Act before the United States District Court for the Southern District of New York. On February 26, 2003, Shiv was sentenced to 15 months in a federal correctional facility. United States v. Yehuda Shiv, 02CR135 (S.D.N.Y.) (SWK). On May 29, 2003, the Commission, by consent, issued an order barring Shiv from associating with any investment adviser. In the Matter of Yehuda Shiv, Advisers Act Release No. 2133A, Admin. Proc. No. 3-11138 (May 29, 2003).
C. FACTS
1. The Sagam Corp. Order
a. On April 21, 1993, the Commission simultaneously instituted and settled, by consent, an administrative proceeding against Sagam Corp. and Shiv finding that Sagam Corp. violated Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder by failing to: (1) maintain separate records for each client account in which funds were deposited; (2) notify its clients in writing after accepting funds and securities; and (3) verify client funds and securities during a surprise examination by an independent accountant. In the Sagam Corp. Order, the Commission also found that Sagam Corp. violated Section 204 of the Advisers Act and Rule 204-2 thereunder by failing to keep accurate books and records. Further, the Commission found that Shiv caused all of Sagam Corp.'s violations.
b. The Sagam Corp. Order required Shiv and Sagam Corp. to: (1) implement and maintain procedures to ensure compliance with the books and records provisions of the Advisers Act; (2) retain an accountant to review Sagam Corp.'s existing compliance procedures with the books and records requirements of the Advisers Act and to recommend procedures designed to ensure continued compliance with these provisions; and (3) retain an accountant, within one year after the Sagam Corp. Order, to review such procedures and then submit a report detailing the results of the accountant's review.
c. Shiv, on behalf of Sagam Corp., hired Weber Lipshie as the independent accountant required by the Sagam Corp. Order to assist Sagam Corp. and Shiv in creating the necessary books and records and to ensure that Sagam Corp. and Shiv continued to adhere to the books and records requirements of the Advisers Act. Wahba was the senior staff accountant on this engagement. On April 8, 1994, Weber Lipshie submitted a report to the Commission stating that Sagam Corp. had been in compliance with the books and records requirements of the Advisers Act from January 1, 1993, through April 8, 1994. After Weber Lipshie ceased doing business in 1994, Weiser employed Wahba and Weiser was engaged to perform these services for Sagam Corp.
d. Sagam Corp. also engaged Weber Lipshie to perform annual surprise examinations required by Section 206(4) of the Advisers Act and Rule 206(4)-2(a)(5) thereunder. Weber Lipshie performed the 1993 surprise examination of Sagam Corp. Wahba was the senior staff accountant on this examination. Because he worked on the undertakings required by the Sagam Corp. Order, Wahba, and through him Weiser, knew that the Commission had ordered Sagam Corp. to cease and desist from violating Section 206(4) of the Advisers Act and Rule 206(4)-2(a)(5) for failing to have an independent accountant conduct a surprise examination of clients' funds and securities over which Sagam Corp. maintained custody.
e. After Weber Lipshie ceased doing business and Wahba became employed by Weiser, Weiser conducted surprise examinations of Sagam Corp. from 1994 through 1998 for which Sagam Corp. paid Weiser $26,152. In 1993, while at Weber Lipshie, Wahba participated in developing the procedures that Weber Lipshie and, later, Weiser used in connection with its surprise examinations of Sagam Corp.
2. The Respondents' 1997 and 1998 Surprise Examinations of Sagam Corp.
a. In November 1997 and November 1998, the Respondents conducted surprise examinations of Sagam Corp.'s clients' funds and securities pursuant to Advisers Act Rule 206(4)-2(a)(5).3 Wahba was the partner in charge of the 1997 and 1998 surprise examinations, and as such, Wahba approved the procedures that Weiser used in performing these surprise examinations. Further, Wahba reviewed and approved the work that Nussbaum performed, and Wahba signed the examination certificates in connection with these surprise examinations. Nussbaum, as the manager on these examinations, was responsible for performing the verification procedures outlined by Wahba. Weiser's technical review department approved the use of the examination procedures and approved the surprise examination certificates prior to filing.
