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U.S. Securities and Exchange Commission


LITIGATION RELEASE No. 17708 / September 4, 2002



SEC v. Buettner, et al., Civil Action No. 01-CV-3898 (E.D. Pa.)

The Securities and Exchange Commission ("Commission") announced today that on August 30, 2002, the United States District Court for the Eastern District of Pennsylvania denied the motions to dismiss of defendants William F. Buettner, Mark D. Kirstein and Amy S. Frazier in this litigation.

The Commission filed the complaint at issue in August 2001, charging the three senior Coopers & Lybrand, LLP (now PricewaterhouseCoopers, LLP) certified public accountants with securities fraud in connection with their audit of the consolidated financial statements of Allegheny Health, Education and Research Foundation ("AHERF") for the year ending June 30, 1997.

In October 2001, each defendant filed a motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b), claiming that the Commission failed to adequately plead fraud against the defendants under either the Private Securities Litigation Reform Act ("PSLRA") or Fed. R. Civ. P. 9(b). Frazier and Kirstein further sought to dismiss on the grounds that the Commission's alternative allegations that Frazier and Kirstein aided and abetted Buettner in the fraud were insufficient as a matter of law.

In a two-page order, Senior Judge Norma L. Shapiro denied the defendants' motions to dismiss, finding that:

  • The heightened pleading requirements of the PSLRA do not apply to actions brought by the SEC;

  • The Commission's 112-paragraph Complaint satisfies the relevant requirements of Fed. R. Civ. P. 9(b) to plead fraud with particularity with respect to defendants Buettner, Kirstein, and Frazier; and

  • The Commission adequately pled scienter against each defendant.

Senior Judge Shapiro deferred ruling on certain issues concerning the allegations against Kirstein and Frazier for aiding and abetting liability, stating: "[a]djudication of this question will benefit from development of the record through discovery."

The Commission's complaint alleges that defendants Buettner, Kirstein and Frazier, respectively the engagement partner, senior manager, and manager on the 1997 audit, actively participated in a fraudulent scheme by AHERF, at its height the largest nonprofit healthcare organization in Pennsylvania, to mask its deteriorating financial condition. In so doing, the defendants participated in the creation and issuance of, and failed to correct, unqualified audit opinions on AHERF's 1997 consolidated financial statements and AHERF's 1997 supplementary consolidating and combining financial information. For its fiscal year 1997, AHERF reported net income when, in reality, it was operating with a substantial net loss. The complaint charges defendant Buettner with violating, and defendants Kirstein and Frazier with violating or aiding and abetting Buettner's violations of, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctive relief and an order requiring the defendants to pay civil penalties.

See SEC v. William F. Buettner, Mark D. Kirstein and Amy S. Frazier, Litigation Rel. No. 17083; Accounting and Auditing Enforcement Release No. 1431 (Aug. 1, 2001); In the Matter of Charles P. Morrison, CPA, SEC Litigation Rel. No. 16885, Accounting and Auditing Enforcement Rel. No. 1365 (Jan. 1, 2001); In the Matter of Allegheny Health, Education and Research Foundation, Exchange Act Rel. No.42992 (June 30, 2000); SECv. David W. McConnell and Charles P. Morrison, SEC Litigation Rel. No. 16534, Accounting and Auditing Enforcement Rel No. 1254 (May 2, 2000); In the Matter of Albert Adamczak, CPA, Exchange Act Rel. No. 42743 (May 2, 2000); In the Matter of Stephen H. Spargo, CPA, Exchange Act Rel. No. 42742 (May 2, 2000).




Modified: 09/05/2002