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U.S. Securities and Exchange Commission

U.S. Securities and Exchange Commission

Litigation Release No. 18395 / October 7, 2003

Accounting and Auditing Release No. 1890 / October 7, 2003

SEC v. Paul Skulsky, et al., No. CV-02-1524 (DRH) (E.D.N.Y.)

SEC Settles Civil Fraud Case Against Jeffrey Schneider, Former Auditor For AppOnline.com, Inc.

The Commission today announced that on September 4, 2003, the Honorable Denis R. Hurley, United States District Judge, Eastern District of New York, entered a final judgment of permanent injunction and other relief as to defendant Jeffrey S. Schneider. The final judgment permanently enjoins Schneider from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1, and (ii) aiding or abetting violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. Schneider consented to the final judgment.

The allegations in the Commission's complaint filed on March 12, 2002, concern Schneider's role in a financial fraud at AppOnline.com, Inc. ("AppOnline"), a now-bankrupt Melville, New York-based mortgage banker. The Commission's complaint alleged that beginning in approximately May 1997, AppOnline, formerly known as IMN Financial Corp., suffered a cash shortage. To address this shortage, officers of AppOnline misappropriated at least $60 million AppOnline's lenders had advanced to fund specific mortgage loans, and used those funds to make different mortgage loans and to pay AppOnline's operating expenses. To conceal the misappropriation, AppOnline prepared materially false and misleading financial statements, which were contained in its annual and quarterly reports filed with the Commission. Thus, AppOnline's filings on Form 10-KSB for December 31, 1998, and on Form 10-K for December 31, 1999 misrepresented, among other things, that the funds AppOnline had misappropriated from its lenders was a debt owed to a related party. The complaint alleged that Schneider served as an auditor during the audit of AppOnline's December 31, 1998 financial statements, and that the firm he was associated with issued an audit opinion that falsely represented that AppOnline's financial statements had been prepared in conformity with generally accepted accounting principles and that the audit had been conducted in accordance with generally accepted auditing standards. The complaint also alleged that during 1999 and 2000 Schneider worked as an internal accountant at AppOnline and helped to prepare its falsified December 31, 1999 financial statements.

The Commission also announced that it simultaneously instituted and settled administrative proceedings against Schneider. Schneider consented to an Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with the right to seek reinstatement in five years. Release Nos. 34-48594, AAER-1889; File No. 3-11295). For additional information, see Litigation Release Nos. 17794 (October 21, 2002), 17407 (March 12, 2002).



Modified: 10/07/2003