b. The Respondents, following the procedures that Wahba helped to establish in 1993, performed virtually identical procedures for both the 1997 and 1998 surprise examinations. As part of these surprise examinations, the Respondents sent letters to the bank that maintained actual custody of Sagam Corp.'s clients' funds and securities, directing the bank to send to Weiser portfolio valuations for securities held under the custody of Sagam Corp. In connection with the 1997 examination, the bank sent to Weiser portfolio valuations for 25 Sagam Corp. clients' accounts. In connection with the 1998 examination, the bank produced portfolio valuations for 53 clients' accounts. In both examinations, the Respondents also requested that Shiv provide Weiser with client position reports from Sagam Corp. showing all open and closed positions for each client over which Sagam Corp. maintained custody of funds or securities. In response, Sagam Corp.'s client position reports contained open and closed positions for 36 Sagam Corp. clients in 1997, and 42 clients in 1998. Thus, the Respondents should have been aware that for the 1997 and 1998 surprise examinations, the bank and Shiv provided the Respondents with client position reports for a different number of clients. The Respondents took no action to resolve the discrepancies regarding the number of clients provided by Shiv and the bank and determine the correct number of clients' accounts for which Sagam Corp. maintained custody of funds and securities.
c. In the examinations, the Respondents randomly selected certain Sagam Corp. client accounts on which they conducted verification procedures. The Respondents did not conduct verification procedures for every one of Sagam Corp. clients' accounts, as required by Advisers Act Rule 206(4)-2(a)(5). After selecting a sample of client accounts on which to perform the verification procedures, the Respondents identified, on a test basis, certain open securities positions within the Sagam Corp. position report. The Respondents then reconciled the open positions they selected from Sagam Corp.'s client position report with the portfolio valuation that BJB had sent to Weiser. Therefore, for the accounts that the Respondents reviewed, they failed to verify all the funds and securities for these accounts, as required by Advisers Act Rule 206(4)-2(a)(5). Specifically, the Respondents did not identify every client's open securities and funds positions within the Sagam Corp. client position reports and verify these positions with the BJB portfolio valuations for that client.
d. The Respondents did not attempt to contact Sagam Corp.'s clients during the 1997 and 1998 surprise examinations to obtain written confirmation from the clients of the value of the funds and securities in each client's account, as required by Advisers Act Rule 206(4)-2(a)(5) and Investment Advisers Act Release No. 201. See Investment Advisers Act Release No. 201 (May 26, 1966) (generally provides guidance to accountants who conduct surprise examinations of advisers that are subject to the custody rule). Although Shiv knew the contact information for all Sagam Corp.'s clients, including clients that were foreign corporations, the Respondents never asked Shiv the identity of the beneficial owners of the corporate clients.
e. Nussbaum drafted, and Wahba reviewed and signed, an examination certificate for the 1997 surprise examination, dated February 12, 1998 (the "1997 Examination Certificate"). In the 1997 Examination Certificate, Weiser represented that "Securities owned as of the close of business on November 14, 1997, shown by the books and records examined by us, were located at Bank Julius Baer and Co. Ltd. for which [Weiser] obtained confirmation." Prior to its filing with the Commission, Weiser's technical review department reviewed the 1997 Examination Certificate to ensure that it complied with applicable professional standards, and Weiser's technical review department concurred with its filing. On March 24, 1998, along with a Form ADV-E, Weiser filed the 1997 Examination Certificate, which failed to comply with the requirements of Rule 206(4)-2(a)(5) and applicable professional standards. The 1997 Examination Certificate did not state whether Weiser had verified any client funds over which Sagam Corp. was the custodian. The 1997 Examination Certificate also failed to state whether Sagam Corp. had been complying with Advisers Act Rule 204-2(b) for the period since the last surprise examination.
f. For the 1998 surprise examination of Sagam Corp., Nussbaum drafted, and Wahba reviewed and signed, an examination certificate dated January 19, 1999 and Form ADV-E (the "1998 Examination Certificate"). In January 1999, Wahba sent the 1998 Examination Certificate to Weiser's technical review department to ensure that it complied with all applicable professional standards. Weiser's technical review department retained the 1998 Examination Certificate until November 1999 while it was reviewing the language of the certificate. Prior to November 1999, the Respondents did not file any statement with the Commission indicating a delay concerning the filing of the 1998 Examination Certificate. Weiser's report control sheet for the 1998 surprise examination shows that the technical review department concurred with the filing of the 1998 Examination Certificate on November 30, 1999. However, the 1998 Examination Certificate was never filed with the Commission.
