Diego Ruiz to Testify
Diego Ruiz, Executive Director of the Commission, will testify before the House Subcommittee on Federal Workforce, Postal Service, and the District of Columbia on Tuesday, February 12, concerning the SEC's Pay-for Performance system. The hearing will begin at 2:00 p.m. in Room 2154 of the Rayburn House Office Building.
Former PricewaterhouseCoopers Audit Partner Robert A. Fish Settles Rule 102(e) Proceeding
On February 11, the Commission issued a settled Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice (Order) against Robert A. Fish, CPA (Fish), the former PricewaterhouseCoopers (PwC) audit engagement partner responsible for the fiscal year end 2000 audit of video game publisher and distributor Take-Two Interactive Software, Inc. (Take-Two).
The Order finds that Take-Two fraudulently inflated its revenues and after-tax earnings in its fiscal year 2000 financial statements by arranging with several distributors to "park" several hundred thousand computer and video game units at or near the end of fiscal quarters or the fiscal year. According to the Order, in the course of PwC's fiscal year 2000 audit, Fish failed to exercise due professional care and obtain sufficient competent evidential matter to verify the existence of Take-Two's $104 million domestic accounts receivable balance, the company's single most important asset as of Oct. 31, 2000 (the end of its fiscal year) and which Fish had identified as a higher risk audit area. Under Fish's supervision, PwC sent requests for confirmation of Oct. 31, 2000 accounts receivable balances to 15 of Take-Two's customers. In response, PwC received only a single confirmation (which turned out to be false), representing less than 2% of the total domestic accounts receivable balance. The Order finds that Fish performed alternative audit procedures to verify the accounts receivable, but those procedures were insufficient under Generally Accepted Auditing Standards (GAAS).
In addition, the Order finds that Fish failed to exercise due professional care and skepticism in testing the adequacy of Take-Two's 5% reserve for estimated sales returns at October 31, 2000 as required by GAAS. During the fiscal year end 2000 audit, Fish and others at PwC at his direction examined five product returns made after year end but failed to compare them with original sales invoices. Had he done so, he would have discovered that in four of the five instances, more than 75% of the games purportedly purchased were returned. The four sales with abnormally high return rates were in fact fraudulent parking transactions. The Order finds that Fish engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.
The Order denies Fish the privilege of appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after one (1) year from the date of the Order. Fish consented to the issuance of the Order without admitting or denying the findings contained therein. (Rel. 34-57303; AAE Rel. 2783; File No. 3-12953)
Court Enters Final Judgment, By Consent, Against FacePrint Global Solutions, Inc. and Pierre Cote
On Jan. 31, 2008, U.S. District Judge Oliver W. Wanger of the U.S. District Court for the Eastern District of California entered Final Judgments as to Defendants FacePrint Global Solutions, Inc. and Pierre Cote, the CEO of FacePrint, based on their respective Consents to Final Judgment submitted to settle the Securities and Exchange Commission's case, filed in August 2007.
The Final Judgment entered against the company, to which FacePrint consented without admitting or denying the Commission's allegations, enjoins FacePrint from future violations of Sections 5(a) and 5(c) of the Securities Act of 1933 and Rule 102 of Regulation M of the Securities Exchange Act of 1934. The Final Judgment as to Cote, to which he consented without admitting or denying the Commission's allegations, enjoins Cote from violating Sections 5(a) and 5(c) of the Securities Act and Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1 and 16a-3 thereunder, and Rule 101 of Regulation M. Both judgments further provide that the defendants are jointly and severally liable for disgorgement with interest of $1,573,825, representing their profits from the illegal conduct alleged in the complaint, but the Judgments waive payment of disgorgement and do not impose civil penalties, based on the representations of the defendants in sworn financial statements. The Final Judgment against Cote also bars Cote from participating in any offering of penny stock.
The Commission's complaint, filed in August 2007, alleges that the Fresno, California-based software company, FacePrint, and Cote, as its CEO, conducted an illicit stock-selling scheme that raised nearly $1.5 million from the public. The complaint alleges each defendant illegally sold unregistered stock, and violated rules governing participation in a distribution of securities. The complaint also alleges Cote violated stock ownership reporting requirements. [SEC v. FacePrint Global Solutions, Inc. and Pierre Cote, Case No. 1:07-CV-01251-OWW, E.D. Cal.] (LR-20452)
Commission Charges Individual With Insider Trading in Chemed Corporation
The Commission today announced that it filed a complaint in the U.S. District Court for the Southern District of Florida against William G. Williams (Williams) for unlawful insider trading in the securities of Chemed Corporation (Chemed). Chemed, a Delaware corporation headquartered in Cincinnati, Ohio, operates in the healthcare field through a Florida-based subsidiary.
The Commission's complaint, filed on Feb. 7, 2008, alleges that, shortly before the April 30, 2007 post-closing public announcement regarding Chemed's quarterly earnings and improved 2007 guidance numbers (Announcement), Williams misappropriated material non-public information concerning the earnings and guidance from a senior financial executive officer while in Florida. The complaint alleges that, on the basis of this material, non-public information, Williams purchased Chemed common stock. According to the complaint, the price of Chemed shares increased materially after the Announcement, and Williams sold his Chemed shares, realizing illicit profits of approximately $28,550.
Without admitting or denying the allegations in the complaint, Williams consented to the entry of a final judgment that permanently enjoins him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgment also orders him to pay $28,550 in disgorgement of his illegal trading profits, plus $1,156 in prejudgment interest, and to pay a civil penalty in an amount equal to his trading profits. [SEC v. William G. Williams, [08-CIV-20342] (S.D. Fla.)] (LR-20453)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the New York Stock Exchange relating to NYSE Rule 104 (Dealings by Specialists) (SR-NYSE-2008-12) has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57287)
A proposed rule change (SR-CBOE-2008-12) filed by the Chicago Board Options Exchange relating to the temporary membership status access fee has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57293)
A proposed rule change filed by New York Stock Exchange to amend Rules 13 and 124 to remove certain manual order types (SR-NYSE-2008-11) has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57295)
A proposed rule change (SR-Amex-2008-08) filed by the American Stock Exchange that eliminates percentage orders and passive price improvement orders on the AEMI platform has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57296)
Proposed Rule Change
The American Stock Exchange filed a proposed rule change (SR-Amex-2008-02) relating to rules permitting the listing and trading of Managed Fund Shares, fees applicable to such shares, and the listing of shares of the Bear Stearns Current Yield Fund. Publication is expected in the Federal Register during the week of February 11. (Rel. 34-57297)
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