3. SEC v. Shiv
a. On December 10, 2001, the Commission filed a civil injunctive action against Shiv, Sagam Corp., and Sagam LLC alleging violations of the antifraud provisions of the Securities Act, Exchange Act and Advisers Act. The Commission alleged that, from 1995 through 2001, Shiv, Sagam Corp., and Sagam LLC created and sent account statements to their investment advisory clients that materially overstated the value of assets in the clients' accounts. Shiv sent Sagam Corp.'s ten biggest clients statements falsely overstating the net asset value of the clients' accounts by a total of approximately $182 million. To cover the existence of his fraud, from 1996 to December 2001, Shiv made approximately 26 unauthorized transfers between client accounts. No evidence indicates that the Respondents knew of this fraudulent conduct prior to the Commission's civil action.
4. Legal Requirements
a. Section 206(4) of the Advisers Act provides that it is unlawful for any investment adviser, by use of the mails or any means or instrumentalities of interstate commerce, directly or indirectly to engage in any act, practice or course of business which is fraudulent, deceptive, or manipulative pursuant to Commission rules defining prohibited acts, practices, or courses of business.
b. During the relevant period, Advisers Act Rule 206(4)-2(a)(5) stated that it constituted a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of Section 206(4) of the Advisers Act for any registered investment adviser who had custody or possession of any client's funds or securities to do any act, or take any action with respect to such funds or securities, unless all such client funds and securities were verified by actual examination at least once during each calendar year by an independent public accountant on a date chosen by the accountant without prior notice to the investment adviser. Advisers Act Rule 206(4)-2(a)(5) did not permit the independent accountant to use sampling, testing, or any other technique which would result in less than all of the funds and securities of the adviser's clients over which the adviser had custody or possession being verified during the calendar year. See Investment Advisers Act Release No. 201 (stating that an independent public accountant must reconcile the physical count and confirmation of current clients' funds and securities to the books and records of the investment adviser, but allowing the use of sampling for closed accounts only). See also PricewaterhouseCoopers Investment Advisers, LLC, SEC No-Action Letter, 1999 SEC No-Act. LEXIS 679 (August 10, 1999). Also, in order for the investment adviser to satisfy the conditions of Rule 206(4)-2(a)(5), the independent public accountant must have transmitted to the Commission, promptly after each examination, a certificate, attached to a Form ADV-E, stating that an examination of such funds and securities has been made, and describing the nature and extent of the examination.
c. On May 26, 1966, the Commission issued Investment Advisers Act Release No. 201, which described the nature of the examination and certificate required by Advisers Act Rule 206(4)-2(a)(5). According to Investment Advisers Act Release No. 201, to make an appropriate examination under Rule 206(4)-2(a)(5), an independent public accountant should have, among other things: (1) obtained confirmation of funds on deposit in banks; (2) reconciled the physical count and confirmations to the investment adviser's books and records; (3) verified the investment adviser's books and records by adequate examination of the security records and transactions since the last examination; and (4) obtained from clients written confirmation of the funds and securities in the clients' accounts as of the date of the physical examination.
d. Investment Advisers Act Release No. 201 also outlined the information that should be contained in the independent public accountant's examination certificate, including, among other things: (1) an appropriate description, in general terms, of the scope of the examination of the books and records; (2) whether the examination was made without prior notice to the adviser; and (3) the results of the examination including an expression as to whether, with respect to the rules under the Advisers Act, the investment adviser was in compliance with Rule 206(4)-2(a)(1) and (2) as of the examination date and had been complying with Rule 204-2(b) during the period since the prior examination date.
e. On May 1, 1998, the AICPA first provided guidance concerning the examination requirements of Advisers Act Rule 206(4)-2(a)(5) in its Audit and Accounting Guide - Audits of Investment Companies ("AICPA Guide"). According to the AICPA Guide, the attestation report must have included specific references to the following procedures that must have been performed by the independent accountant in connection with the surprise examination, including, among other things: (1) confirmation of all cash and securities held by a third party, such as a custodian bank or broker, in the name of the investment adviser as agent or trustee for clients; (2) reconciliation of all such cash and securities to books and records of client accounts maintained by the investment adviser; and (3) confirmation with all clients of the detail of cash and securities held by the investment adviser on behalf of such clients. In performing the examination, the independent public accountant must not have simply relied on a certified asset list furnished by the bank that held the clients' securities in safekeeping for the investment adviser. Instead, the accountant must have reconciled all such cash and securities to the books and records of client accounts maintained by the investment adviser. See Arthur Young & Co., SEC No-Action Letter, 1983 SEC No-Act. LEXIS 3197 (November 17, 1983). The AICPA Guide provided a sample attestation report for Advisers Act Rule 206(4)-2(a)(5) engagements.
5. Violations
a. Sagam Corp. violated Section 206(4) of the Advisers Act because the Respondents failed to conduct the 1997 and 1998 surprise examinations of Sagam Corp. in accordance with the requirements of Rule 206(4)-2(a)(5) and applicable professional standards. Specifically, in both the 1997 and 1998 surprise examinations, the Respondents failed to determine for which accounts Sagam Corp. maintained custody of clients' funds and securities. The Respondents also failed to examine all clients' funds and securities for which Sagam Corp. maintained custody. The Respondents examined only a sampling of Sagam Corp.'s clients' accounts. Additionally, for the clients' accounts that the Respondents did select to examine, they failed to verify by actual examination all the funds and securities for these clients. Instead, the Respondents selected only a sampling of such funds and securities from Sagam Corp.'s books and records and reconciled this sampling to the certified asset list provided by the bank. Further, the Respondents did not attempt to obtain any written confirmation from Sagam Corp.'s clients of the amount of funds and securities held by Sagam Corp. on behalf of Sagam Corp.'s clients. Finally, the Respondents failed to include all the necessary representations in its 1997 Examination Certificate that was filed with the Commission. Specifically, the Respondents failed to state whether Sagam Corp. had been complying with Investment Advisers Act Rule 204-2(b) for the period since the last surprise examination. The Respondents also failed to ensure that the necessary Form ADV-E and examination certificate for Weiser's 1998 surprise examination was filed.
b. Because Weiser was hired to perform certain undertakings required by the Sagam Corp. Order, Weiser and Wahba knew about the Sagam Corp. Order and that Sagam Corp. had previously violated Section 206(4) of the Advisers Act for failing to have adequate surprise examinations performed by an independent public accountant pursuant to Rule 206(4)-2(a)(5). Nussbaum became aware of the Sagam Corp. Order in connection with the 1997 year-end audit of Sagam Corp., prior to his drafting the 1997 Examination Certificate. The Respondents therefore knew that if they failed to conduct the 1997 and 1998 surprise examinations pursuant to Rule 206(4)-2(a)(5) and applicable professional standards that Sagam Corp. would violate Section 206(4) of the Advisers Act and the Sagam Corp. Order. The Respondents designed and performed the surprise examination procedures, and these procedures were inadequate. Thus, the Respondents failed to conduct the 1997 and 1998 surprise examinations of Sagam Corp. in accordance with Rule 206(4)-2(a)(5) and applicable professional standards, causing Sagam Corp.'s violations of Section 206(4) of the Advisers Act. Therefore, the Respondents willfully aided and abetted and caused Sagam Corp.'s violations of Section 206(4) of the Advisers Act.
c. During both the 1997 and 1998 surprise examinations of Sagam Corp., the Respondents engaged in improper professional conduct. Rule 102(e)(1)(iv) defines improper professional conduct for accountants under Rule 102(e)(1)(ii). In particular, the Respondents engaged in improper professional conduct as defined by Rules 102(e)(1)(iv)(B)(1) and (2).
d. An accountant who acts negligently and engages in a single instance of highly unreasonable conduct that results in a violation of applicable professional standards in circumstances in which such an accountant knows, or should know, that heightened scrutiny is warranted has engaged in improper professional conduct. Rule 102(e)(1)(iv)(B)(1) of the Commission's Rules of Practice. The Respondents engaged in improper professional conduct as defined by this Rule by engaging in instances of highly unreasonable conduct in connection with their work on the 1997 and 1998 surprise examinations of Sagam Corp.
e. The Respondents engaged in instances of highly unreasonable conduct in connection with the 1997 and 1998 surprise examinations by failing to conduct these surprise examinations in accordance with Advisers Act Rule 206(4)-2(a)(5) by: (1) failing to ascertain for which accounts Sagam Corp. maintained custody of clients' funds and securities; (2) failing to examine each Sagam Corp. client account to verify whether all funds and securities were maintained in such account; (3) failing to verify all the funds and securities in each Sagam Corp. client account as of the date of the surprise examination; (4) failing to attempt to contact Sagam Corp.'s clients to obtain written confirmation of the balance of funds and securities in the clients' accounts; and (5) failing to file adequate surprise examination certificates.
f. The Respondents knew that heightened scrutiny was warranted in connection with their 1997 and 1998 surprise examinations of Sagam Corp. because: (1) the Respondents knew that the Sagam Corp. Order required that Sagam Corp. cease and desist from violating Section 206(4) of the Advisers Act and Rule 206(4)-2(a)(5) because of its failure to have an independent public accountant conduct a surprise examination of all Sagam Corp.'s clients' funds and securities; (2) the Respondents knew that the Sagam Corp. Order required Sagam Corp. and Shiv to cease and desist from violating the books and records requirements of the Advisers Act; and (3) the Respondents should have recognized that the bank and Sagam Corp. provided them portfolio valuations for a different number of clients. Therefore, the Respondents engaged in improper professional conduct, as defined by Rule 102(e)(1)(iv)(B)(1) of the Commission's Rules of Practice.
g. The Respondents engaged in improper professional conduct by repeated instances of unreasonable conduct resulting in violations of applicable professional standards that indicate a lack of competence to practice before the Commission in connection with the 1997 and 1998 surprise examinations of Sagam Corp. The Respondents engaged in repeated instances of unreasonable conduct by failing to conduct the 1997 and 1998 surprise examinations in accordance with Advisers Act Rule 206(4)-2(a)(5) and applicable professional standards, including Investment Advisers Act Release No. 201. Additionally, the Respondents failed to follow the guidance in the AICPA Guide for purposes of the 1998 surprise examination. Therefore, the Respondents engaged in improper professional conduct as defined by Rule 102(e)(1)(iv)(B)(2) of the Commission's Rules of Practice.
6. Findings and Undertakings
a. Based on the foregoing, the Commission finds that the Respondents, in connection with the 1997 and 1998 surprise examinations of Sagam Corp., caused Sagam Corp.'s violations of Section 206(4) of the Advisers Act.
b. Based on the foregoing, the Commission finds that the Respondents, in connection with the 1997 and 1998 surprise examinations of Sagam Corp., willfully aided and abetted Sagam Corp.'s violations of Section 206(4) of the Advisers Act.
c. Based on the foregoing, the Commission finds that the Respondents, in connection with the 1997 and 1998 surprise examinations of Sagam Corp., engaged in improper professional conduct pursuant to Rules 102(e)(1)(ii) and (iv)(B)(1) and (2) of the Commission's Rules of Practice.
d. Weiser undertakes to:
1. retain an independent consultant ("Consultant"), not unacceptable to the staff of the Commission, at Weiser's expense, to: (a) review, within 60 days of the entry of this Order, Weiser's policies and procedures, including, without limitation, the policies and procedures used by Weiser's technical review or quality control department, relating to work performed under the Advisers Act and the Investment Company Act of 1940 ("Investment Company Act") and all Rules promulgated thereunder; (b) recommend such additional policies and procedures which are reasonably designed to ensure that Weiser complies with applicable professional standards when performing work under the Advisers Act and the Investment Company Act and to submit to the Commission's staff, within 30 days of the review, a report outlining the results of the Consultant's review, and what recommendations, if any, were made; and (c) at least nine months after, but prior to one year from, the date of this Order, review Weiser's compliance with these policies and procedures, and to submit a report to the Commission's staff, within 30 days of the review, detailing the results of this review.
2. require the Consultant to enter into an agreement that provides that for the period of the engagement and for a period of two years from completion of the engagement, the Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Respondent, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. The agreement will also provide that the Consultant will require that any firm with which he/she is affiliated or of which he/she is a member, and any person engaged to assist the Consultant in performance of his/her duties under the Order shall not, without prior written consent of the staff of the Division of Enforcement, Northeast Regional Office, enter into any employment, consultant, attorney-client, auditing or other professional relationship with the Respondent, or any of its present or former affiliates, directors, officers, employees or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement.
3. to maintain membership in the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization") as long as Weiser appears or practices before the Commission, and comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in the Respondents' Offers.
Accordingly, it is hereby ORDERED, effective immediately, that:
A. Pursuant to Section 203(k) of the Advisers Act, Weiser, Wahba, and Nussbaum shall cease and desist from committing or causing any violations and any future violations of Section 206(4) of the Advisers Act.
B. Pursuant to Rules 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice, Weiser is censured.
C. Pursuant to Rules 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice, Wahba is denied the privilege of appearing or practicing before the Commission as an accountant.
D. After four years from the date of this order, Wahba 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 Wahba'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) Wahba, or the firm with which he is associated, is a member of the SEC Practice Section or equivalent organization;
(b) Wahba, 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 or equivalent organization; and
(c) As long as Wahba appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
E. The Commission will consider an application by Wahba to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy. However, if the state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Wahba's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
F. Pursuant to Rules 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice, Nussbaum is denied the privilege of appearing or practicing before the Commission as an accountant.
G. After one year from the date of this order, Nussbaum 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 Nussbaum'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) Nussbaum, or the firm with which he is associated, is a member of the SEC Practice Section or an equivalent organization;
(b) Nussbaum, 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 or equivalent organization; and
(c) As long as Nussbaum appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
H. The Commission will consider an application by Nussbaum to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved all other disciplinary issues with the applicable state boards of accountancy. However, if the state licensure is dependant on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Nussbaum's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
I. Weiser shall, within 7 days of the entry of this Order, pay $26,152 in disgorgement plus $13,527 in prejudgment interest thereon for a total of $39,679 to Arthur Steinberg, Esq., the Court-appointed Receiver in SEC V. Shiv. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to Arthur Steinberg, Esq., as Receiver for Sagam Capital Management Corp.; (C) hand-delivered or mailed to Arthur Steinberg, Esq., Kaye Scholer LLP, 425 Park Avenue, New York, NY 10022; and (D) submitted under cover letter that identifies Weiser as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Gerald A. Gross, Deputy Assistant Regional Director, Securities and Exchange Commission, Division of Enforcement, Northeast Regional Office, 233 Broadway, New York, NY, 10279.
J. Weiser shall comply with its undertakings enumerated in Section III.B.6 above.
By the Commission.
Jonathan G. Katz
Secretary
Endnotes
The Commission may censure or deny, temporarily or permanently, the privilege of appearing or practicing before it to any person who is found to have engaged in improper professional conduct.
Rule 102(e)(1)(iii) provides, in relevant part, that:
The Commission may censure or deny, temporarily or permanently, the privilege of appearing or practicing before it to any person who is found to have willfully violated, or willfully aided and abetted the violation of the Federal securities laws or the rules or regulations thereunder.